Taxing Questions

We're all taught that our forebears thundered “No taxation without representation.” What we are not taught is that before diplomats entered the ship that took them to Great Britain on the last mission attempting reconciliation before the Revolutionary War, they were instructed to bring just that point up but added the instructions, “but for God Sake, don't get taxation with representation.”

The point is though no one likes to pay taxes, it's a necessity which even conservatives recognize, contrary to what many liberals think when they complain that conservatives don't even want taxation to carry out vital government. What these liberals don't seem to understand is that this is a hyperbole of the issue. The real and legitimate debate of the issue conservatives are making with this is what is a proper tax rate for a proper government.

If this can't be debated, after all, why do we have a Constitution. If the government can do anything, then there's no need for a Constitution so why was it written. Since it obviously was, then the debate is valid.

So let's start with a little tax history. In Pharaoh's day, Egyptians paid 25% of what they made to the government. Before they had a King, the ancient Jews paid one in ten with the priests taking care of the needy and fields having set asides for gleaning by the poor. In the Middle Ages, a serf gave 20% of his produce to his liege, which was better than the Romans who took one in three of a subject's wealth.

In the United States, there was no legal income tax until 1913 and the 16th amendment, as any ever imposed before this was ruled unconstitutional. It was set at 7 % for income over $ 500,000 in 1913. One brilliant sage in the Senate wanted to make it illegal for any tax to be more than 10 %, but this wasn't carried out for fear that some legislature might tax citizens at 10 %. Never fear, in 1924, the tax rate on $ 500,000 was 46 %. ( To be a little fairer to the past Congress, at least in 1924 $ 500,000 was a vast sum of money you could luxuriously retire on).

At around this time, Andrew Mellon, then Secretary of the Treasury under President Coolidge noticed something. He had read that one of the Rockefellers had died and it had been revealed in her will that she was worth much more in tax free municipal bonds than stocks of Standard Oil, the company the Rockefeller's had founded. It occurred to Mellon that people would legally find means not to pay taxes if the tax rate was too high. If taxes were lowered, maybe the rich would pay more in taxes. He did just that, and government revenue doubled

And again and again this has been the case. When taxes are too high, revenue will go uncollected because of tax avoidance, regardless of the propaganda inflicted upon citizens by those who should know better and probably do. ( a tax too low doesn't always increase revenue though). It also means because of tax avoidance and productivity destruction that a government too big will collapse because it can't possibly be supported. Then everyone's devastated.

Every republic has collapsed over loose fiscal policy. Republics become democracies, which are republics with weakened constitutions which can not restrain the greed of the have-nots for what the have's possess, and the poor take it by government force ( legislation). Unfortunately, it isn't just rich people who are greedy.

By

Jeffrey Ruzicka

Jeffrey Ruzicka is a retired executive of a small company that specializes in industrial water treatment. He lives happily with his wife in Western Pennsylvania. He is a contributing writer for FinancialJobBank, FinancialJobBankBlog and Nexxt