Friday, October 14, 2011

I'll See Your Income Tax and Raise You a Sales Tax

To raise revenue to fund the Civil War, Congress introduced the income tax through the Revenue Act of 1861.[3] It levied a flat tax of 3% on annual income above $800, which was equivalent to $19,490 in today's money.[4] This act was replaced the following year with the Revenue Act of 1862, which levied a graduated tax of 3–5% on income above $600 (worth $13,156 today[4]) and specified a termination of income taxation in 1866.

On June 16, 1909, President William Howard Taft, in an address to Congress, proposed a 2% federal income tax on corporations by way of an excise tax and a constitutional amendment to allow the previously enacted income tax.

There were several other laws passed in between the Revenue act of 1862 and the passage of the 16th Amendment. Each new law increased the tax burden and further complicated the tax code. The 16th Amendment was meant to reduce taxes and to simplify the tax code.

Forward to today when everyone is decrying the tax code as too complicated and the income tax as to burdensome. The 16th Amendment is one of the most popular targets of Tea Party rage, with many millions calling for it to be repealed and replaced with a simpler tax code. These calls are not new to this election cycle. The flat tax idea has been around for several years and the fair tax made the rounds in 2008. Now the darling reform plan is Cain's 999 plan.

So much of the anger over the 16th Amendment is the mistaken notion that it instituted the income tax, when in fact that tax already existed. Cain's 999 would not get rid of this hated income tax, it would only change it to a lower rate and a supposedly simpler code, just as the 16th Amendment did in its day. If it was so terrible to codify an income tax, thereby giving Congress a tool for raising revenues through a "new" tax, how much worse is it that Cain wants to give Congress an additional tool for raising taxes through a national sales tax, while not doing away with the income tax. If the 16th Amendment was damning to America for institutionalizing an income tax (which, as I have already stated is erroneous because the income tax already existed), then 999 is doubly damning for maintaining an income tax and introducing a new, second tax.

To use poker terms: Cain will see your income tax and raise you a sales tax.

Income tax code under the 16th Amendment was simpler than it had previously been. But look at how successive Congresses have tinkered with the tax code and made it more complicated. The exact same thing will happen with 999, only now we will have an additional tax to contend with.


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1 comment:

leighrow said...

A National sales Tax in addition to a national income tax is just irresponsible and dangerous especially after what we have witnessed with the Obama administration.