I. What is Tax?
II. The only things certain in life are death and taxes
III. Taxation in the Constitution
IV. The argument: Too much, too little and not at allV. Tax Rate, Historical and Current
I.What is Tax?
Tax is essentially the collection of a predetermined amount of revenue-share by a central authority (or its agents) from the total revenue generated by its participating members (individually or organizationally).
Taxes are collected from several points of revenue (or potential revenue), which includes:
- Individual Wages
- Company Profits
- Capital Gains
- Excise Taxes
- Special Taxes
- Special Incomes
II. The only things certain in life are death and taxes
Prior to the introduction of modern currencies, taxes were collected in various forms, which include, but are not limited to, agricultural products, livestock, precious stones, virginal maidens and firstborns. The practice of taxation has been in existence since the concept of a 'society' was invented in the Indus Valley a dozen millennia ago. In fact, for all the abhorrence most of us have felt and continue to feel towards taxes, it has featured prominently throughout our recorded history; the three major forms of societies that humanity has created - tribal, feudal and social/political nations - taxation plays an integral part in its construct.
And contrary to popular belief, taxation did not begin in the United States in 1913. In fact, direct federal income taxes first came into being on August 5, 1861, through the Revenue Act of 1861 (Section 49, Chapter 45, 12 Statute 292, 309). However, an even earlier form of taxation which indirectly taxed Americans came in the form of import tariffs, courtesy of the Tariff Act of 1789 (the Hamilton Tariff).
It appears that Benjamin Franklin was right after all.
"Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes."
Benjamin Franklin, November 13, 1789; excerpts from a letter written to Jean Baptiste Le Roy (1720-1800, a French scientist, inventor, and Director of the Academie royale des Sciences de l'Institut de France)
III. Taxation in the Constitution
Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined...
- Article 1, Section 2, Clause 3:
"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States."
- Article I, Section 8, Clause 1:
"No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. "
- Article I, Section 9, Clause 4:
(Subsequently refined by the 16th Amendment)
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."
(Ratified on February 3, 1913
IV. The argument: Too much, too little and not at all
The position of tax cuts advocates is perhaps best argued using the Laffer Curve, named after famed conservative political scientist/economist, Arthur B. Laffer.
Laffer postulates that tax cuts would increase the potential for new business activities, job growth, and consequently, federal tax revenue. His theory contends that just as a 0% taxation rate generates no tax revenue for the federal government, increasing the rates will eventually reach a point of diminishing returns where businesses and high net worth individuals would be disincentivized from participating in any taxable economic activities, and instead, turn to better yields from capital gains returns and dividend incomes.
In addition, it is morally wrong for the federal government to take between a quarter and a third of the incomes of businesses and high net worth individuals to subsidize middle-class tax cuts. cuts. By unilaterally punishing the wealthy, it creates a culture of entitlement, discourages entrepreneurship, and encourages the federal government to continue with their incompetent, wasteful and ultimately, harmful spending habits.
It also goes against the principles of liberty and small government that many believe are the cornerstone of our republic.
Advocates of a progressive taxation system argue that low tax rates will inevitably concentrate capital in the hands of 'old money', speculators and wealthy corporations, who would have no incentive to risk their capital in the open market, even as the economic pie progressively becomes smaller. Capital gains income, stock dividends, and property rental provide a safe harbor for these individuals and corporations.
Progressive taxation forces liquidity into the economy through the federal government, which in turn facilitates entrepreneurship, innovation and growth, while allowing a fairer distribution of the economic pie. Instead of depositing their capital in Wall Street, these businesses and high net worth individuals would direct their capital towards business and infrastructural spending.
Advocates further argue that tax cuts have never meaningfully spurred growth through trickle-down economics, and the two lowest period of tax rates this century coincided with its two worst economic depression - the Great Depression of the 1930s and 2007-2009. On the other hand, periods of high taxation were followed by the greatest periods of economic growth and job creation.
In addition, there is an argument to be made that corporations and higher net worth individuals consume a higher percentile of the nation's infrastructure and resources. Multi-billion dollar public infrastructures such as airports, highways, and an army of civil servants, benefit Americans in higher tax brackets at a proportionately higher level, and thus, a progressive tax rate is the only fair method of taxation.
The federal government is also obligated to continue producing the nation's most crucial economic asset: a healthy, educated, and sufficiently motivated workforce.
Not At All
Opponents of taxation believe that it is an immoral, illegitimate and unconstitutional act that goes against natural law. Although the debate over the immorality of taxation has been around for centuries, the most prominent and influential modern thinker on the subject is the anarchist, Lysander Spooner (1808-1887). His philosophy was latched and expanded upon by several 20th century philosophers, most notably, Robert Nozick (1938-2002) and Murray Rothbard (1926-1995). The thoughts of both men have subsequently shaped and molded the contemporary conservative libertarian dogma on the subject.
Nozick, in his powerful Anarchy, State and Utopia, believes that a socio-political entity could conceivably evolve into existence from anarchy, and shelter a voluntary group of clients (citizens and organizations). The clients within the entity could feasibly pay a voluntary fee (tax) to a mutually agreed-upon agency (government) to protect themselves from internal or external threats of force, fraud, and theft (and contract enforcements), and in the process, see to the logical creation of a minarchist state.
Such a scenario could justify the payment of the said tax, but anything more than that is immoral and a perversion of nature. The act of taxing a human to pay for the expenses of another is inconsistent with ideals of self-ownership and free will. Since your production is generated from your own labor, the act of taxation is essentially forced labor.
Rothbard took his argument a step further, in that, taxation is, for all intents and purposes, robbery. Both can be simplified to the same basic principles - using force or the threat of force to take a share of the revenue generated by your labor.
Both men fundamentally agree that taxation is no better than slavery.
There have been renaissance in recent years on this very subject among latter-day Libertarians, but as of now, the Sixteenth Amendment precludes any real possibility of this ever becoming a reality.
V. Tax Rate, Historical and Current
Obama Position on Taxes
President Obama is an advocate of a progressive tax system that ensures an equitable level of
taxation for every income bracket. As an example, he cites the case of how his own tax rate is lower
than others who make substantially less than him - including his personal secretary. He believes
that the current tax code has benefited the wealthy at the expense of the average Americans. A third
of the 400 highest income taxpayers in the country paid an average rate of 15 percent or less taxes
in 2008. In an effort to rectify this, President Obama has put forth a proposed tax legislation
called the Buffett Rule (S.2059, Paying a Fair Share Act of 2012). Named after billionaire Warren
Buffett whose idea inspired the proposed legislation, the Buffet Rule seeks to impose a minimum tax
rate of 30% on millionaires, who accounts for the top 0.3% of taxpayers in the nation. The Act,
however, failed to pass the Senate after failing to obtain the sixty votes needed to send it to the
(Note: For 2011, President Obama and the First lady reported a joint gross income of $789, 674,
with a tax rate of 20.5% - amounting to $162,074 - while his secretary, Anita Decker Breckenridge,
who makes a little over $95,000, was charged with a higher taxation rate.)
Earlier this February, Obama also signed the Middle Class Tax Relief and Job Creation Act of 2012
which extended a two percent Social Security payroll tax cut and unemployment benefits for between
63 weeks and 73 weeks while preventing a cut in payments to Medicare doctors.
“A return to the American values of fair play and
shared responsibility will help us protect our people and our economy. But it should also guide us
as we look to pay down our debt and invest in our future.
Right now, our most immediate priority is stopping a tax hike on 160 million working Americans while
the recovery is still fragile. People cannot afford losing $40 out of each paycheck this year. There
are plenty of ways to get this done. So let's agree right here, right now: No side issues. No drama.
Pass the payroll tax cut without delay.
When it comes to the deficit, we've already agreed to more than $2 trillion in cuts and savings. But
we need to do more, and that means making choices. Right now, we're poised to spend nearly $1
trillion more on what was supposed to be a temporary tax break for the wealthiest 2 percent of
Americans. Right now, because of loopholes and shelters in the tax code, a quarter of all
millionaires pay lower tax rates than millions of middle-class households. Right now, Warren Buffett
pays a lower tax rate than his secretary.
Do we want to keep these tax cuts for the wealthiest Americans? Or do we want to keep our
investments in everything else - like education and medical research; a strong military and care for
our veterans? Because if we're serious about paying down our debt, we can't do both.
The American people know what the right choice is. So do I. As I told the Speaker this summer, I'm
prepared to make more reforms that rein in the long term costs of Medicare and Medicaid, and
strengthen Social Security, so long as those programs remain a guarantee of security for seniors.
But in return, we need to change our tax code so that people like me, and an awful lot of Members of
Congress, pay our fair share of taxes. Tax reform should follow the Buffett rule: If you make more
than $1 million a year, you should not pay less than 30 percent in taxes. And my Republican friend
Tom Coburn is right: Washington should stop subsidizing millionaires. In fact, if you're earning a
million dollars a year, you shouldn't get special tax subsidies or deductions. On the other hand, if
you make under $250,000 a year, like 98 percent of American families, your taxes shouldn't go up.
You're the ones struggling with rising costs and stagnant wages. You're the ones who need relief.
Now, you can call this class warfare all you want. But asking a billionaire to pay at least as much
as his secretary in taxes? Most Americans would call that common sense.”
January 24, 2012: State of the Union Address
"Mr. Romney is a patriotic American. He's got a beautiful family. He's been very successful in
his life. No, he has. But his basic vision is one in which if wealthy investors like him and folks
at the very top are freed up from any kind of regulations, if they are maximizing their profits even
if it means polluting more, or offshoring jobs, or avoiding taxes, or busting unions - whatever the
strategies - if they're doing well then everybody else is automatically doing well. That's their
And that's basically their economic plan. I'm not making this up. It's on Mr. Romney's website.
Members of Congress have put forward this plan. They voted for this plan. Their basic idea is
we're going to eliminate regulations on everything; we are going to provide a $5 trillion tax cut on
top of the Bush tax cuts for the wealthiest Americans; and we're just going to let the market take
care of the rest. And the presumption is that everybody here, everybody around the country, will
share in this newfound prosperity.
Now, I don't doubt that they will execute this plan if they get elected. Here is the problem: We
tried it. We tried it very recently, and it didn’t work. That kind of top-down economics has
never worked. That's not how this country was built. It's good for a few, but it doesn’t create
that broad-based middle class, and folks having ladders to get into the middle class, that made this
June 26, 2012: President Obama speaking at a campaign event at the Westin Peachtree Plaza Hotel in
"We are here because of you. This got done because of
you; because you called, you emailed, you tweeted your representatives and you demanded action. You
made it clear that you wanted to see some common sense in Washington. And because you did, no
working American is going to see their taxes go up this year. That's good news. Because of what
you did, millions of Americans who are out there still looking for work are going to continue to get
help with unemployment insurance. That’s because of you. I called on -- (applause) -- that's
worth applauding as well.
You'll remember I called on Congress to pass this middle-class tax cut back in September as part of
my broader jobs plan. And for the typical American family, it is a big deal. It means $40 extra in
their paycheck. And that $40 helps to pay the rent, the groceries, the rising cost of gas - which
is on a lot of people's minds right now. LaRonda Hill - right here - told us how $40 covers the
water bill for a month. So this tax cut makes a difference for a lot of families. You can get back
over here, Joe. And more people spending more money means more businesses will be able to hire more
workers, and the entire economy gets another boost just as the recovery is starting to gain some
February 21, 2012: Remarks by the President Obama on the Middle Class Tax Relief and Job Creation
Act of 2012
More on Barack Obama
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