Our tax system is a pocket of tyranny in an otherwise free society. When you earn an income, or sell an asset, or make a gift, or buy a good, or turn a profit, or be unlucky enough to die, you are forced under threat of fine or imprisonment to report these events to the government. In the end, fear and compulsion sustain our tax code, not honor or duty.
Let's face it, if our country is to survive and prosper, we have to go back and rethink our entire philosophy regarding taxes. We have to cut taxes and make them simple and fair.
And it's not just an issue of low taxes (though that is certainly part of it), the issue is fair and uniform taxes. Somehow, we seem to have forgotten the priceless legacy the men of the Enlightenment passed on to us.
Now I have to warn you, if you have a short attention span or bore easily, I'd stop reading right here. Some of the stuff I'm about to relate is old, real old. But then so is the Bible, and Socrates, and Shakespeare. Is ancient wisdom false just because it's ancient? No, not necessarily. So, at the risk of making you re-read your history books, I'll try to lay it out for you, point by point, the legacy of the Enlightenment, including where you can turn for more information.
One: Government is at best a necessary evil (Thomas Paine, "Common Sense" — 1776).
Two: The wants of the State are all imaginary (Baron de Montesquieu, "The Spirit of Laws" — 1751).
Three: Government should never manage a business (Adam Smith, The Wealth of Nations — 1776).
Four: Liberty carries with it the seeds of its own destruction (Montesquieu again). Taxpayers' consent — even when expressed through representatives — is not an effective deterrent against taxation. And, without consent, compulsion becomes unavoidable.
Five: Direct taxes are the badge of slavery; indirect taxes the badge of liberty. (Here your reading choices are several: read the Greeks, the early Romans, the British prior to their civil war, our own Federalist papers.)
Six: Tax evasion is not a criminal act; it doesn't violate any of the Natural Laws. This is a subtle point, but as I discussed in an earlier essay, certain crimes violate the Laws of Nature. Murder. Terrorism. Robbery. Rape. Treason. These crimes violate what we all agree are our most fundamental rights, i.e., Life, Liberty and the Pursuit of Happiness. Tax laws are not Natural Laws; they are man-made. They are rules men made for other men. Violating them is not a crime. If you don't follow the logic on this, read John Locke's "Second Treatise on Civil Government." Or Stuart Mill. Or Montesquieu. Or Alexander Hamilton. Or William Blackstone. If a government can criminalize a man-made rule, all hope of liberty is lost forever.
Seven: Arbitrary taxation is liberty's biggest foe. Indeed, in the eyes of the Founders, arbitrary taxation justified everything — evasion, defiance, violence, treason, armed revolt, even the overthrow of government by force.
But what makes a tax arbitrary? The men of the Enlightenment would argue that unless a tax adheres to three principles, it is by definition arbitrary. Taken together, these three principles keep a tax from being arbitrary:
First: Taxation must be with consent. Whatsoever is a man's own, is absolutely his. No man hath a right to take it from him without his consent. Whosoever does so, commits a robbery. So sayeth British Law.
Second: Taxes must be apportioned according to a definite rule. Any discretionary power invites corruption. Prejudice leads to persecution, even extortion.
Third: Equality; which is to say, uniformity. Ability to pay is no principle at all. Progressivity in taxation — the Karl Marxian idea of "from each according to his ability" — is the death knoll to liberty. Who is to judge what the relative burdens ought to be? Congress? Hah! Think what you are saying. If, by definition, the rich represent a small segment of society, and if Congress apportions taxes by majority rule, who represents the interests of the rich?
Oh, I can hear it already — "The rich can take care of themselves." Can they? We've already capped how much they can contribute to a political campaign, thus restricting their freedom of speech. And we already force the top 5% of filers to pay 60% of all the taxes collected. Let's face it: if the many can tax the few, who protects the few? No one. Non-uniform rates are inevitable. Which is not only immoral, but unconstitutional.
First, as to the morality. We allow some people who aren't even taxpayers to vote. People who are on welfare; others who are feeding at the public trough. Then too, we deny certain legitimate taxpayers the right to vote. Teenagers, for instance. In this country you have to be eighteen to vote, but the government can withhold social security and income taxes from a fourteen-year-old. Plus, don't forget corporations. They pay a third of all taxes, but never get a say.
Now, as to the constitutionality. The very first power granted Congress was to permit it to lay and collect taxes, but only taxes which were uniform throughout the land. If you go back, now, and check an Oxford English Dictionary of the time, you will find that to the Founding Fathers, "uniform" meant the same — the same in different places, at different times, and under varying circumstances — what we now call "equal." Thus, a flat tax of some fixed percentage, applying equally to everyone, would be considered by them uniform; a progressive tax with higher rates on higher income would not be.
The lesson is simple — and the Founders understood it. When you tax too much all you get is rebellion. That, plus flight to avoid the tax or fraud to evade the tax, plus an underground economy to hide from the tax. Flight is the Number One device used by the wealthy to avoid heavy taxation. John Lennon wouldn't have been shot in New York City if Great Britain's tax rates had been lower. Indeed, back in the colonial days, more people emigrated to the New World to avoid taxes than for any other reason. The loss their native countries suffered by driving out that much wealth and talent was staggering. Money has no allegiance except to safety and profitability.
How then do we fix what is ailing us? Cut taxes. Then cut them again. Cut taxes. Make them uniform throughout the land. Cut taxes. Cut spending. Reinstate financial privacy. Decriminalize the tax code.
A man's home is his castle. That includes his treasury. If we want to make a fresh start, we need to do three things:
pass a fair and simple flat tax
institute a Swiss-style Financial Privacy Act to keep government's prying eyes out of our personal affairs, and
stop collecting taxes from people and institutions ineligible to vote.
Otherwise, the pocket of tyranny that is our tax system will keep growing until it swallows us whole.
(Much of the preceding has been taken from my book The Brazen Rule.)