Tax Day is not an occasion Americans celebrate with picnics, presents, or parades. Yet we haven’t always had a Tax Day.
The income tax was foisted upon us in 1913 by the generation that passed the 16th amendment to the U.S. Constitution. The 16th amendment states, “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.”
Prior to 1913, there was no direct taxation of the people. In fact, the Constitution forbade it. Let that sink in. American citizens of 1913 voluntarily subjected themselves to direct taxation by the federal government!
Four words in that amendment (“from whatever source derived”) and six words missing from that amendment (“… a maximum tax rate of —%”) enable the federal government to “lay and collect taxes” without restraint. Add to that constitutional “permission” a Congress that (1) fails to limit the national government to the enumerated and implied powers of the Constitution, and (2) approves budgets that exceed tax revenues (deficit spending), and you have our current $4.2 trillion budget and $19.5 trillion debt.[i] That debt amounts to $165,564 per taxpayer![ii]
Contrast that budget and debt with these figures for 1913: $11.7 billion in revenues and $11.7 billion spent (i.e., a balanced budget).[iii]
Why has there been this massive increase in the national budget? I surmise it is because Congress has unlimited funds to add government functions and programs.
Only seven executive departments predate the 16th amendment: State, Treasury, Interior, Justice, Agriculture, Commerce, and Labor. These functions of government were funded through excise taxes and tariffs. In the time span since ratification of the 16th amendment, eight more executive departments (and the agencies and programs associated with them) have been instituted: Defense, Health and Human Services, Housing and Urban Development, Transportation, Energy, Education, Veteran Affairs, and Homeland Security.[iv] Some of these departments are clearly unconstitutional.
Congress has also increased the rate of taxation dramatically. The Revenue Tax Act of 1913 imposed a graduated tax starting at 1% with a maximum rate of 7%.[v] In contrast, the 2016 income tax rate ranges from a minimum of 10% to a whopping 39.6%. The 16th amendment also allows two additional direct federal taxes on income. Employees and employers each pay 6.2% for Social Security and 1.45% for Medicare.[vi] This jumps the individual tax rate to a 17.65% minimum and a 47.25% maximum!
The House of Representatives has the “power of the purse” through its constitutional authority to propose “All Bills for raising Revenue…” (Article I, Section 7). However, We the People can reduce the revenue source of the federal government by amending the 16th amendment to narrowly define income and set a maximum tax rate. Whether Congress passes such an amendment or the states, via an Article V convention of states, pass the amendment doesn’t matter. Imposing fiscal restraint on the federal government is the duty of this generation.
Here is my draft wording for an amendment to the 16th amendment:
“The Congress shall have the power to lay and collect taxes on individual earned incomes and corporate net profits, without apportionment among the several States, and without regard to any census or enumeration, excluding from such taxation dividends, capital gains distributions, interest earnings, pensions, annuities, social security distributions, and other forms of non-earned income. The aggregate rate of all uniform or graduated earned income taxation shall not exceed 10%; neither shall the aggregate rate of all uniform or graduated corporate net profit taxation exceed 10%. Any tax rate established shall be approved by a two-thirds majority of both houses of Congress.”
I restrict taxation on investment income for two reasons: (1) to encourage personal savings for purchases that should not be the role of federal government (food, housing, higher education, retirement, health care); and (2) to leave more assets available for individuals and corporations to invest in American ingenuity.
Retirement income is untaxed because employer contributions to a pension plan or social security are a deferred employment benefit, not wages earned. (The employee might have preferred a higher salary and invested those resources in his own retirement plan!) Employee retirement contributions from wages that were previously untaxed (e.g., 401k’s and IRAs) would still be subject to tax when they are withdrawn, as under current law, until that tax obligation is fulfilled.
I limit the maximum tax rate to 10% because the federal government should not receive more resources that the Lord commands us to give to Him. I establish an aggregate maximum tax rate so Congress will not interpret the amendment to justify a 10% basic income tax, a 10% Social Security tax, a 10% Medicare tax, and 10% other future direct taxes on income.
I also recommend that these words be added to Article 1, Section 7:
“Every bill which is proposed, voted upon, or passed by the House of Representatives and the Senate, and signed into law by the President, must indicate the article, section, and clause of the U.S. Constitution which authorizes the expenditure of funds or function of government specified in the bill.”
Such an amendment would force Congress to consciously limit the federal government agencies (and funding for them) to only those enumerated or implied powers stated in the Constitution.
I plan to submit these amendment proposals to members of Congress and to the Convention of States Project (conventionofstates.com). The COS Project is a well-organized effort to convene a limited-topic convention of the states for the purpose of proposing amendments to the Constitution which establish term limits, impose fiscal restraint, or otherwise limit the size and scope of the federal government. Eleven states have already passed a uniform application to convene this convention.
We the People can devise the solutions to re-establish the balance of power in favor of the people and the states. Please participate in this process by sending me your thoughts about these amendments via email at firstname.lastname@example.org.