We all know the income tax can be complicated, burdensome, even infuriating. But how does it square with the principles of the Constitution?
The founders of the United States were profound students of politics and history. They saw the protection of property rights, in the words of the most famous of the Federalist papers, as "the first object of government." Yet they saw that history had shown all known democracies to be "incompatible with personal security or the rights of property[.]" Given the fact that the poor everywhere outnumber the rich, political philosophy had held that a government based on majority rule was likely to lead to the misappropriation of the property of the few rich by the many poor.
The founders therefore included numerous provisions in the Constitution and bill of rights to protect the property rights of citizens. The Constitution also empowered the federal government to impose indirect taxes on commerce, such as tariffs, duties, and excise taxes, so long as such taxes were imposed uniformly throughout the United States. Direct taxes, such as "capitation" or "head" taxes had be apportioned among the states according to their population.
The Constitution seems to have discouraged the adoption of any federal income tax until the Civil War. In 1861, Congress for the first time adopted a federal income tax to finance the war, but allowed it to lapse in 1872.
In 1894, Congress again adopted an income tax--a two percent flat tax on incomes over $4,000. The following year, however, the Supreme Court held the tax to be unconstitutional because it was an unapportioned direct tax.
This decision holding the federal income tax to be unconstitutional is one of the few Supreme Court cases ever to have been overturned by constitutional amendment. In 1913, the adoption of the sixteenth amendment removed all limitations on the imposition of federal income taxes.
Congress immediately enacted a federal income tax with low rates that affected only a few people with relatively high incomes. Over time, however, the federal income tax system has given rise to a situation much like that described by the Federalist, in which a majority appropriates the assets of the minority.
Every year for roughly the past 25 years, the Internal Revenue Service has compiled data regarding the share of all income taxes paid by tax filers from the highest to the lowest income earning families and individuals. Despite the perennial rhetoric of class warfare that accompanies every political discussion of cutting income taxes, the IRS data show that the highest income earners pay a strikingly disproportionate share of all income taxes. The data also show this state of affairs has worsened over the past 20 years.
The most recent available tax data cover the year 1999. That year, the top one percent of taxpaying families and individuals earned over $293,415; the top 10 percent earned over $87,682; the top 25 percent earned over $52,965; and the top 50 percent earned over $26, 415.
Any one or all of these income categories are variously referred to as "the rich" in political debates regarding income tax levels. It is nevertheless unlikely that many families who do the hard work (frequently in multiple jobs) think of themselves as rich.
The data for 1999 show:
The top 1 percent of taxpayers earned 19.5 percent of all adjusted gross income, but paid 36.2 percent of all federal personal income taxes.
The top 10 percent of taxpayers earned 44.9 percent of all adjusted gross income, but paid 66.5 percent of income taxes.
On the other hand, the bottom 50 percent of taxpayers earned 13.2 percent of all adjusted gross income, but paid only 4 percent of income taxes.
In other words, the top 10 percent of tax filers were responsible for two of every three dollars paid in income taxes in 1999, while the bottom half of all those who file tax returns paid essentially no income taxes.
For the bottom half of tax filers who receive hundreds of billions of dollars in government benefits but pay essentially no income taxes, political debate about taxation has little personal meaning except insofar as they may aspire to earn higher incomes in the future.
Many Americans would see the present system of federal income taxes to be unfair if they knew the facts. These facts, however, are almost never reported in the mainstream media. The so-called progressivity of the federal income tax system is both fundamentally unfair and inconsistent with the principle of equal rights that underlies the Constitution.