This post is Part 1 of a 2-part series on the FairTax. This part describes the terrible and unjust history of the income tax in America. Part 2 will describe one of the most popular political movements today: the moment to return power to the American people, to end the deceptive, economy-crushing and corruption-ridden income tax system and replace it with a single, simple, progressive, and fair tax: the FairTax.
I am writing this on a plane, from memory, so bear with me if I get some dates or facts wrong (I will welcome any corrections).
Let me begin by giving a brief history of the income tax in America, in order to demonstrate the unjust scam it has been since its inception. Our nation survived for 120 years without an income tax. In fact, the few times it had been proposed during those years, the idea was overwhelmingly shot down as unconstitutional. It wasn't until 1909 that the idea was given serious consideration. Congress needed to raise money for war spending, and rather than place an undue burden on the American people through its usual revenue streams, some in Congress preferred an alternative – a tax on income. As usual, the income tax was denounced as unconstitutional, and in order to quell the idea, Republicans in Congress demanded that the Constitution be amended before such a law could be considered. The Republicans assumed of course that the stronger consent required for a Constitutional Amendment would never be achieved, and the income tax proposal would die. Their error was underestimating the propensity of progressive politicians to unabashedly lie to the American public when presented with an opportunity to expand their own power.
Progressives in Congress launched a campaign for the income tax amendment. They promised, swore in fact, that the income tax would only be a temporary measure used for the sole purpose of raising war funds, that it would only be levied on the top 1% of income earners, and that the tax rate would be kept at 3%, so low as to have no perceivable effect on the economy. On the backs of these promises, the 16th Amendment to the Constitution was ratified, followed shortly by the income tax law, and the slow decline of our nation began.
Of course the income tax did not go away with the end of World War I. The tax rate increased year-by-year, and it was levied on an ever-increasing proportion of the American population. As Congress became accustomed to its newfound power of taxing income, it allowed other revenue streams to fall to the wayside, and soon the federal government became entirely dependent on the income tax for its operation. However, at least some of the spirit of Congress' initial promises was maintained. At least the income tax was only used for the constitutional purpose of raising revenue. It wasn't until the 1930's and FDR that the income tax was co-opted for another, unconstitutional purpose: to redistribute wealth from those who earned it to those who did not.
Despite the lies and deception that led to the income tax, and despite its steady descent into a realm of use that would have the Founding Fathers rolling in their graves (or raising arms for another Revolution), at least the income tax remained transparent. Individuals knew the exact quantity of money they were paying in taxes, because they were required to write a check to the federal government for the amount of taxes owed on a regular basis.
But this last vestige of freedom could not last forever. Congress decided to tax not only individuals, but businesses and corporations as well. This grand deception may require some explanation.
Despite what we learn in high-school economics classes (if we even take them) – that corporations are legal entities like individuals – corporations hold no wealth. It is a fact that all wealth in America is owned by individuals. Corporate bank accounts are simply place-holders, because corporations are owned by individuals – namely the shareholders. So if all wealth is owned by individuals, who pays the taxes that are levied on corporations? This is a complex question, but it boils down to three main possibilities. A corporation's taxes are paid by a combination of the consumers/customers, the employees, and the shareholders of the corporation. In the most basic sense, all the money corporations pay in taxes come from the American consumer – the people who buy that corporation's products. In this sense, the cost of the taxes paid by a corporation are rolled into the price of their products.
Given this new tool – the corporate income tax – Congress was now able to raise taxes on the American people without their knowledge. Instead of raising the tax rate on individuals, Congress can deceive the public by raising taxes on corporations, and the American people falsely believe that they are not the ones paying those taxes. In fact, a team of expert economists would find it nearly impossible to calculate the actual amount of federal taxes any individual is paying today.
There is one last major deception I must describe, and that is the scam of federal income tax withholding. First let me explain what the income tax withholding and tax refund system is. It is the power of the federal government to borrow money from every American individual, at a 0% interest rate, and then repay those loans – again with no interest – a year later. Every working American is forced under penalty of law to lend money to the government (usually in hundreds or thousands of dollars), and then accept repayment with no interest under the deceptive name of a “tax refund”. This of course has the desired effect: Americans no longer feel the punch in the wallet of the taxes they are paying, because the amount is automatically and seamlessly deducted from their paychecks. Under this system, most Americans have no idea how much income tax they are paying each week, because they no longer have to physically write the checks, and they are actually happy and grateful when the government gives them their “tax refund” every year! What a scam!
How did the American people ever agree to such a terrible deal? In typical fashion: they were blatantly deceived by Congress. Congress marketed the income tax withholding bill a “Tax Forgiveness” bill. The “Tax Forgiveness” bill did two things: it forgave income taxes for the year it was passed – meaning in 1943, Americans paid no income taxes for what they owed the previous year – and it implemented the income tax withholding system for that year. Congress bribed the American people, and it worked. But wait, what did Congress do the following year? They increased the tax rate, so everyone repaid their “forgiven” taxes and then some. In the end, Americans got nothing out of the deal, except screwed, as we continue to be screwed to this day.
In Part 2 I will describe the problems, complexity, corruption, and negative economic impact of our income tax system, and contrast it with the FairTax – a simplified and fair system that will include the largest transfer of power from the government to the people since the American Revolution, and will indeed revolutionize our modern economy and insure our future prosperity against the burden of our ever-growing government.