September 27, 2017

Constitutional Perspective for Taxes

The real questions: What is the purpose of taxes, and on what may they be legitimately spent?

With Republicans set to announce a tax cut blueprint later today, it provide an opportunity to look at tax reform in a way that far too few politicians, of either party, take time to consider. Yet it would be immensely beneficial to working Americans.

Based on the rumors flowing out of DC in recent weeks, the arguments are the same as they have been for decades. How big will the tax cuts be? Who benefits? Who loses? How will we pay for it? That last one is especially rich coming from the likes of Democrat Rep. Scott Peters (D-CA), who lectured, “It’s time to stop pretending that tax cuts for the wealthy somehow pay for themselves. Tax reform needs to be paid for.” Discerning minds might contemplate the absence of concern from Peters and his fellow Democrats when they were racking up $10 trillion in new debt during the Obama years.

There is also the implied premise in Peters’ question of how tax cuts will be “paid for.” To claim a tax cut is a “cost” that must be paid for, one must believe that all earnings rightfully belong to the government, rather than to the individual who earned that money.

Yet while we debate these political questions, or the relative wisdom of the economic philosophies of Milton Friedman versus Paul Krugman, none of these address the issue from a constitutional perspective. What is the purpose of taxes, and on what may they be legitimately spent? Those two questions are intimately entwined.

The purpose of taxes is to fund the legitimate functions of government, but how do we determine what is legitimate? Luckily, the Founders clearly defined those legitimate functions in Article I, Section 8 of the Constitution, and in Amendments IX and X declared that all powers not specifically granted in A1S8 to be reserved to the states, or to the people. With the Constitution as our standard, it becomes clear that an enormous portion of federal spending — from Medicare, Medicaid, ObamaCare, corporate welfare, the arts, etc. — are not justified.

But, you say, these things are for the “general welfare,” referenced right there in the Constitution. James Madison, the Father of the Constitution, rebuked this erroneous idea just five years after the ratification of the Constitution. In a letter to Edmund Pendleton, Madison wrote, “If Congress can do whatever in their discretion can be done by money, and will promote the General Welfare, the Government is no longer a limited one, possessing enumerated powers, but an indefinite one, subject to particular exceptions.” This same refutation of an expansionist view of the General Welfare clause was likewise refuted by Thomas Jefferson, Alexander Hamilton and Noah Webster.

The 16th Amendment, which allowed government to levy an income tax, was passed using class warfare as a catalyst. Americans were promised that only the uber-wealthy would be hit by the tax, and only on a small percentage of their income. Today, nearly every American who works is subject to the tax, and has to hire an expert to navigate a tax code that clocks in at five times the length of the King James Bible. Does that sound like how free men are treated, or subjects? The passage of the 17th Amendment essentially eliminated representation for the states in Congress, and the size of the federal government has exploded as a result.

More than half a century ago, former IRS Commissioner T. Coleman Andrews warned of the perniciousness and insidiousness of the income tax — how it is a tenet of Marxism, and strips us of our God-given, constitutionally protected rights. He cautioned, “The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that were given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed is concerned. Please remember that under the Sixteenth Amendment, Congress can take 100% of our income anytime it wants to.”

If we were operating under the vision of the Founders, we would identify the legitimate functions of government, define a budget required to carry out those functions, and tax accordingly. Instead, the income tax has become a tool of power distribution and social engineering.

And yet we must start somewhere, and the Republican plan to reduce the tax burden of the average American is as good a starting point as any. The current bill proposes to cut $1.5 trillion in taxes over the course of the next decade, offsetting the “cost” of the tax cut with anticipated higher tax revenues as the economy expands.

However, tax cuts in and of themselves will not solve America’s fiscal woes, because the problem driving our national debt is not lack of revenue, but excessive spending. Government spending, which was already gargantuan prior to Barack Obama taking office, metastasized under Obama, who vastly increased spending with the “stimulus” bill and then used those numbers as the new budget baseline. That is how we got to $20 trillion in debt from $10 trillion just 10 years ago.

The U.S. has the highest statutory corporate tax rate in the industrialized world, though favored corporations pay far less, and the individual income tax is a drain on family finances, leaving millions struggling just to make ends meet. Thus we have a system in which the likes of GE pays little or nothing, while the struggling small business owner pays 39% — the highest individual rate.

A reduction in tax rates — both corporate and personal income — would be a huge boost to American workers and families. With pressure put on Democrat senators in states won by Donald Trump, tax reform is indeed possible, and would be a much needed win for a Republican Party that controls all levers of government and yet seems incapable of implementing its agenda.

While eliminating the income tax is too much to hope for at this point, reduced rates and simplification of the tax code would bring welcome relief and stimulate the economy. The time is now.

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