Death and taxes?

compiled & edited by Daniel Hagadorn

SOURCE: Ron Beitler

Most law-abiding citizens acknowledge the unfortunate necessity of paying taxes, but since the Civil War era, our government has advanced decidedly unconstitutional policies that would appall the Framers, who never envisioned a tax system like the one we presently “enjoy.”

“To preserve [the] independence [of the people,] we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our necessaries and our comforts, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, give the earnings of fifteen of these to the government for their debts and daily expenses, and the sixteenth being insufficient to afford us bread, we must live, as they now do, on oatmeal and potatoes, have no time to think, no means of calling the miss-managers to account, but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow-sufferers… And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for [another]…till the bulk of society is reduced to be mere automatons of misery… And the fore-horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression.”[1]

Thomas Paine noted that government instinctively expands at the expense of the People’s prosperity…

“If, from the more wretched parts of the old world, we look at those which are in an advanced stage of improvement, we still find the greedy hand of government thrusting itself into every corner and crevice of industry, and grasping the spoil of the multitude. Invention is continually exercised, to furnish new pretenses for revenues and taxation. It watches prosperity as its prey and permits none to escape without tribute.”[2]

Consider that one hundred years ago, none of these taxes existed…

Federal Income Tax, Corporate Income Tax, Medicare Tax, Social Security Tax, Federal Unemployment Tax (FUTA), Workers Compensation Tax, State Income Tax, State Unemployment Tax (SUTA), Sales Taxes, Property Tax, Inheritance Tax, Luxury Tax, School Tax, IRS Interest Charges (“tax” on tax), IRS Penalties (“tax” on tax), Accounts Receivable Tax, Building Permit Tax, CDL License Tax, Cigarette Tax, Dog License Tax, Food License Tax, Fuel Permit Tax, Gasoline Tax, Hunting License Tax, Fishing License Tax, Inventory Tax, Liquor Tax, Marriage License Tax, Real Estate Tax, Service Charge Tax, Road Usage Tax (Truckers), Recreational Vehicle Tax, Telephone Federal Excise Tax, Telephone Federal Universal Service Fee Tax, Telephone Federal, State and Local Surcharge Tax, Telephone Minimum Usage Surcharge Tax, Telephone Recurring and Non-recurring Charges Tax, Telephone State and Local Tax, Telephone Usage Charge Tax, Utility Tax, Vehicle License Registration Tax, Vehicle Sales Tax, Watercraft Registration Tax, Well Permit Tax, etc. …

But James Madison presciently grasped the catastrophic implications of government interventionism run amok…

“It is necessary that the powers vested in government should be precisely defined, that the people may be able to know whether it moves in the circle of the Constitution. Article I, Section 8 is intolerably vague. The Federal government will push its taxing power to the limit. It is a general maxim, that all governments find a use for as much money as they can raise. Indeed they have commonly demands for more: Hence it is, that all, as far as we are acquainted, are in debt. I take this to be a settled truth, that they will all spend as much as their revenue; that is, will live at least up to their income. Congress will ever exercise their powers, to levy as much money as the people can pay. They will not be restrained from direct taxes, by the consideration that necessity does not require them.”[3]

Unfortunately, Madison’s fears have been realized in the ever-expanding Internal Revenue Code…[4] [5]

  • In 1913, the Internal Revenue Code was 400 pages long.
  • In 1940, the Internal Revenue Code was 504 pages long.
  • In 1945, the Internal Revenue Code was 8,200 pages long.
  • In 1955, the Internal Revenue Code was 14,000 pages long.
  • In 1965, the Internal Revenue Code was 16,500 pages long.
  • In 1975, the Internal Revenue Code was 19,500 pages long.
  • In 1985, the Internal Revenue Code was 26,300 pages long.
  • In 1995, the Internal Revenue Code was 40,500 pages long.
  • In 2005, the Internal Revenue Code was 61,224 pages long.
  • In 2008, the Internal Revenue Code was 67,506 pages long.

Or, examined another way…

  • In 1955, the entire Internal Revenue Code & Regulations was comprised of 1,396,000 words.
  • In 1965, the entire Internal Revenue Code & Regulations was comprised of 3,507,000 words.
  • In 1975, the entire Internal Revenue Code & Regulations was comprised of 3,906,000 words.
  • In 1985, the entire Internal Revenue Code & Regulations was comprised of 5,739,000 words.
  • In 1995, the entire Internal Revenue Code & Regulations was comprised of 7,652,000 words.
  • In 2005, the entire Internal Revenue Code & Regulations was comprised of 9,097,000 words.
  • In 2008, the entire Internal Revenue Code & Regulations was comprised of 9,300,000 words.

By comparison…

  • The Bible (NIV) is comprised of 727,969 words.
  • The U.S. Constitution is comprised of 4,543 words, including the signatures.
  • The Declaration of Independence is comprised of 1,458 words, including the signatures.
  • George Washington’s Farewell Address is comprised of 7,641 words.
  • William Shakespeare’s Romeo & Juliet is comprised of 25,850 words.
  • Leo Tolstoy’s War & Peace is comprised of 460,000 words (Russian version).

James Madison also cautioned against the redistributionist tendencies of government…

“A just security to property is not afforded by that government under which unequal taxes oppress one species of property and reward another species; where arbitrary taxes invade the domestic sanctuaries of the rich, and excessive taxes grind the face of the poor.”[6]

Jefferson likewise warned against the inclination of government towards the confiscation of wealth…

“To constrain the brute force of the people, the European governments deem it necessary to keep them down by hard labor, poverty, and ignorance, and to take from them, as from bees, so much of their earnings, as that unremitting labor shall be necessary to obtain a sufficient surplus barely to sustain a scanty and miserable life. And these earnings they apply to maintain their privileged orders in splendor and idleness, to fascinate the eyes of the people, and excite them in an humble adoration and submission, as to an order of superior beings.”[7]

Sadly, the admonitions of both Madison and Jefferson have gone unheeded and the predicted consequences of disproportionate taxation are manifest in our present system…[8] [9] [10] [11]

In 1990, 112,812,262 tax returns were filed and $447,061,000,000 of income tax was collected by the Internal Revenue Service (IRS).

  • The top 1% of taxpayers paid $112,338,000,000 in income tax or 25.13% of all taxes collected.
  • The top 5% of taxpayers paid $195,088,000,000 in income tax or 43.64% of all taxes collected.
  • The top 10% of taxpayers paid $247,514,000,000 in income tax or 55.36% of all taxes collected.
  • The top 25% of taxpayers paid $344,340,000,000 in income tax or 77.02% of all taxes collected.
  • The top 50% of taxpayers paid $421,075,000,000 in income tax or 94.19% of all taxes collected.

In 1995, 117,274,186 tax returns were filed and $588,331,000,000 of income tax was collected by the Internal Revenue Service (IRS).

  • The top 1% of taxpayers paid $178,035,000,000 in income tax or 30.26% of all taxes collected.
  • The top 5% of taxpayers paid $287,741,000,000 in income tax or 48.91% of all taxes collected.
  • The top 10% of taxpayers paid $357,402,000,000 in income tax or 60.75% of all taxes collected.
  • The top 25% of taxpayers paid $472,808,000,000 in income tax or 80.36% of all taxes collected.
  • The top 50% of taxpayers paid $561,225,000,000 in income tax or 95.39% of all taxes collected.

In 2000, 128,227,143 tax returns were filed and $980,521,000,000 of income tax was collected by the Internal Revenue Service (IRS).

  • The top 1% of taxpayers paid $366,929,000,000 in income tax or 37.42% of all taxes collected.
  • The top 5% of taxpayers paid $553,670,000,000 in income tax or 56.47% of all taxes collected.
  • The top 10% of taxpayers paid $660,150,000,000 in income tax or 67.33% of all taxes collected.
  • The top 25% of taxpayers paid $823,706,000,000 in income tax or 84.01% of all taxes collected.
  • The top 50% of taxpayers paid $942,179,000,000 in income tax or 96.09% of all taxes collected.

The IRS tax code punishes productive Americans disproportionately…[12]

  • In 1990, the total federal income tax compliance costs were $117.2 billion which represented 14.1% of federal tax revenue.
  • In 1995 the total federal income tax compliance costs were $146.2 billion which represented 15.1% of federal tax revenue.
  • In 2000 the total federal income tax compliance costs were $207.5 billion which represented 14.5% of federal tax revenue.
  • In 2005 the total federal income tax compliance costs were $288.8 billion which represented 22.2% of federal tax revenue.
  • In 2010 (projected) the total federal income tax compliance costs were $368.5 billion which represented 22.8% of federal tax revenue.

…while tax compliance ruthlessly drains human resources, both individual and corporate…[13]

  • U.S. taxpayers and businesses spend approximately 7.6 billion hours a year complying with the filing requirements of the Internal Revenue Code.
  • To consume 7.6 billion hours, a “tax compliance industry” would require employing the equivalent of 3.8 million full-time workers.
  • Based on Bureau of Labor Statistics data on the hourly cost of an employee, the costs of complying with individual and corporate income tax requirements in 2006 amounted to $193 billion–or a staggering 14% of aggregate income tax receipts.
  • More than 80% of individual taxpayers find the process of filing tax returns so overwhelming that they pay for assistance. Of that number, 58% of taxpayers hire tax preparers while the remaining 22% purchase tax software.
  • Since the beginning of 2001, there have been more than 3,250 changes to the tax code—an average of more than one a day—including more than 500 changes last year alone.
  • In 1913, the IRS employed 3,000 individuals. By 2006, the number of employees had climbed to 86,585 with 16,000 additional workers expected to be hired following the passage of the recent health care bill.[14]
  • The size and complexity of the tax code lends itself to inadvertent errors by well-intentioned taxpayers who are attempting to comply—in good faith—with the ever-changing whims of the Internal Revenue Service.

The reasons for the majority of these inadvertent errors can usually be attributed to one or both of the following…

  • The Alternative Minimum Tax (AMT). Effectively requires taxpayers to compute their taxes twice—once under the standard rules and again under the AMT regulations—and then pay the higher of the two amounts. Barring repeal or ongoing “tax code patches,” the AMT will affect 33 million taxpayers in 2010. Although the AMT was originally created to prevent wealthy taxpayers from evading tax liability through the use of tax-avoidance transactions, 77 percent of the additional income subject to tax under the AMT is directly attributable to the disallowance of deductions otherwise allowed for state, local, and personal taxes and dependency exemptions. Few, if any Americans would consider having children or living in a high-tax state as a “tax-avoidance maneuver.” However, under the “unique logic” of the AMT, that is essentially how those situations are treated.
  • The tangled web of tax incentives. The IRS tax code provides tax incentives to encourage taxpayers to save for education and retirement. However, the number of these tax incentives has grown to at least 27 while the eligibility requirements, definitions of common terms, income-level thresholds, phase-out ranges and inflation adjustments vary among the provisions. This complexity undermines the intent of the incentives, as taxpayers can only respond to incentives if they know they exist and understand them.

The demographic shift that our present system of taxation encourages has produced some ominous results…

  • There are two reasons why 47% of Americans did not pay taxes: (1) their incomes are too low to be taxed or (2) their incomes are higher, but credits, deductions, and exemptions relieve them of tax liability.
  • So why should the 47% of Americans who have no income tax liability care about national deficits, how much Congress spends, or the level of taxation since none of those issues affect them in the slightest? Politicians who demand tax cuts and federal spending restraints hold no appeal for this particular demographic.
  • Consequently, for at least 47% of America, there is now a perverse incentive to (1) become increasingly reliant upon government hand-outs and (2) to become a natural constituency for big-spending politicians.

Though the following quote has often been mis-attributed, its simple profundity remains unscathed by academic squabbles over its origins…

  • “Two centuries ago, a somewhat obscure Scotsman named Tytler [Sir Alexander Tytler (1747-1813)] made this profound observation: ‘A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.’ “[15]

The principles of taxation embraced by the Framer’s are antithetical to those employed to justify the present system…

First, perhaps some important—if uncomfortable—questions need to be raised. If one has no financial stake in our country, how much influence should one have in its management? In other words, if I do not own stock—and therefore have no financial stake—in Apple, am I entitled to any voting rights or influence concerning the management of the company? Should the federal or state legislatures establish some sort of linkage between one’s financial stake in our country and one’s right to make decisions concerning its future?

Second, these questions are far from radical as the Framer’s likewise expressed similar concerns. In fact, James Madison’s apprehension regarding class warfare between rich and poor was so acute that it led him to favor the House of Representatives being elected by the citizenry at large and the Senate being elected by property owners:

  • “It is nevertheless certain, that there are various ways in which the rich may oppress the poor; in which property may oppress liberty; and that the world is filled with examples. It is necessary that the poor should have a defense against the danger. On the other hand, the danger to the holders of property cannot be disguised, if they be undefended against a majority without property.”[16]

Dr. Adrian Rogers (1931-2005) sagely noted that:

  • “Friend, you cannot legislate the poor into freedom by legislating the wealthy out of freedom. And what one person receives without working for, another person must work for without receiving. The government can’t give to anybody anything that the government does not first take from somebody. And when half of the people get the idea they don’t have to work because the other half’s going to take care of them, and when the other half get the idea it does no good to work because somebody’s going to get what I work for. That, dear friend, is about the end of any nation. You cannot multiply wealth by dividing it.”[17]

[1] Andrew A. Lipscomb & Albert E. Bergh, eds., The Writings of Thomas Jefferson, Vol. 15 (Washington, DC: The Thomas Jefferson Memorial Association, 1904-1905), p. 39. Letter from Thomas Jefferson to Samuel Kercheval, 12 July 1816.

[2] Thomas Paine, Rights of Man (1791).

[3] James Madison, Debates on the Adoption of the Federal Constitution in the Convention held at Philadelphia in 1787, Jonathan Elliot, ed. (Philadelphia, PA: J. B. Lippincott & Co.), p. 332. Melancton Smith (1744-1798), delegate to the New York Ratifying Convention, 1788.

[4] Scott A. Hodge, J. Scott Moody, & Wendy P. Warcholik, “The Rising Cost of Complying with the Federal Income Tax,” Tax Foundation Special Report No. 138 (January 2006).

[5] http://www.taxpolicycenter.org/TaxFacts/listdocs.cfm?topic2id=30.

[6] James Madison, National Gazette (29 March 1792).

[7] Thomas Jefferson, The Jeffersonian Cyclopedia: A Comprehensive Collection of the Views of Thomas Jefferson, John P. Foley, ed. (New York & London: Funk & Wagnall’s Company, 1900), p. 690. Letter from Thomas Jefferson to William Johnson, 1823.

[8] Internal Revenue Service, Statistics of Income Division, Unpublished Statistics (September 2002).

[9] Individual Income Tax Returns with Positive Adjusted Gross Income (AGI): Number of Returns, Shares of AGI andTotal Income Tax, AGI Floor on Percentiles in Current and Constant Dollars, and Average Tax Rates, by Selected Descending Cumulative Percentiles of Returns Based on Income Size Using the Definition of AGI for Each Year, Tax Years 1986-2000.

[10] Total income tax is the sum of income tax after credits and alternative minimum tax reported on returns that showed a positive amount for adjusted gross income. Therefore, total income tax excludes alternative minimum tax, Form 8814 tax (tax on a child’s interest or dividends), and Form 4972 tax (tax on lump-sum distributions from qualified retirement plans) reported on some returns with a negative amount for adjusted gross income.

[11] Constant dollars were calculated using the U.S. Bureau of Labor Statistics’ consumer price index for urban consumers (CPI-U, 1982-84=100). For 2000 the CPI-U = 172.2.

[12] Scott A. Hodge, J. Scott Moody, & Wendy P. Warcholik, “The Rising Cost of Complying with the Federal Income Tax,” Tax Foundation Special Report No. 138 (January 2006).

[13] “National Taxpayer Advocate Urges Tax Simplification and Compassionate Treatment of Taxpayers Hit by Recession,” IR-2009-3 (7 January 2009).

[14] Ezra Klein, “Will the IRS need 16,000 new agents to enforce health-care reform?”, The Washington Post (8 April 2010).

[15] Elmer T. Peterson. “This is the Hard Core of Freedom,” Daily Oklahoman (9 December 1951), p. 12A.

[16] James Madison, Debates on the Adoption of the Federal Constitution in the Convention held at Philadelphia in 1787 (Rev. ed.), Jonathan Elliot, ed. (Philadelphia, PA: J. B. Lippincott & Co., 1863), “Appendix to the Debates in the Federal Convention,” p. 581.

[17] Adrian Rogers, Ten Secrets for a Successful Family, “God’s Way to Health, Wealth, and Wisdom” (Wheaton, IL: Crossway Books, 1996), p. 138.

2 Responses

  1. This make perfect sense to me.

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