Alexander Hamilton perhaps spoke more wisely than he realized when he referred to the power to tax as the power to destroy. Neither in Hamilton’s time nor in the nineteenth century were extreme taxation burdens imposed in free and civilized countries. The right of a man to retain the property which he might earn or inherit was taken for granted as one of the natural rights which figure so largely in the thinking of the Founding Fathers of the American Republic.

There was no general income tax in the United States until 1862. And the rates of taxation during the Civil War, the most desperate emergency in American history, were unbelievably mild by modern standards: 3% on incomes from $600 to $10,000, and moderately progressive rates above $10,000. The whole idea of a tax on income was thrown out the window in 1872 as inconsistent with the American ideal of unlimited personal opportunity. An attempt to levy a 2% tax on incomes in 1894 was declared unconstitutional. Only after the passing of the sixteenth amendment to the Constitution in 1913 was the principle of the federal income tax firmly imbedded in the United States fiscal system.

It was a very thin opening end of the wedge. The original standard rate of income tax was 1%, with exemptions of $3,000 for single and $4,000 for married persons. (Of course, these exemptions are much higher than they would be at present, because of the severe depreciation in the purchasing power of the dollar.) There was a surtax of 1% to 6% on incomes in excess of $20,000 (the equivalent of about $53,000 at the present time).

There was a similar development in Great Britain. Only the Boer War, at the end of the nineteenth century, brought the income tax up to one shilling on the pound (5%). Gladstone, the great leader of the British Liberals in the second half of the nineteenth century, wanted to abolish the income tax altogether and reduced it at one time to twopence on the pound (less than 1%).

Notwithstanding what might have seemed the innocuously low rates which were set after the introduction of income tax in the United States, voices of warning were raised against the principle of a levy which placed all the earnings of American citizens at the mercy of politicians, most of them with the politician’s instinctive impulse to spend. Senator Benjamin Harvey Hill warned that the new tax would enable the government “to make all property and rights, all states and people, and all liberty and hope, its playthings in an hour and its victims forever.”

Representative William Bourke Cochrane of New York declared in 1894 that “democratic institutions must perish from the face of the earth if they cannot protect the fruits of human industry wherever they are, or in whatever proportion they may be held by the citizens.”

The fantastic growth of yield from the personal income tax is illustrated by one striking comparison. The new levy brought in $80 million in the first year of its imposition. Current yield is $31.2 billion. Of course, in the intervening period, population and real wealth have grown and the value of money has declined. But not in such steep proportion as over 300 to one—the relation between the current take of income tax and what was levied in 1914.

This increased appropriation by the State of the fruits of the labor of its citizens, or subjects, is a world-wide trend, with one paradoxical exception. Rates of income tax in Great Britain are higher, and exemptions are lower than in the United States, although there is no British equivalent of the state income taxes which often add substantially to the taxpayer’s bill in the United States. The German national income tax has been cut and is not so steeply graduated in the upper brackets as the American. However, Germans who are not refugees and who were not bombed out during the war are obliged to pay a substantial levy, the so-called Lastenausgleich, for the benefit of those who were. This probably at least equals the score.

Japanese rates of income tax, applied equally to foreigners, are so heavy that many foreign newspapermen and businessmen cannot afford to live in Japan and have moved to Hong Kong. A recent report from Formosa was to the effect that income tax rates as high as 114% had been levied there, although the Finance Minister was promising to look into the matter.

The one exception to a crushing load of direct taxation is found, curiously enough, in communist countries which started off with programs of wholesale nationalization, confiscation, and robberization and still do not tolerate private operation or ownership of industrial or commercial enterprises. But experience has taught the communist political bosses that unequal pay for work of unequal value is good stimulating medicine for productivity. So one finds very sharp wage and salary differentials, to say nothing of extensive perquisites of office in the shape of superior housing, cars, and the like for top level officials and members of the managerial bureaucracy. And in Tito’s Yugoslavia, at least at the time of my visit in the summer of 1955, there was no income tax. Lest this should start a stampede of American expatriates to Yugoslavia, I hasten to add that there are many features of Tito’s brand of communism in that country even less pleasant than filling out income tax blanks.

The power to tax has indeed proved the power to destroy. The personal income tax, growing like a Frankenstein’s monster and showing little abatement from wartime heights, has destroyed for American citizens, among other desirable things:

(1) The precious sense of personal independence that comes from being able to provide for their years of old age and retirement. The difference between nineteenth century and twentieth century rates of income tax is the difference between independence and dependence, between the ability of a man of reasonable thrift and diligence to “save up” for his later years and being dependent on some state handout or some company pension scheme. Anyone with a medium middle-class income can take paper and pencil, figure out how much he has paid to satisfy the exactions of federal, state, and sometimes also municipal tax collectors, and calculate what he has lost in terms of an annuity or retirement allowance.

In an age that prides itself on its concern for security, exorbitant rates of personal income tax are a most acute source of personal insecurity. Money that otherwise would have been saved for a rainy day is earned only to be siphoned off by the insatiable demands of the State.

(2) The sense of economic freedom. The United States conquered the wilderness, built great cities and fertile farm areas on land once tenanted by a few nomadic savages, built up a standard of living that made it, in Shakespeare’s phrase, the envy of less happier lands because the individual American was free to earn what he could and to keep what he earned. Now the government, like a racketeer, “muscles in,” demanding a large first cut of everyone’s earnings, a cut that becomes progressively and rapidly larger as the individual is presumably more competent and efficient and able to earn more money.

The federal government has a prior claim on more than half (52%, to be exact) of the profits of every corporation. A reversion to serfdom under modern conditions is suggested by the fact that almost everyone must work a certain amount of time for the government by surrendering a portion of his earnings. This time varies from one to two months for those in lower brackets to three to six months as steep progression exerts a leveling influence on those in middle and higher brackets. In the case of the highest incomes, where 91% may go to the State, the individual may reckon that he is working only a few weeks for himself, the rest of the time for the government.

There can be only one end to the prolonged operation of the kind of steeply progressive income tax system which is in force in the United States today. This is to transform what was once a people of self-reliant individualists, accustomed to relying on themselves in emergencies, into an amorphous mass of wards and serfs of the State. These would be neatly ticketed with social security numbers, conditioned to giving up to the State a larger and larger share of what they earn, and looking to the State to satisfy more and more of their needs. One of the most insidious consequences of the present burden of personal income tax is that it strips many middle-class families of financial reserves and seems to lend support to campaigns for socialized medicine, socialized housing, socialized food, socialized everything.

(3) The spark plug of incentive is brought to a sputtering halt by a taxation system that treats wealth as a crime and makes almost’: impossible the building up, without inherited wealth, of the medium and small fortunes which formerly testified to the vitality of the individualist economic system. Consider a situation that might easily arise in a small business. The income of the owner is $200,000 a year. He might be able to increase this to $300,000 by going:to some trouble and risk in installing some new machinery that would make for higher productivity. But how much of the extra $100,000 would he be able to keep? Only a few thousand dollars. Is it reasonable to expect a man to work as hard if he must turn over 90% or more of the fruits of his labor to the State as he would if he could keep all or the greater part of it himself?

The enormous productive successes of the capitalist, or individualist, economic system during the nineteenth century were largely due to the fact that the sky was, the limit as regards the rewards of energy and initiative. Marx and Engels, who wished to destroy the capitalist system, knew what they were doing when they introduced a demand for a heavy graduated income tax into the Communist Manifesto. In the United States, where the Socialist party is in liquidation, where there is no taste for outright nationalization, the graduated income tax, regarded by left-wing theorists as a legitimate and desirable instrument of economic and social leveling, has achieved many of the results which were feared or hoped from socialism. It has served to discourage thrift and dilute incentive, sometimes to the vanishing point. It has enormously restricted the range of individual opportunity. It has made the individual vastly more dependent on the State and more avid for state handouts. It has shifted the balance in America from an individual-centered to a state-centered economic and social system.

There is much more that could be said in criticism of this form of fiscal exaction. Much of it has been said very ably by a man in a position to know whereof he speaks, Mr. T. Coleman Andrews, former Commissioner of Internal Revenue. Mr. Andrews pulls no punches in an article entitled “Abolish the Income Tax,” which is sprinkled with adjectives and expressions like brutal, confiscatory, murderous, brigandage.

Out of a wealth of recent experience the former Commissioner flatly asserts that the income tax law is so complicated that very few taxpayers do or can understand it. Almost two years have elapsed since the Internal Revenue Code of 1954 became law, and it has not yet been possible for the Treasury Department to come up with an official interpretation of that law. The punch lines of Mr. Andrews’ article may be found in these paragraphs of his appeal to members of Congress:

Whether you believe it or not, everybody is being overtaxed and the middle class is being taxed out of existence. Thereby the nation is being robbed of its surest guaranty of continued sound economic development and growth and its staunchest bulwark against the ascendancy of socialism. We, who somehow have managed to hold on, finally are beginning to see the shameful extent to which we have been made the special victims of rapacious tax enactments—and we don’t like it.

We are concerned about the future because we don’t believe that we could stand another serious recession, what with the present “good times” founded as largely as they are on defense production, deficit financing and other generators of thin-ice and phony prosperity, and with the tax collector taking the fruits of our labors in “progressive” ratio to our achievements. High rates of tax don’t mean anything when there isn’t anything to tax.

What might be deemed a flaw in the position of Mr. Andrews is that he calls for the abolition of the: income tax without proposing what to do next. He merely advocates a congressional examination of the whole problem of taxation an excellent idea in theory, but one that might well bog down in endless delays. Present rates of income tax, which in many cases confiscate the individual’s margin for saving, have been more or less passively accepted on the false assumption that the current level of government spending is untouchable.

No one who has had even limited acquaintance with government in operation is likely to be convinced that no savings in that field are possible. It is elementary human nature to spend government money more freely than one’s own money. There certainly is desirable room for saving in handouts to unfriendly foreign neutralist governments.

The Hoover Commission, after a most exhaustive prying into all the dark nooks and crannies of civilian and military bureaucracy, has come up with concrete practical suggestions calculated to save many billions of dollars in federal expenditures. Further substantial savings could be realized if the amazing report of the Committee on Government Operation about the wide scope of government enterprises—often operated at a loss and in competition with private business—were heeded in economy legislation.

The time has long passed when the personal income tax could be regarded as something that merely knocked off a little of the surplus wealth of a few millionaires. Its bite is now deep and wide. A levy that starts at 20% (a higher rate than the highest imposed when this tax was first introduced) is distinctly everybody’s concern and everybody’s business. What is needed is dynamic bipartisan leadership in a tax reduction program that will make clear the folly of paying out of one pocket so-called benefits and “free” services which are supposed to put something in the other. The proposition should be hammered home that government does not and by its very nature cannot create wealth. It can only redistribute existing wealth and sell to people, at a steep and growing price in taxes, benefits which individuals could well provide for themselves, if they wanted, and if they were not required to carry such a heavy load of taxation.

The United States has been more resistant to socialism, presented under a socialist label, than most other countries. During decades of political activity the American Socialist party was only able to elect two representatives to Congress. And this was a long time ago.

But, while socialism has been refused admission at the front door, it has been sneaking in through the back door and through unguarded windows. Consider the implications of the following provisions of existing financial legislation:

The federal government, through the corporation income tax, takes 52% of the profits of business firms. Then it taxes what is left of these profits a second time, when they are paid out in dividends. In the case of taxpayers in the higher income brackets this means that the government, without assuming any of the risks of business operation, establishes a prior lien on 90% or more of the profits. And there are demagogues ignorant and unscrupulous enough to allege that this government, which through income, inheritance, gift, and corporation income taxes annihilates private wealth on a gigantic scale, is “a rich man’s government”!

History shows by many examples that excessive taxation, the reckless use of the power to destroy, as it has been so aptly called, is an important factor in the decline and fall of civilizations. The following citation from George Finlay’s solid historical work, Greece under the Romans, is one of many that might be used to illustrate this point:

At last the whole wealth of the empire was drawn into the imperial treasury; fruit trees were cut down and free men were sold to pay taxes; vineyards were rooted out and buildings were destroyed^* to escape taxation . . . . The increase of the public burdens proceeded so far that every year brought with it a failure in the taxes of some province, and consequently the confiscation of the private property of the wealthiest citizens of the insolvent district, until at last all the rich proprietors were ruined, and the law (of collective responsibility for the payment of taxes) became nugatory.

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* In this country and, to a larger extent, in Great Britain, this destruction of spacious homes which cannot be kept up under existing burdens of taxation is already in full swing. In this and other such social and economic matters Britain offers a preview of what may be expected in this country after a decade or two if present trends are not reversed. In “Does the State Build Homes?” Russell Kirk, in his latest book, Beyond the Dreams of Avarice, gives a vivid description of the disappearance of British homes which were centers of culture and community sense.

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Small wonder that there was little will to resist the barbarian invasions in the West or the Moslem sweep in the East. The sucking up of power, initiative, and national wealth into a bureaucratic centralized apparatus of government is one of the most unmistakable of historical danger signals.

For the last quarter of a century and more this signal has been flashed with increasing urgency to the American people. Now the time has come to reverse the fatal trend toward centralization, to curb the power to destroy which is implicit in a form of tax that makes a mockery of the right of private property and gives the State an elastic and indefinitely extensible claim on the fruits of the labor of its citizens. A decisive repudiation of a type of taxation that stifles initiative and tends slowly but surely to transform formerly free men into wards and serfs of the State would resound through the land with the invigorating effect of a new Declaration of Independence. []

It is beginning to dawn upon us that using the force of Government to take other people’s property to do good according to Government’s notion of what is good is all dead wrong. The fact that the whole world is morally wrong by taking people’s private property and making it Government-owned emphasizes the extent of the world collapse of morals . . . . What we have been doing has always been regarded economically wrong. It is indeed both economically and morally wrong.

Hon. Ralph W. Gwinn, Congressional Record, April 13, 1956