Comment & Debate
David N. Mayer. “Wealthy Americans Deserve Real Tax Relief On Principle”. Ashbrook Center. October 1999 – A “progressive” income tax is not only unfair; it’s also contrary to America’s founding principles. Those principles include consent of the governed and equality under the law.
When the Patriots uttered their famous cry—“No taxation without representation!”—they were following the principles of John Locke, who recognized that consent was a necessary condition to legitimate government. Because the end of government is to protect individual rights, government must be formed by a procedure that does not itself violate those rights. “Men being … by nature, all free, equal and independent, no one can be put out of this estate, and subjected to the political power of another, without his own consent,” Locke wrote in the Second Treatise of Government. Moreover, he argued that consent was especially necessary to “take from any man any part of his property,” given that the purpose of government is to preserve property. Taxes, to be legitimate, must be imposed with the consent of the people on whom they will be levied.
Progressive income taxes, by their very nature, violate this fundamental principle of legitimacy. They represent the very worst sort of “tyranny of the majority,” for they subject a small portion of citizens—those with the highest incomes—to taxes imposed by the “consent” of other citizens, the majority of voters, who do not pay taxes. Indeed, that was the story of the origin of the Sixteenth Amendment, which empowered Congress to levy taxes on income. When the Amendment was ratified in 1913, it was sold to voters in the western states as a way to soak “the luxurious incomes” of industrialists in the East. And very few people paid the first income tax, which was only 1% on the first $20,000 of taxable income, with the rate raised to only 7% on income above $500,000. As late as 1939, only 5% of the population filed returns. As journalist David Brinkley has noted, the income tax “was voted into law by people who were confident it would punish the rich they despised while they themselves would never have to pay it. Envy and resentment [of wealth] carried the day.” It’s not surprising, then, that public opinion polls today show little support among voters generally for easing the federal tax burden: a large portion of Americans continue to pay little or no income taxes at all!
Grover Norquist, president of Americans for Tax Reform – “The morality” of these taxes “says it’s O.K. to do something to a group because they’re a small percentage of the population,” Norquist argued. And this “is the morality that says that the Holocaust is O.K. because they didn’t target everybody, just a small percentage.”[1]
Friedrich A. Hayek. “Taxation and Redistribution”. The Constitution of Liberty. 1960 – 5. The real reason why all the assurances that progression would remain moderate have proved false and why its development has gone far beyond the most pessimistic prognostications of its opponents is that all arguments in support of progression can be used to justify any degree of progression. Its advocates may realize that beyond a certain point the adverse effects
on the efficiency of the economic system may become so serious as to make it inexpedient to push it any further. But the argument based on the presumed justice of progression provides for no limitation, as has often been admitted by its supporters, before all incomes above a certain figure are confiscated and those below left untaxed. Unlike proportionality, progression provides no principle which tells us what the relative burden of different persons ought to be. It is no more than a rejection of proportionality in favor of a discrimination against the wealthy without any criterion for limiting the extent of this discrimination. Because there is no ideal rate of progression that can be demonstrated by formula, it is only the newness of the principle that has prevented its being carried at once to punitive rates. But there is no reason why “a little more than before” should not always be represented as just and reasonable. It is no slur on democracy, no ignoble distrust of its wisdom, to maintain that, once it embarks upon such a policy, it is bound to go much further than originally intended. This is not to say that “free and representative institutions are a failure” or that it must lead to “a complete distrust in democratic government,
but that democracy has yet to learn that, in order to be just, it must be guided in its action by general principles. What is true of individual action is equally true of collective action except that a majority is perhaps even less likely to consider explicitly the long-term significance of its decision and therefore is even more in need of guidance by principles. Where, as in the case of progression, the so-called principle adopted is no more than an open invitation to discrimination and, what is worse, an invitation to the majority to discriminate against a minority, the pretended principle, of justice must become the pretext for pure arbitrariness. What is required here is a rule which, while still leaving open the possibility of a majority’s taxing itself to assist a minority, does not sanction a majority imposing itself on a minority whatever burden it regards as right. That a majority, merely because it is a majority, should be entitled to apply to a minority a rule which does not apply to itself is an infringement of a principle much more fundamental than democracy itself, a principle on which the justification of democracy rests. We have seen before (in chaps. x and xiv) that if the classifications of persons which the law must employ are to result neither in privilege nor in discrimination, they must rest on distinctions which those inside the group singled out, as well as those outside it, will recognize as relevant.
It is the great merit of proportional taxation that it provides a rule which is likely to be agreed upon by those who will pay absolutely more and those who will pay absolutely less and which, once accepted, raises no problem of a separate rule applying only to a minority. Even if progressive taxation does not name the individuals to be taxed at a higher rate, it discriminates by introducing a distinction which alms at shifting the burden from those who determine the rates onto others. In no sense can a progressive scale of taxation be regarded as a general rule applicable equally to all-in no sense can it be said that a tax of 20 per cent on one person’s income and a tax of 75 per cent on the larger income of another person are equal. Progression provides no criterion whatever of what is and what is not to be regarded as just. It indicates no halting point for its application, and the “good judgment” of the people on which its defenders are usually driven to rely as the only safeguard” is nothing more than the current state of opinion shaped by past policy.
That the rates of progression have, in fact, risen as fast as they have done is, however, also due to a special cause which has been operating during the last forty years, namely, inflation. It is now well understood that a rise in aggregate money incomes tends lift everybody into a higher tax bracket, even though their actual income has remained the same. As a result, members of the majorities have found themselves again and again unexpectedly victims of the discriminatory rates for which they had voted in the belief that they would not be affected.
This effect of progressive taxation is often represented as a merit, because it tends to make inflation (and deflation) in some measure self-correcting. If a budget deficit is the source of inflation, revenue will rise proportionately more than incomes and may thus close the gap; and if a budget surplus has produced deflation, the resulting fall of incomes will soon bring an even greater reduction in revenue and wipe out the surplus. It is very doubtful, however, whether, with the prevailing bias in favor of inflation, this is really an advantage. Even without this effect, budgetary needs have in the past been the main source of recurrent inflations; and it has been only the knowledge that an inflation, once started, is difficult to stop that in some measure has acted as a deterrent. With a tax system under which inflation produces a more than proportional increase in revenue through a disguised increase in taxes which requires no vote of the legislature, this device may become almost irresistibly tempting.
“Tax tyrannies”. Washington Times. 27 Mar. 2008 – Tax tyranny can exist when members of one group are singled out to pay a disproportionate share of the tax because of their religion, ethnic group, gender or other circumstance. Nowadays, this is most often seen in government abusing the idea of progressive tax rates. For instance, in the United States, the top 1 percent of the taxpayers pay 40 percent of the income tax, yet they have only 21 percent of the income. At the same time, the bottom 50 percent of the taxpayers pay only 3 percent of the tax while having 12 percent of the income.
Some politicians want to further increase the tax burden on the top 1 percent while reducing and even eliminating the tax all together on the bottom 50 percent.
When a majority shifts almost all of the tax burden to a small minority who must pay a grossly disproportionate share of their income, it smacks of tax tyranny. Two-dozen countries, many of whose citizens have suffered under the tyranny of communism, have instituted “flat taxes” to avoid this form of tax tyranny.