Note: I will be on vacation for the next week or so. You might notice some old posts sprinkled in with some new ones. Thanks for reading!
In a recent column Walt Williams essentially said that collectively Americans deserve the IRS we have, because without such a powerful body we would be unable to take 50% of what individuals in this country earn, and allow it to be spent by government. The 16th Amendment which was passed in 1913 while Woodrow Wilson was President, allowed taxes to be collected on income, which was, until that point, unConstitutional.
Our Founding Fathers feared the emergence of an agency such as the IRS and its potential for abuse. That’s why they gave us Article 1, Section 9 of the Constitution, which reads: “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” A capitation is a tax placed directly on an individual. That’s what an income tax is. The founders feared the abuse and the government power inherent in a direct tax. In Section 8 of Article 1, they added, “But all Duties, Imposts and Excises shall be uniform throughout the United States.” These protections the founders gave us were undone by the Progressive era’s 16th Amendment, which reads, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Today federal spending as a percentage of Gross Domestic Product is 25% while from the time our country was founded, all the way until the 1920′s no more than 5% of the GDP was spent by government, except during times of war. Williams argues that this is precisely why the U.S. became the most powerful nation on earth, which would explain why as more and more of the production of the country is taken in taxes and spent by the government, the U.S. is fading as a world producer and power.
As incentives to produce are diminished with higher taxes (plus the crony capitalist use of business-government relations as a way to make money without producing products that are in demand) it should be no surprise that the economy is slowing. The U.S. has historically been better off when it allowed people to keep more of what they earned; production which would fuel further production by allowing the people who earned the money to decide where it is spent. Since these people have already proved their worth in their ability to produce, you can bet that the way they spend their own money will be more productive than the way the government spends their money.
Today federal spending is 25 percent of our GDP. State and local government spending is about 15 percent of the GDP. That means government spends more than 40 cents of each dollar we earn. If we add government’s regulatory burden, which is simply a disguised form of taxation, the government take is more than 50 percent of what we produce.
And apart from money that the government inefficiently spends on things that we would spend it on anyway (schools, police, fire departments), it spends much of that money on unproductive activity such as politicians and bureaucrats salaries, failed loans, subsidies, bailouts, and grants. While it may seem that some of these activities are productive, they are taking the place of what the money would be spent on in the private sector, and changing the method which decides where the capital goes.
The government chooses to provide loans to solar companies that go out of business, or bailouts to car companies that are not providing people with demanded products. That money kept in the private sector would be spent based on the needs of the person who earned it, meaning a person must produce something before they can demand that something else be produced. This process ensures capital is spent in the most efficient way possible, to provide products most desired and needed by the consumer.
Walt Williams concludes by saying that the government needs a powerful, scary, and intrusive agency like the IRS if we wish to take half of the productive capacity of the country, and let the government spend it. However if we would like to see America advance economically, then we need to allow as much money as possible to remain with the people who earned it, and be used by the people who earned it. Repealing the 16th Amendment authorizing the income tax, and simplifying the tax code would be an excellent place to start.