History of American Taxation
Patrick Henry wrote “The whole wisdom of the science of government, with respect to taxation, consists of selecting the mode of collection which will best accommodate to the convenience of the people.” This was the consensus of our Founding Fathers when they wrote into our Constitution an “indirect tax” system.
Article 1, Section 8, Clause 1: “The Congress shall have Power to lay and collect Taxes; Duties, Imposts and Excises, to pay the debts and provide for the common Defense and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;”
Duties on imported products from foreign lands, and Excise taxes on select products made and sold in America were forms of a consumption tax at the point of transaction. The tax was hidden in the final retail price. In the 18th century this was the most accountable and convenient method to apply an indirect tax.
Their objective was to control the growth of government by limiting it to the growth of population and prosperity. They believed the more consumption created the more tax revenue would be generated. Equally, the more population grew the more government would be required to fulfill its duties to defend. It worked for the first 125 years, until the 16th amendment authorized the federal government to impose a “direct tax” on the earnings of the American people and American businesses, the Income Tax.
16th Amendment: “The Congress shall have Power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
And here we are 105 years later, more government than needed, more spending than revenue collected, huge debt we continue to ignore, a Tax Code so complicated no one not even the IRS can guarantee accuracy, and less individual freedom and liberty than originally provided in the Constitution.
Revising our income tax code through debate and compromise is the process in which President Kennedy and President Reagan successfully revised our tax code that resulted in lower taxes, lower unemployment, higher productivity and greater tax revenue. However, their tax plans were not permanent because they didn’t end the rules that allowed Congress to reverse it. Their hard fought ‘Tax Reforms’ were only temporary ‘Tax Cuts’ that were incrementally replaced by numerous tax increased.
Exercising such financial power over ‘we the people’ was the very reason our founders rejected any type of direct tax. Maybe someday we can get back to an undirect tax system, but for now President Trump must follow the laws, just like JFK and Ronnie.
Recently the White house celebrated the six-month mark of President Trump’s Tax Cuts and Regulation Relief. Although the original goals of 3 individual tax brackets and a 20% maximum Corporate tax rate fell short (5 & 21%), the tax cuts and regulation reductions have had a remarkable effect on our economy. Corporations unexpectedly gave large bonuses to their employees. Even medium to small businesses offered financial benefits. It is estimated over 6 million America workers experienced increases in their income from such rewards.
Additionally, unemployment dropped significantly in almost all sectors of our population. Example: Employment of African-American and Hispanic-American is at record levels. The combination of businesses and workers keeping more of their money, plus a major increase in employment, has stimulated economic growth and confidence throughout America.
President Trump is now seeking to make the tax cuts permanent. His initial tax plan was a positive step toward the principles and values emulated by the creators of our Constitution. His Tax Cut 2.0 is expected to offer Americans more tax cuts, less tax brackets, further simplify the tax code and reduce more business taxes and regulations.
Does this formula look familiar? It should. Four years ago, Indiana passed the most successful Tax Reform in our history. It was built on years of solid financial decisions by Republican leadership that pulled Indiana out of serious debt to having a 1.8 billion surplus, no Estate Tax, simplified Property tax rates to three, one flat tax rate for Hoosier families and one flat tax rate for Hoosier businesses. You don’t have to convenience Hoosiers of President Trump’s Tax Cut 2.0 probability of success, we’ve witnessed that in our own home towns.
Hopefully, somewhere down the road, Uncle Sam will rediscover the answer to the ultimate tax challenge that Patrick Henry spoke of; “–selecting the mode of collection which will best accommodate to the convenience of the people.”
– Dave A.