Wednesday, March 21, 2007

Power corrupts

Centralised power and government are inherently corrupt. Regardless of how benign a political person is, the only benign thing they can do with power is to relinquish it and grant other people more liberty and more freedom.

You often see politicians from all parties call for more powers, more regulation, more taxes and more control. They use an excuse to justify their policy prescriptions - we need to finance health, education or pensions .. or we need to finance the war effort, or we need to fight poverty etc etc.

They are often granted new powers to tax and regulate and confiscate and imprison....but once the excuse disappears, they always seem to retain their new powers.

With that in mind ...

Read the following history of income tax in the US.. The US constitution is the greatest written document in history, and if only they would uphold it, America would be much wealthier and more prosperous today. Tax is unconstitutional, because it is theft of private property. It seems like such a simple concept, and it is a key principle of the consitution, but that didn't stop US presidents from totally disregarding it.

The last century has been a total friggin mess. Have a look at how every time the US went to war (including both world wars), it introduced new taxes to finance the effort. But it never ever suggested relinquishing its power once the war was over.

The other form of tax is social security.. You force people to put money away to finance superannuation, pensions, health and education systems. The whole welfare system is much more costly than war efforts.

Libertarians call the combined effect, what we have today, as the "warfare-welfare state". I have highlighted below, the only examples of government reducing its powers and actually reducing tax, in red.

The only two solid examples of governments upholding the constitution were in 1872 and 1895. Under Reagan and Bush, some tax relief and simplification has been provided, but government spending is now totally out of control.

Good news - Red
Bad news - Black.

1643: The colony of New Plymouth, Massachusetts levies the first recorded income tax in America.

1861: Congress passed the first income tax law as an emergency measure to fund the Civil War.

1872: Congress repeals the income tax law.

1894: As a response to complaints that excessive reliance on tariffs as a source of revenue resulted in an increase in the cost of imported goods, Congress again passed an income tax law.

1895: The US Supreme Court ruled that the income tax law was unconstitutional.

1913: In February the 16th Amendment, which states "Congress shall have the power to lay and collect tax on incomes, from whatever sources derived, without apportionment among the several states, and without regard to any census or enumeration", was ratified by the necessary 3/4 of the states. On October 3rd Congress passed the Revenue Act of 1913, which created the first permanent US income tax.

Under this act, the first $3000 of income for single persons and $4000 for married couples was exempt from taxation. A "normal" tax of 1% was applied to income above $3000 or $4000, and a "super" tax of from 1-6% was applied to income in excess of $20,000. Deductions were allowed for business expenses (including depreciation), interest paid on "personal indebtedness", all national, state, county, school and municipal taxes paid, casualty losses, and worthless debt. In the first year only 1 out of every 271 American citizens were taxed and $28 Million in revenue was raised.

1916: The Federal Estate Tax was enacted to help generate additional revenue to fund America's anticipated entry into the first World War.

1917: Congress raised tax rates in response to the increasing cost of the war and approved credit for dependents and deductions for charitable contributions.

1918: The maximum combined basic and super income tax rate reached 77%.

1922: For the first time preferential tax treatment was provided for capital gains.

1932: The tax law was amended to provide that US presidents were liable for federal income tax on their salaries. Franklin Roosevelt was the first president since Abraham Lincoln to pay federal income tax on his presidential salary.

1935: The Social Security tax, 1% on the first $3000 of wages, was enacted.

1941: Tax tables for low-income taxpayers were introduced, simplifying the calculation of tax liability.

1942-1945: New tax laws, in response to the cost of World War 2, created withholding on wages, more tax brackets for lower income taxpayers, the standard deduction, a personal exemption for dependents, a deduction for medical expenses, and increased tax rates. By the end of the war the maximum tax rate was 94%.

1954: Congress completely revised the Tax Code, changing rates, redefining Adjusted Gross Income, and adding credits for retirement income and dividends and new itemized deductions.

1961: Taxpayers were required to provide their Social Security or other taxpayer identification number to banks and other financial institutions so they could report interest and dividend payments to the IRS.

1964: Tax rates were reduced from a range of from 20% to 94% to from 16% to 77%. The Income Averaging method of tax computation was introduced.

1970: Congress created a Minimum Tax so high-income individuals could not completely avoid paying taxes through the use of preferential tax shelters, loopholes and deductions.

1974: Congress created the deductible Individual Retirement Account (IRA) for taxpayers not covered by employer pension plans.

1975: Low-income taxpayers were allowed to claim a refundable Earned Income Credit (EIC).

1979: Unemployment compensation was made partially taxable.

1981: Tax legislation reduced tax rates by 25% over 3 years, indexed tax brackets for inflation, and applied the same tax rates to earned and unearned income.

1984: For the first time recipients of Social Security and Railroad Retirement benefits were subject to tax on up to 50% of the benefits received, depending on the recipient's income.

1986: The largest revision of the Tax Code since 1954, the Tax Reform Act of 1986, was enacted. The law reduced the number of tax brackets from 14 to 2, decreased the maximim tax rate from 50% to 28%, repealed the dividend exclusion, Income Averaging, the itemized deduction for sales tax paid and the preferential treatment of long-term capital gains, introduced the passive activity rules, the Kiddie Tax, the deduction from gross income for health insurance premiums paid by self-employed individuals, and the 2% of AGI limitation on most miscellaneous itemized deductions, phased out the itemized deduction for personal (credit card, auto loan, etc.) interest, limited the deduction for business meals and entertainment to 80%, and replaced the additional personal exemption s for age 65 and blind with an increased standard deduction.

1987: For the first time taxpayers were required to list the Social Security number of dependent children, age 5 and over.

1990: The Revenue Reconciliation Act of 1990 added a third tax bracket (31%) and instituted the reduction of itemized deductions and phase-out of personal exemptions for high-income taxpayers.

1993: The Omnibus Budget Reconciliation Act added the 36% and 39.6% tax brackets, increased the maximum tax on Social Security benefits from 50% to 85%, and reduced the deduction for business meals and entertaining from 80% to 50%.

1998: In response to abusive treatment of taxpayers by the Internal Revenue Service, the IRS Reform and Restructuring Act of 1998 was enacted.

2001: Congress passed the Economic Growth and Tax Relief Reconciliation Act of 2001, the largest tax cut in over 20 years, with 85 major provisions. All provisions of this act will expire in 2011.

2003: To stimulate the economy, Congress passed the Jobs and Growth Tax Relief Reconciliation Act of 2003, the third major tax bill in as many years, and the third largest tax cut in history.
UPDATE: I found this little gem of information, that shows how power-hungry Australian bureaucrats were inspired by the American government trampling on its own constitution:

1913 16th Amendment in US gives federal government greater taxing powers

1915 first national income tax in Australia

1944 Pay As You Earn (PAYE) introduced in Australia and UK

This paper gives an account of why income tax was introduced in 1915. At the introduction of the new powers, the Attorney General Hughes said:

"That additional revenue is necessary to meet the great and growing liabilities of the War is amply apparent... I have always regarded this form of direct taxation as peculiarly appropriate to a modern community, and if the incidence of tax be based upon sound principles, not only as an effective means of raising money for the conduct of the government, but serving as an instrument of social reform"

Attorney-General Hughes: We have you to think for nearly a century of theft and violation of property rights.