What Went Wrong? Identifying Root Causes
Their Lips Are Moving—Requiem For The Income Tax
Part 3 of 6
 

An Insidious Tax

Almost nothing lies closer to the black hearts of the lawyer-politicians than the income tax. Its power serves them well as both sword and shield. Cutting through privacy rights, it exposes to prying government eyes the most private and personal data of the American people. Hiding behind the twin strategies of necessity and fairness, the feudal lords of Congress rule a nation of serfs.

Paul Craig Roberts, professor of political economy at the Center for Strategic and International Studies in Washington, noted that medieval serfs “were said to be unfree because they owed one-third of their labor to feudal lords, the government of that time. In contrast, we ‘free’ Americans have to work much longer in order to discharge the obligations our government has placed on us.”[5] Medieval feudal lords with a meager 33 percent in revenue would envy our modern government. In 1993 Americans worked to pay the cost of federal, state and local government from January 1 through July 13, more than 50 percent of the year, before they began working for themselves.

“The power to tax is the power to destroy.”[6] More important, it is pure power. The lawyer-politicians of Congress seek power, not destruction. Any destruction that occurs is, more often than not, strictly accidental. They do not intend to kill the goose that lays their golden egg. Each new administration arrives in Washington with high resolve to “provide for the …general Welfare of the United States.” A looser interpretation might read to reward their supporters and punish their enemies. Of course the proposition is never stated that way. Lofty goals cover a multitude of misdeeds.

Follow the trail of good intentions. It almost always leads to money and usually to the tax code. Candidate Clinton is elected on promises to tax the rich and give middle-income Americans a tax cut. President Clinton keeps at least part of his promise—with the help of Democrats and some Republicans in Congress, he revises the tax code, taxing everybody.
 

The existing tax code faces unending revision. Members of Congress favor their supporters with tax exemptions and punish their enemies with tax increases. With each change in administration new waves of lawyer-politicians flood the capital. Their mandate to solve some “crisis” demands additional revenue because existing funds must remain committed to previously approved programs. Fairness dictates that the new tax burden be distributed equitably, most of the load going to those best able to pay. The actual practice of a Robin Hood Congress lightens the purse of anyone with money. In the process, old enemies, having learned their lesson, likely become new supporters.

These acts are not malicious. Participants in this system simply follow the rules. Each acts in his or her immediate best interest. The result amounts to legal plunder.

But how is this legal plunder to be identified? Quite simply. See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime.[7]

The words of Frederic Bastiat, the French economist, statesman and author, apply as well in America today as they did in France in their original 1850 publication. Ten years before the American Civil War, Bastiat knew that revision of laws allocating unjust enrichment by transfers of wealth from its owners to others to whom it did not belong was not the answer. In 1986 a well-intentioned attempt to simplify the tax code, technically known as U.S. Code Title 26 Internal Revenue, increased its complexity.

On April 14, 1993, Shirley Peterson, a former IRS Commissioner, addressed Southern Methodist University’s Tax Policy Lecture. According to her, “Eight decades of amendments and accretions to the Code have produced a virtually impenetrable maze. The rules are unintelligible to most citizens—including those holding advanced degrees and including many who specialize in tax law. The rules are equally mysterious to many government employees who are charged with administering and enforcing the law. The need for simplification is apparent from sheer weight of the Internal Revenue Code and its regulations, which now comprise eight volumes of fine print.”[8]

Ms. Peterson was appointed IRS Commissioner in January of 1992 by President Bush. This difficult job involves overseeing an agency with 117,000 employees operating on a budget in excess of $7 billion and collecting an estimated trillion dollars in taxes annually. Prior to her appointment she was the Assistant Attorney General (Tax Division) at the Department of Justice. That department represents the United States and its officers in civil tax litigation. Before that she was a partner in a Washington, D.C., law firm. Twenty years experience practicing law there, concentrating on tax law, supported her qualifications for government service. She earned the right to criticize the tax code’s “mysterious rules.”

Even if one was so inclined, tax compliance is virtually impossible. Money magazine, in a 1991 survey, “challenged 49 professional tax preparers to calculate the correct income tax for a hypothetical family. The amount the tax experts advised the family to pay ranged from $6,807 to $73,247. Only five of the preparers came within 10 percent of the correct figure, $18,724.”[9]

Ms. Peterson incorrectly identifies the problem as “the code itself.” Nevertheless, she arrives at the correct solution. “In my view, it is time to stop tinkering at the margins. It is time to start over. I believe that the current income tax system should be replaced with a new, simplified system that would enhance the country’s competitive position, encourage savings, and be less burdensome to taxpayers.”[10] The ghost of Bastiat, unseen just offstage, smiles and nods his head in understanding agreement.

Many lawyer-politicians also agree. ‘Change’ is one of their cherished words. Only a dynamic, shifting tax system enables their continued exercise of power. If laws were static and unchanging they would be out of a job.
 

The blessings of both Democrats and Republicans fall upon new tax proposals ranging between Jerry Brown’s flat income tax and a European-style value-added tax. (VAT) Both the VAT and the flat income tax achieve an unstated goal of the lawyer-politicians—psychological control of the taxpayer. Their scheme promotes the idea of “government money.”

Workers, subject to withholding, think of take-home pay as their money. Income taxes, deducted from paychecks by the employer, are often thought of as government money. Deductions are acts of God, beyond the influence of common mortals. Their best chance for recovery requires getting as many “free” government goods and services as possible.

Productive taxpaying people never regain that which they lost to the tax. For them, massive amounts of government waste and nonproductive, nontaxpaying individuals who receive benefits dictate a losing game. As tax rates climb, taxpayers demand more government benefits. Additional benefits require more revenue. Tax rates climb again. Taxpayers soon begin seeking ways to reduce or avoid the levy. An underground economy grows. Eventually the government faces a tax rebellion. When costs greatly outweigh the perceived benefits, taxpayers start dropping out of the system. IRS officials now estimate the number of non-filers at ten million.

The so-called ‘tax protest movement’ or ‘patriots movement’ has been a burr under the government’s saddle for years. Scores of organizations, such as the Freeman Education Association of Tulsa, Oklahoma; the Sound Dollar Committee of Fort Lee, New Jersey; the National Alliance for Constitutional Money of Independent Hill, Virginia; the Informed Voters Alliance of Baldwin, Kansas; the Free Enterprise Society of Clovis, California; Truth in Taxes of Bellefonte, Pennsylvania; the School for the Last Days of Rayville, Missouri; the Center for Action of Sandy Valley, Nevada; the Justice Symposium of Phoenix, Arizona; The Moneychanger of Memphis, Tennessee; the National Commodity and Barter Association of Longmont, Colorado; and Citizens for an Alternative Tax System of Glendale, California, advocate either tax or money reform or both. They, and a host of others like them, frequently give the government a rough ride.

Their efforts are not without cost. Organization members, especially their leaders, often face indictment and trial in the federal courts. Popular allegations are Willful Failure to File an Income Tax Return, Tax Evasion, and Conspiracy to Defraud the U.S. Government. Unlimited funds for the investigating officers and prosecutors make defense against the charges an uphill fight. Usually the government wins and another patriot spends some time at ‘camp’ at taxpayers’ expense.

Even as the IRS wins a case, it loses. The resultant publicity is intended to scare people into “voluntary compliance.” Most of the time the trick works. Sometimes it backfires. A few people, paying close attention, notice blatant unfairness. Numerous errors by the prosecution or the IRS get overlooked while sound constitutional legal arguments by the defense are ruled frivolous. Attacks on such well-known personalities as Willie Nelson, whose only ‘crime’ is accepting the advice of their professional tax preparers, are obvious attempts at intimidation, particularly when they occur, as most do, just before April 15. Each year more exasperated taxpayers fail to volunteer.
 

5 Paul Craig Roberts, Column for the Scripps Howard News Service, Rocky Mountain News, Saturday, July 17, 1993 
6 “Of all the powers conferred upon government that of taxation is most liable to abuse. Given a purpose or object for which taxation may be lawfully used and the extent of its exercise is in its very nature unlimited. It is true that express limitation on the amount of the tax levied or things to be taxed may be imposed by constitution or statute, but in most instances for which taxes are levied, as the support of government, the prosecution of war, the national defense, any limitation is unsafe. The entire resources of the people should in some instances be at the disposal of government.” 
 
“The power to tax is, therefore, the strongest, the most prevailing of all the powers of government, reaching directly or indirectly to all classes of the people. It was said by Chief Justice Marshall, in the case of McCulloch v. Md., 4 Wheat. 431, that the power to tax is the power to destroy.” Mr. Justice Miller, delivering the opinion of the Supreme Court — The Citizens’ Savings and Loan Association of Cleveland, Ohio v. Topeka City, 87 U.S. 655, 20 Wall 655, 22 L Ed 455 (1874)
 
7 Frederic Bastiat, The Law (First published as a pamphlet in June, 1850) Reprinted 1981 by The Foundation for Economic Education, Inc., Irvington-on-Hudson, New York, from a translation by Dean Russell of the Foundation staff, pg. 21. 
8 Excerpts from an address by Shirley Peterson, Former IRS Commissioner, published in The Freeman Letter by the Freeman Education Association, 8141 E. 31st St., Suite F, Tulsa, Oklahoma 74145 
9 Article by Steven L. Hayes, President, Citizens for an Alternative Tax System, and George Chelekis in the September 1993 issue of the American Legion  
10 Ms. Peterson’s speech, op. cit.