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Chapter 5

I n this short book, we have tried to avoid the statistical form of argument that is both boring and proves nothing. Does anyone really care how many billions of dollars are spent by the Federal government for agricultural subsidies, weapons procurement, highway maintenance, food stamps, medical care, or foreign aid? Those who really care about these things tend to care about them in specific terms — how many dollars will their particular local school or hospital receive; how much will the government subsidize their particular business? Nobody really cares about the totals. Perhaps we should care about the total dollars, but it seems more relevant to concern ourselves with the systematic plunder of our economy, rather than the number of dollars collected and spent.

One important truth about our system of income taxation is that it destroys economic growth. If the income tax did not exist, almost all members of society would be wealthier — and not just because they would have the tax money to keep. They would have still more than that. All of the paperwork, accounting details, etc. would be eliminated, saving immense amounts of time and labor. The work of I.R.S. agents, most of whom are potentially productive members of society, would be directed at creating goods and services that consumers really want or need, instead of conspiring to spread fear and anxiety to enforce the income tax laws.

Adam Smith, in The Wealth of Nations, argued against high taxes in these words: "High taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more moderate taxes." [Book 5, ch.2] (This has been called the "Laffer Curve" in recent years -- probably because pundits have laughed at it.)

Taxation destroys the network of economic relationships among people that permits them to cooperate to satisfy each others' needs and desires. When this destructive process stops, the level of production and consumer satisfaction increases. This should be our objective in abolishing the income tax, if we need to make a practical argument for it. Each individual should see an immediate, measurable number of dollars also — take out your pay stub or check register and look at what the I.R.S. confiscates on a regular basis.

For many years, advocates of government spending talked about "the fiscal dividend" from inflation — the extra amount of revenue that was collected each year because inflation made the numbers larger on the income tax forms even though the standard of living of the taxpayers was going down. If we repeal the Sixteenth Amendment, there will be a genuine "fiscal dividend" that will stimulate the American economy toward a sustained period of economic growth unlike any so far in the 20th century. Indeed, you would have to look back to the great burst of industrialization in the 19th century to find a comparable period.

The growth and development of the United States in the 19th century would not have been possible if today's high levels of taxation had existed. You only need to look at the British economy — which used to be wealthier than the United States, but which has suffered from high income taxes for a few decades longer — to see the stagnating effects of the income tax. Savings and investment would be stimulated dramatically by the repeal of the Sixteenth Amendment.


A democratic society is always jeopardized by concentrations of political power. In the early days of the United States, with its open frontier and free economy, this was the major worry. Concentrated wealth typically wants to buy political power, and the concentration of wealth and power together work to preserve the privileges that can be legislated. The income tax today is one device that concentrated wealth uses to preserve its position.

What is the only way to disperse concentrations of wealth or the coordinated, conspiratorial management of concentrated wealth? Economists have long recognized that the antidote for monopoly is free and open competition. Indeed, in an open, competitive economy a concentration of monopoly power can only come from political privilege. The repeal of such privileges, alone, is sufficient to erode the basis of any artificial concentration. If political privileges are not available for sale by the centralized authority, even great wealth cannot buy them. Privileged elites in America are happy with the income tax!

With the bursting forth of economic growth and new savings and investment that would follow upon the repeal of the Sixteenth Amendment, there would be major new competitors founded to challenge the giants of our economy. Japanese companies that have come to dominate the markets for automobiles and electronic equipment would be once again faced with dynamic American ingenuity and investment. There is nothing wrong with our national economy today that free and dynamic competition cannot resolve, but to get to that point from here, we must first abolish the disease of taxation and regulation that prevents eager and creative Americans from doing those things that are necessary. Government is the problem, not the solution. The income tax is the tap-root of this poisonous weed.

We cannot expect today's major corporations to endorse this program for economic growth. In 1980, when the Carter administration proposed a small cut in Federal spending for school lunches, who stood up to protest? Kellogg's, Sunkist, Chiquita Brands, Archer-Daniels-Midland, and the Keebler Co. were among the loudest voices. [In 1981,] the Navy decided that Lockheed's P-3C anti-submarine aircraft was not worth the money, and it cancelled its planned purchase. Lockheed, along with two of Congress' firmest "opponents" of big spending, John Rousselot and Barry Goldwater, Jr., appealed to President Reagan, who then approved the purchase of 26 planes at a cost of $1.6 billion.

The Departments of Agriculture, Commerce, Housing and Urban Development are virtually nothing but subsidies to business. In the Agriculture Department alone, the Foreign Agricultural Service subsidizes export operations, the Rural Electrification Administration puts the taxpayers' credit behind $46 billion of low-interest loans for giant utility monopolies — thus diverting capital from more worthy investments and driving up interest rates for other, less favored borrowers.

The Commodity Credit Corporation, which maintains price supports and acreage limitations for farm products, is budgeted at just under $2 billion for 1983. This estimate is far too low, given the past record — more like $7 billion would be more accurate, but the real burden of this agency is not its spending, or its $25 billion borrowing authority. It exists only to impose the burden of higher prices on the general public. The CCC's milk price supports, combined with the milk-marketing orders that set minimum prices, violate the general welfare because the Federal government uses your tax money. In the immortal words of Richard Nixon to a group of milk producers, "You are a group that are politically very conscious ... and you're willing to do something about it."

In the Department of Commerce, the International Trade Administration subsidizes exports and protects domestic manufacturers. The Energy Research and Technology Administration will spend some $2.8 billion in 1983 to subsidize non-defense energy activities.

The Department of Housing and Urban Development will spend $7.7 billion in 1983, and some $250 billion in loans are currently insured or guaranteed by the taxpayers, due exclusively to the unlimited power bestowed by the Sixteenth Amendment.

The examples of abuse and special privilege in the Federal budget are too numerous to list them all. The Bureau of Reclamation provides subsidized irrigation to Western farmers; the Kennedy Center in Washington, D.C., is a palatial arts center used almost exclusively by affluent bureaucrats, lobbyists, and lawyers; the Federal Railroad Administration supplies subsidized transportation to a small number of travelers, mainly along the Northeast Corridor from Washington to Boston; the Maritime Administration subsidizes construction, operation and training for the grossly inefficient maritime industry; the Export-Import Bank provides more than two-thirds of its subsidies to seven major corporations.

When you read in the newspapers about "drastic" cuts in the Federal budget, you should remember that none of the above programs is included. This is why the income tax must go — its very existence perverts the language and basic concepts about our government's finances. Do you believe that any of the programs listed above would be funded under a system of finance consistent with Article I of the U.S. Constitution? Would the State legislatures, which today are howling about the cuts in their own subsidies, authorize the sending of money to Washington ("in proportion to the census or enumeration herein before directed to be taken") for the squandering by Senators and Representatives on such programs? And remember — these programs are not considered to be "waste and fraud" by the Reagan administration, even though they precisely are obviously that!

What has happened to the sense of economic priorities that must govern the efficient management of any organization? The Federal government has enjoyed literally an unlimited source of funding for the past 50 years — and it has grown to its present gigantic size just as rats will grow to be as large as cats if they are supplied with unlimited amounts of food.

If any measure of control is to be asserted, the proposals for a Constitutional amendment to require a balanced Federal budget are obviously too limited and ineffectual. With its vast revenues, under the Sixteenth Amendment, the Congress will raise taxes to balance its budget under the slightest pretext. If the power-seekers need to invent an excuse or a diversion for increasing your taxes, they will stop at nothing — including a national emergency or war. In the past 50 years, we have seen it already in the history of the United States.

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