The burden of taxation in the United States has been shifted from those who most benefit from our government to those who work the hardest and earn the least. This shrugging of responsibility is not only unfair, it fails to accomplish public policy goals required to move the economy out of recession and the environment out of crisis.
Uncorrected, the heavy burden of taxation borne by workers and small businesses today for the benefit of corporations and the wealthy elite will certainly lead to chaos and violence tomorrow.
It is time to discard our stupid and complex system of taxation and replace it with a smart and simple tax that balances the burden of taxation with the benefits of government.
How It Happened
Commencing in 1817, Congress eliminated all internal taxes and funded the government by tariffs on imported goods. Tariffs increased the cost of goods imported from outside the country, and were primarily paid by the wealthy and larger businesses. Laborers, farmers, and small business owners paid little or no taxes because the goods they consumed were primarily manufactured in the U.S.
Enforced by a new Internal Revenue Service, Congress passed an income tax during the Civil War along with sales, excise and inheritance taxes. The income tax was progressive in that those who earned less than $10,000 only paid 3%, while those who earned more were taxed at a higher rate.
Congress eliminated the income tax in 1868, and although it later flirted with taxing income, the government mainly relied on tariffs and an internal tax on tobacco and liquor for support. The U.S. Supreme Court ruled in 1896 that taxes on income violated the Constitution, since they were not apportioned among the states.
The Sixteenth Amendment in 1913 allowed Congress to tax the incomes of both individuals and corporations. Taxes continued to increase over the years, and with the introduction of payroll withholding in 1943, most Americans were forced to pay a tax on their incomes.
Initially, the wealthy and corporations were taxed more heavily than individuals. When Eisenhower was president, corporations paid approximately a quarter of all federal taxes, the maximum tax rate on top earners was 92%, excise taxes brought in 19% of tax revenue, and most workers paid minimum Social Security payroll taxes.
Today, corporations pay about 12% of income taxes, the maximum rate is only 35% for all those who earn more than $372,950, even those who receive millions or billions each year, and excise taxes have dropped to 3% of revenue.
It gets even worse!
In August 2008, the Government Accountability Office reported that two-thirds of all U.S. corporations and 78% of foreign companies doing business in the United States paid no federal income taxes between 1998 and 2005, even though they booked trillions of dollars in receipts.
The Gross Domestic Product (GDP) of the United States was almost $14.2 trillion in 2008. The government took in $1.2 trillion in estimated receipts and sustained an estimated deficit of $390 billion. Approximately 45% of the revenues came from individual income taxes, 36% from Social Security and other payroll taxes, 12% from corporate income taxes, 3% from excise taxes, 1.2% from estate and gift taxes, 1.3% from customs duties, and 1.5% from other sources. The Tax Policy Center calculates that individual income taxes and payroll taxes now account for four out of every five federal revenue dollars.
It has been proposed that the progressive income tax be eliminated in favor of a single flat rate for everyone in hopes of shutting down the income tax industry and the IRS; however, the proposal has had little traction since it would further shift the tax burden from the wealthy to the working class.
A more popular proposal is known as the Fair Tax. Essentially, the Fair Tax is a national sales tax designed to entirely eliminate the income tax and individual tax filings.