Page 10 - the NOISE April 2015

WHEN THE TAX MEN COME KNOCKIN’
STORY BY CINDY COLE
ILLUS BY OMAR VICTOR
As April 15 rears its ugly head, every self-supporting American in the country prepares to answer the knock of the tax man at the door. For most, that knock is a head-pounding an- noyance. For many, it’s downright intrusive.
Almost half of federal revenue {about 46%} comes from individual income taxes. Another 35% or so comes from payroll taxes for Social Security and Medicare which is also a tax on income for individuals. About 10% comes from corporate taxes with the rest from other taxes like excise and estate taxes. So, as you buckle down and prepare to get your envelope stamped with that ever sacred April 15 date — or else — let’s consider just how we got here.
Prior to the implementation of the modern income tax just over one hundred years ago, how did we ever get along as a nation? Particularly a nation whose very foundation, history tells us, was based on the rejection of paying taxes. You remember the story of the Boston Tea Party, right? Decrying against taxation without representation a group of angry colonists boarded 3 ships loaded with tea from the East India Company. In protest of a tax on the tea demanded by their English overlords from across the Atlantic Ocean, the colonists broke into the ship’s stores and dumped 342 chests of tea into the Boston Harbor. This, we are told, was the beginning of the American Revolution and our fight for independence.
As a fledgling nation, America survived without income taxes for quite some time. In the early days, most of the federal revenue that was needed to run the country was generated through tariffs on imports and what were called internal taxes or excises — a tax directly on goods — similar to what we sometimes refer to as “sin taxes.”
From 1791 until 1802, the US government was supported through the direct taxation of refined sugar, distilled spirits, tobacco and snuff as well as on carriages that transported people, property sold at auction, corporate bonds, and slaves. These taxes weren’t always popular ei- ther. In 1794, the tax on spirits led to the Whiskey Rebellion when farmers on the western fron- tier, who had gotten into the practice of distilling their excess corn and grains and selling the end product, protested by taking up arms against the tax men who came to collect the excise tax. The feds responded by calling up militias to enforce the tax. The “whiskey tax” remained difficult to collect and was eventually repealed in 1802 under Thomas Jefferson’s presidency.
As a response to the high costs of the War of 1812, the federal government imposed taxes on the sale of jewelry, watches, gold and silver as a means to recover. But by 1817, all internal taxes were repealed and the government went back to relying solely on tariffs to support the running of the nation. It wasn’t until 1862, during the Civil War, that the first income tax was instituted in the US. Signed by President Abraham Lincoln, the law created a progressive tax to generate revenue to support the war effort. It also provided for the tax to be withheld at the source. Those with incomes between $600 and $10,000 paid a 3% tax. Those with higher in- comes paid 5%. This law also created the office of the Commissioner of Internal Revenue. The powers of this federal officer to assess and collect taxes and to use property and income seizure
10 • APRIL 2015 • the NOISE arts & news • thenoise.us
and prosecution to enforce the tax laws were also established at this time. In addition to other sales and excise taxes, inheritance taxes were also levied for the first time.
Seven years after the end of the Civil War, the federal income tax also came to an end. Con- gress went back to primarily taxes on spirits and tobacco. According to the present-day Inter- nal Revenue Service (IRS) 90 percent of all revenue from 1868 until 1913 came from taxes on liquor, beer, wine and tobacco. In 1894, the Wilson Tariff Act attempted to revive the federal income tax. The following year, the tax was ruled unconstitutional and was again abolished. Originally, the Constitution required that certain taxes be subject to “apportionment” among the states according to their populations. This meant that states with larger populations would be required to pay a greater portion of the tax. The 1894 income tax was ruled unconstitutional and in violation of this condition under prevailing definitions of direct and indirect taxes.
In 1909, President William Taft proposed that Congress should introduce an amendment to the Constitution that would allow the federal government to levy an income tax without the restrictions of apportionment and state populations. Debate on the 16th Amendment began along with a 1% tax on corporations that netted more than $5,000 in income.
During debates on the proposed Constitutional amendment, Senator Samual W. McCall, a Republican from Massachusetts, argued the proposed income tax was more for social manipu- lation than for financial security of the nation. Up until that time, the tariffs and excise taxes used by the federal government to collect revenue had not only paid for the costs of several wars but had resulted in large budget surpluses and even near-zero natioLnaakledeMbatraytRtiemsesr.ve,
In a speech Sen. McCall made in 1909 he pondered: as of the end of February
“It is said ... this tax is for use in time of war ... Why not, then, limit it expressly to time of war? ... Why drag every governmental power to Washington so ... a vast centralized government may devour the States and the liberty of the individual as well? “
Concerned the tax would be used to institutionalize whatever the prevailing social and mor- al views happened to be in Washington at the time, he argued the wording of the amendment had not been considered carefully enough, that the powers of the federal government to tax the income of individuals was ripe for abuse.
“The character of the argument which has been made, that this tax is for use in time of war, leads me to observe that the chief purpose of the tax is not financial, but social. It is not primarily to raise money for the State, but to regulate the citizen and to regenerate the moral nature of man.”
Evidence the spoken intent of “the income tax only to be used in times of war” became ap-
th
parent as an“old smoke cloud”shortly after the 16 Amendment was ratified in 1913. Six weeks
later, legislation was introduced to create the first income tax under the new amendment. It was signed into law in October of that year and Americans were required to file the first Form
1040s in 1914.
Of interest is some information on how often the US has actually been at war. According to Danios, a somewhat controversial online blogger for loonwatch.com, the US has only enjoyed a cumulative of 21 years not at war since its inception in 1776. His timeline of America at war includes the American Revolution, Indian wars, civil wars, and world wars as well as other politi- cal conflicts, foreign wars, the “Cold War,” and the “War on Terror.” So with the introduction of canons and artillery into the federal investment tank, America’s tax money had been literally
“going up in smoke” for generations.
In the years since the ratification of the 16th Amendment, the income tax system has been
overhauled, modified, and updated several times. Arguments have been made time and again about tax rates being too high or too low. Flat taxes versus the current progressive tax have been debated and the tax system has become more and more complicated over time. Federal and state income taxes are now just one part of a myriad of sales, excise, estate and other taxes Americans pay every year.
What took only 400 pages to explain in 1913 now takes around 74,000. That’s around 4 mil- lion words. There have been more than 4,400 changes to the tax code in just the last decade. In fact, it has almost become impossible to file one’s taxes correctly. Money Magazine began conducting annual studies on the complexity of the tax system in 1987. In its 1998 report, the same information was submitted to 46 different tax preparers. They came up with 46 different returns with tax liabilities that varied by nearly $35,000 between the highest and lowest results. Changes to the tax code are also costly as new manuals, forms, publications, instructions, and software must be created to reflect the changes.
In 2012, corporate taxes made up about 7% of all federal revenue, compared to 35% in 1950. According to Forbes, the top 400 income earners, many times the executives of those corpora- tions, pay income tax at a rate of 18% and have the ability to negotiate tax laws that exclude many perks of corporate life the average income tax payer is not privy to nor aware of. Accord- ing to the IRS’ 2014 tax tables, individuals filing as single with income between $36,900 and $89,350 can expect to pay $5,081 plus 25% of “any income over the lower threshold.” Highly dependent on a regional wage pool, an average middle class individual (where percentages of savings are taken into account, and compared with living expenses related to income) is expected to pay anywhere from 14-20% of their total income to accomplish corporate-defined federal ends, including “settling affairs” with foreign entities for “natural resource procurement.”
The US now spends more than $640,000,000,000 (billion) every year on Defense. Our country is currently around $17,000,000,000,000 (trillion) in debt, after all but 9% of its history at war.
| Cindy Cole is rolling up her sleeves answering that sweet knock back.
cindy@thenoise.us
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