All about the Benjamins

Sumerian proverb inscribed on a clay tablet, c.2400 BC: “You can have a lord, you can have a king, but the man to fear is the tax-collector.” Little changes. Presently, the State of NJ is demanding a payment from me for 2011 that my bank statement shows was paid at the appropriate time. Perhaps Hurricane Sandy had something to do with the records mix-up. I should be able to clear up that one. Meantime, quarterly local property taxes loom; NJ has the highest in the nation, as it has for many years. 

One of the charming chores of the new year all of us face in the US is assembling data for federal taxes due on April 15. Federal, state, and local taxes are all up this year over last, but enjoy the current rates while they last, for they are headed much higher still. Since governments at all levels are plainly incapable of restraining spending (and since We the People are plainly incapable of electing any that are capable), taxes must go up. A lot. (Massive inflation to reduce the real value of the debt is the only other alternative, but the net effect of that – lower real personal income – is much the same.) So, this is a golden era for taxpayers – at least in the current century.

It has been a round 100 years since the 16^th Amendment to the U.S. Constitution went into effect. There is a notion in some quarters that the income tax was unconstitutional prior to the amendment’s adoption in 1913. This is not quite right. Congress had the power to lay taxes, but there was a catch on “direct taxes”:  “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” A direct tax is a tax on people or property; an indirect tax is a tax on an event such as a sales tax, excise tax, or tariff. In 1894, populists in Congress approved a 2% income tax (the first peacetime income tax enacted) on incomes over $4000, a limit that exempted 90% of the population. It was not a revenue measure, since the government ran a surplus, but a fairness issue. (Old themes recur with frequency in taxation matters.) In 1895, however, the Supreme Court ruled in Pollock vs. Farmers Loan and Trust Company that income tax on certain types of income counted as a “direct tax”; the 1894 bill hadn’t apportioned the tax among the states according to the census, so it was nullified. This apportionment requirement was an annoyance to legislators, so the 16^th Amendment was proposed. It passed by the required majorities of Congress and the states with surprisingly little argument. The Senate vote was 77-0, the House 318-14. The Amendment reads:

“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.”

It took effect early in 1913, in the last days of the Taft Administration. Later that year, during the Wilson Administration, an apportion-less income tax was levied of 1% at $20,000 and 7% on incomes above $500,000 (more than $10 million 2013 dollars). Rates varied enormously over the next decades, but until World War Two, most income-earners didn’t earn enough to be required to file; as late as 1939, the height of the pre-War New Deal, only 5% of the population filed income tax returns.

Today, of course, nearly everyone files, and even those who don’t owe “income tax” still pay payroll taxes, sales taxes, communications taxes, energy taxes, property taxes (even renters pay these indirectly), transfer taxes, vice taxes, and so on.

Once again, this is nothing new. A Sumerian historian on another tablet complains that a shepherd has to pay five shekels to the ishakku (local king) of Lagash for each white fleece. The ishakku gets five shekels (and one more to his vizier) for each divorce. The perfume maker owes 5 shekels to the ishakku (plus one to the vizier and one to the steward) for each batch (it’s not clear what quantity). When a Lagashian died, he tells us, officials would show up to collect an inheritance tax of barley, bread, beer, and furnishings from his grieving relatives. The list goes on.

On occasion, a political leader will get uneasy about such exactions. In the second century AD, the Roman emperor Marcus Aurelius realized that the tax burden was exceeding the capacity of the citizenry to carry it. Accordingly, he admonished his troops who wanted a bonus for their hard fighting on the Rhine and Danube, “Anything you receive over and above your regular wages must be exacted from the blood of your parents and relations.” Nevertheless, to meet those regular wages, he sold off imperial furniture, jewels, and treasures (including his wife’s silks) in an auction rather than raise taxes. I don’t expect any such thing from contemporary politicians. (Marcus did debase the silver denarius to pay off debts in cheaper coins though – which is to say he opted for inflation.)

It could be argued that, in between the rules of extravagant tyrants at least, the Romans got fair value for their denarii. Whether or not we do ultimately doesn’t matter. We will pay them regardless. It’s hard to improve on Ben Franklin’s famous remark on the subject, so I’ll simple quote it; "Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes." Margaret Mitchell in Gone with the Wind agreed: "Death, taxes and childbirth! There's never any convenient time for any of them." At least I don’t have to worry about one of those.