President Barack Obama is struggling with a rebellion in his own party regarding the potential lapsing of Bush-era tax cuts. The issue is so controversial that Democrats voted on Thursday not to allow a compromise package to come to the House floor for a vote.
The Obama administration has wheeled out the big guns. Vice President Joe Biden warned Democrats bluntly that if they were obstructionist, the tax deal might unravel entirely. Biden's perspective is of course shared by Obama's larger brain-trust: The country cannot afford to add to the tax burden at a time when the US is already reeling from the worst economic slowdown since the Great Depression. Whether this argument will persuade enough House Democrats remains to be seen.
But in a sense the reporting on whether or not to continue the Bush tax cuts is almost beside the point. The US needs a much deeper discussion than this – one that centers on the graduated income tax itself. This punitive, unfair and irresponsible system has partnered with the Federal Reserve to absolutely hollow out American industry and the bank accounts of America's citizenry. In response, America's largest corporations have moved offshore to avoid income tax requirements and the jobs they have taken with them will never return.
Yet the damage of the current system (which is by no means restricted to America) goes far beyond a reduction in employment and opportunity. The enforcement of the income tax, especially in a time of economic stress, is increasingly Draconian and irresponsible. More and more IRS officials carry deadly weapons and selective enforcement is increasingly commonplace. This is in keeping with a system that is obviously intended to keep people from accruing excess capital, while forcing a full accounting of assets to an increasingly corrupt and unpredictable federal government.
The whole idea, to begin with, that a people in a democratic society are under an obligation, under penalty of law, to provide an accurate accounting of all their assets to the federal government is impossibly intrusive (and yet somehow people accept this perspective and are still able to integrate it with the idea they are "free"). Graduated tax codes over time become incomprehensible, which only adds to the abuse.
In the case of the American tax code, there are considerable questions about its legality to begin with. It was never apparently ratified by enough states to pass under the designated constitutional amendment but was nonetheless simply "announced" as passed in DC back in 1913. There are questions, too, about its larger constitutionality, but these have never been fully aired in court. When the issues are presented, the hapless plaintiffs tend to go to prison on technical issues that have nothing to do with the substantive arguments. It is all very Kafkaesque.
Just as this article is being written, actor Wesley Snipes is on his way to prison for failing to file tax returns. While whether or not Snipes was an active tax resistor is perhaps unclear; what is certain is that before he went to jail he delivered a check for US$5 million and was also able to present evidence that up to three of the jurors determining his fate had made up their minds about his guilt prior to the commencement of the trial. Still, the movie star will serve at least two years in prison for three misdemeanor counts of willful failure to file income tax returns.
Snipes is being used as an example to intimidate others who might also be thinking of avoiding tax payments. From the IRS's point of view, the high-profile sentence saves money because intimidated tax payers will need fewer enforcers. But this begs the question as to whether this is fair to Wesley Snipes. Being used to send a message is not perhaps the kind of justice that US founders had in mind. Of course the Constitution was written, in part, to try to ensure that this sort of tax system would not be foisted on Americans in all its capriciousness and intrusiveness.
The US income tax falls disproportionately on the middle class. Households declaring between $34,300 and $141,900 paid 50.5 percent of all federal taxes in 2007. Expand the numbers to US$350,000 and you're covering 66.7 percent of all federal taxes. Richer than that and you probably pay no more than 15 percent, as the system taxes investment income less stringently than labor.
But even beyond questions of fairness, constitutionality and efficacy, there are questions as to what the income tax pays for and where it is directed. Some critics maintain that the income tax in a sense is simply redirected to pay off the interest on money borrowed from the Federal Reserve. Others are disturbed because they have concluded taxes are inherently supportive of America's serial wars around the world.
No matter what the income tax pays for, it is clear that the US citizens are not getting a great deal from their government these days. The US federal government is seemingly bankrupt; there is no money in the Social Security "trust fund" only IOUs, the country's infrastructure is in ruins, its public school system is increasingly incapable of producing students with basic skills and Congress continues to redistribute tax wealth with little care as to ultimate efficacy. Bridges to nowhere and other expensive boondoggles increasingly substitute for any effective use of proceeds. Additionally, thanks to President Obama's health-care bill, taxpayers will be hit with yet more non-negotiable tax demands in the coming years.
There has been talk about reforming the US income tax system and the IRS for decades, probably every since the end of World War II when the system began to expand significantly. But nothing much gets done; and this will increasingly become a problem for American society. Taxes, and their unfair collection, were a big part of Rome's downfall. The rich and the middle class were so sickened by the unfair application of the tax code that they eventually refused to fight for Rome's welfare, making the state entirely dependent on mercenary troops.
One wonders if some sort of critical mass will not be reached sooner rather than later. The Internet is likely bringing that day closer. It has always been the Bell's contention that the Internet itself is leading a thought-revolution that will change how people relate to their governments. In Europe, EU austerity is causing slow-motion class-warfare in our view. In America, the Internet and the information available on it has helped spawn a Tea Party political movement and rallied a good deal of anti-central banking sentiment.
Wherever we look now – as the Bell has been predicting all along – there are movements in the West toward greater freedom as well as greater government accountability. Like the Gutenberg press before it, the Internet is a tool that disseminates information governments managed to suppress during the 20th century. The ramifications are not yet being dealt with by Western policy-makers.
The Obama administration and Republicans and Democrats alike are embroiled in argument over sustaining Bush era tax cuts. We would suggest that as the next few years unfold and the Internet becomes an ever more ubiquitous factor in Western affairs, that the arguments will begin to run a good deal deeper. They will involve the value-delivered by income taxes versus their extraordinary capacity for commercial ruin. Perhaps the arguments will ultimately focus on the relationship between government and those who are putatively its masters. The income tax reverses the relationship and turns those must conform to its obligation into servants of an arbitrary and capricious system.
We don't know what will trigger a significant revaluation, but we cannot see the graduated tax system in America, or anywhere else for that matter, remaining immune to the truth telling of new communications technology. Such a comprehensive review will be too late for Wesley Snipes but hopefully not for generations in America and elsewhere; perhaps these savers-to-come may not have to put up with an unjust, ineffective form of revenue-raising as the new century unfolds.
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Anthony Wile is an author, columnist and entrepreneur focused on developing projects that promote the general advancement of free-market thinking concepts.Mr. Wile is the Chairman and CEO of the Swiss-based publishing firm Appenzeller Business Press AG (ARBP). He is a senior editor of ARBP's flagship news site, TheDailyBell.com. In 2010, ARBP founded and appointed Mr. Wile as the Executive Director of The Foundation for the Advancement of Free-Market Thinking – a non-profit Liechtenstein-based foundation. Prior to founding ARBP in 2008, Mr. Wile founded and ran, along with the late Harry Browne and others, Free Market News Network Corp. His most popular book, High Alert, is now in its third edition and available in several languages. High Alert, first published in 2004 was an early predictor of many of the events that have rocked global financial markets during the past 6 years. Mr. Wile is a staunch advocate of free banking and the need for societies to adopt an honest money standard. Mr. Wile has published more than 200 articles dealing with a variety of issues from a free-market perspective. Other notable books written by Mr. Wile include The Liberation of Flockhead (2002) and The Value of Gold (2002). Prior to beginning a career in publishing, Mr. Wile worked in the Canadian investment industry with Scotia McLeod (Bank of Nova Scotia), and Nesbitt Burns (Bank of Montreal). He continues to advise and consult to large international banks and money managers as well as to senior executives at both senior and junior mining firms. A Certified Investment Manager, he was made a Fellow of the Canadian Securities Institute in 1994. In 1991, Mr. Wile graduated from Saint Mary's University in Halifax, Nova Scotia, with a business degree.
