The Framers of our Constitution gave Congress extensive power to levy
taxes. Realizing, however, that the power to tax is the power to tax
unfairly, they included two provisions in the new Constitution to limit
the possible unfairness of the taxes imposed.
Article I, Section 2, and Article I, Section 9 provide that all direct
taxes must be apportioned among the states according to their population.
Article I, Section 8, provides that all duties, imposts, and excises
must be uniform throughout the United States.
Congress soon found a way to use its taxing power unfairly, despite
the intent of the Framers, by imposing protective tariffs on the importation
of manufactured goods.
Much has been written about how protective tariffs hurt the economy and the average
citizens of countries imposing them, but the internal unfairness of such tariffs
within the country is less well understood. A tariff on a particular product
allows the manufacturer to raise the prices because of the restrictions on foreign
competition. This may be highly beneficial to the neighborhood or city where
the product is manufactured, but the higher prices harm the areas of the country
where the product is bought and consumed. The tariffs cause a transfer of wealth
from the consuming region into the manufacturing region.
Congress imposed high tariffs on manufactured goods such as farm machinery,
carriages, and firearms. This was a burden on the agricultural South
that benefited the manufacturing Northeast. This culminated in the “Tariff of Abominations” of
1828 that almost caused the Civil War to erupt prematurely.
Fortunately, today we have so many “most favored nation” treaties
that protective tariffs do not play a large role in our economy.
Congress first passed an estate tax law in 1797, which it repealed in
1802; passed a second estate tax law in 1862, which it repealed in
1870; and passed a third estate tax law in 1898, which it repealed in 1902.
These did not resemble the modern estate tax. The first two were not even based
on the size of the estate but were simply a uniform tax on the privilege of probating
The modern estate tax was passed in 1916 and has been with us ever
since. This tax is based on simple envy of the wealthy. The wealthy
have always found ways to minimize its effect on them, and Congress
has responded by making it more complex to close the loopholes. Today
the number of estates required to file estate tax returns far exceeds
the number of estates actually required to pay a tax. The preparation
of these returns, which run to dozens of pages, costs the estates about
one percent of their value in useless attorney and accountant fees.
The government receives no actual tax payments in most of these estates.
Whenever you hear about “taxing the rich,” you can be
sure someone is talking about an unfair and complicated tax.
In 1913, the Constitution was amended to exempt income taxes from the
requirements of fairness in Article I. The result is the complex law
we have today, too long for anyone but a dedicated professional to
begin to understand. Its complexity does, however, benefit tax lawyers,
accountants, and employees of the Internal Revenue System.
An income tax that was “flat” or at the same rate for
everybody would be fairer, but a lot of the unfairness of the income
tax comes from the very idea of taxing income. In order to tax income,
one must define income. This is not as easy as it sounds. A gold mine
owner and an oil well owner both sell something they extract from their
property, and both lose some of the value of the property as this depletion
goes on. Would it really be fair to simply apply identical formulae
to both? If so, why not apply the same formula to a farmer who impoverishes
his soil over the years? Anyone who has run a small business knows
how complicated it is to separate the expenses of the business from
the benefits to the owner.
Can We Do Better?
It would be utopian to think that we could ever have a completely fair
tax system, but we can come a lot closer than we do.
Sales taxes are pretty fair, except in extremely small purchases.
They are collected stupidly in that they require lots of pennies and
would be better collected in increments of 10 cents. They are hard
to cheat on and require a lot less auditing and accounting work. They
can be unfair, however, if they are not uniform but are, instead, higher
on products in disfavor at the moment, as has sometimes happened, for
example, in the cases of playing cards, alcohol, perfume, tobacco,
and automatic firearms
User fees are quite fair. There is nothing wrong with charging the
actual cost of issuing a passport to the holder, or charging a reasonable
fee to use as national park. Gasoline taxes were once like a user fee,
with the entire tax going to road construction and maintenance. This
changed, however, when the politicians decided that some of the gasoline
tax should go to building mass transit systems.
We probably will never have much approximation to fairness in our
taxes because envy can attract votes and even more because tax-return
preparers need complexity in tax laws to keep their jobs — and
they know how to influence Congress.
The Confederate Lawyer column by Charles G. Mills is copyright © 2008
by the Fitzgerald Griffin Foundation, www.fgfBooks.com.
All rights reserved.
Charles G. Mills is the Judge Advocate or general counsel for the
New York State American Legion. He has forty years of experience in
many trial and appellate courts and has published several articles
about the law.
See his biographical sketch and additional columns here.
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