History of the United States Income Tax

Before I start talking about the history about our income tax and how it came to be, let me tell you about Karl Marx. It is important to understand a little about this man and his prophecy on communist ways. You see it will play into the hands of how our government is conducting themselves.  He created Marxist Communism and wrote the book on “The Communist Manifesto” in 1848. I studied this book and man while I was in high school and college

Karl Marx was born May 5, 1818, in Trier, Prussia and died on March 14,1883 near London England. He had a profound affect in the world then and that affect still continues today. His interests were in Politics, Economics, Philosophy, and Class-struggles of people of the world.  He believed that capitalism (an economic system in which capital goods are owned, operated, and traded by private individuals, business and corporations for the purpose of profits which are protected by the rule of laws. This system includes investments, distributions, incomes, production commodities, the pricing of goods, and services. Human labor power is for sale in the market as if it were a commodity. Marx focused on this as a weakness of capitalism) would give way to communism. Capitalism would, like previous socioeconomic systems, produce internal tension which would lead to its destruction.  Just as capitalism replaced Feudalism (the social and economic system of the Middle Age Europe, where a tenant in fee (vassal) gives the military or other service to their lords in return for protection and use of their land), it would be replaced by a communism (a stateless, classless, society which emerge after a transitional period, the “dictatorship of the proletariats”  ( a person who must sell their labor power). ).

From The Communist Manifesto: “The development of modern industry therefore, cuts from under its feet the very foundation on which the bourgeoisie produces and appropriates products. What the bourgeoisie, therefore produces, above all, are its own grave-diggers. Its fall and the victory of the proletariat are equally inevitable”

Karl Marx made 10 points or goals that must be accomplished to bring a true communist society.  Number two on that list is the establishment of a heavy progressive or graduated income tax. Number three is the abolition all rights of inheritance.

The progressive income tax became the goal of many of the American politicians and intellectuals.   Marx’s goal or number 2 point is very well accomplished in the United States. The third of Marx’s goal or number 3 point is not completed, YET!

Now this leads me to bring you the history of the United States Income Tax System and how the government “deceived, used propaganda, and manipulated” the people of this great country. These tactics were used in the same way communism takes control of a country.

Not long after we won our independence in the Revolutionary War and in the early years of this newly formed republic, taxation was found only on alcohol, carriages and basics like sugar, and tobacco. Our founding fathers intended to keep government on a local level and not on a national level. I have to agree and wished it was this way today.

In the War of 1812 sale taxes had to be enforced on various luxury items.  The people accepted the taxes because they knew the price of freedom came at a cost. As the war ended congress did away with this internal tax and funded the government with tariff taxes on imports.

The first attempt at an income tax came about to raise funds in the Civil War. Yes both sides, the Union and the Confederates, used the “income tax” to fund the war.   In 1872, after the Civil War ended, people were showing displeasure with the “income tax” and Congress eliminated it and returned to taxing tobacco and alcohol.

Unfortunately this was not the end of the income tax. The politicians still wanted an income tax and for more than 20 years they pushed 68 times to pass a bill for income taxes.

In President Grover Cleveland’s second term, in the late 1800s, the poor economy caused Congress to once again push for an income tax.  At this time in our national history the economic problems were similar to those we are facing today.  It is always good to learn from and watch history, here is what happened.   Reading Railroad, yes the famous railroad went into receivership. (Receivership is used to denote a situation in which an institution or enterprise is being held by receiver. Or several regulatory entities have been granted by Congress to place banking and or financial institutions into receivership- for failing national- chartered commercial banks.) This caused a few banks and other businesses that were dependent on the railroad to also go into receivership and a general economic downturn followed. It was called “Panic of 1894″. I had to read this to make sure we are talking about 1894 and not 2008!

Now this gets interesting in how our government operates. Eager politicians passed a law for income taxes in 1894 and they called it of all things, “An act to reduce taxation, to provide revenue for the government, and for other purposes.” Yes, how about that, they deceived the people, passed the income tax law and told the people it would reduce taxation. President Cleveland did not agree with this income tax law, but he did nothing to stop it and without his signature it passed.

I wanted to know where are the checks and balances our government should have in place?  The U.S. Supreme Court ruled that income tax was a direct tax on the citizens of the United States and was a violation of the Constitution.  Here is what Article 1, Section 9 of the Constitution states: “No capitation or other direct tax shall be laid, unless in Proportion to the Census of Enumeration hereinbefore directed to be taken.”

Still how could this Congress prevail and pass an income tax law?   The Democrats were eager to spend the money; they wanted to call for a constitutional amendment to permit the income tax to be on both the 1896 and 1908 platforms. The Republicans opposed the idea in the principle.  Texas Senator Joseph Bailey, a conservative Democrat, decided to play the partisan political game and he opposed the ideal but he introduced a bill calling for an income tax.

The Democrats were trying to make the Republicans look like they were hostile to the poor and only had concern for the wealthy. The Liberal Republicans, backed by Teddy Roosevelt, supported the bill. Conservative Republicans panicked and decided they would go against the bill, but said they would accept it if it came about as the result of an amendment to the Constitution.  They thought the amendment would not make it through the House or the Senate.

This proved to be a very costly mistake by the Conservative Republicans. The Senate passed it 77-0 and the House passed it 318-14 and it was sent off to the states for ratification. It didn’t end there, the Democrats made a massive effort to convince the people that any income taxes would only be directed to the wealthy and that the ordinary American would be left virtually untaxed.

It seems to me that we heard another form of “Spread the Wealth” in a 2008.

OK, it gets worse.  It has been said that February 12, 1913 should be put with the dates of December 7, 1941 and September 11, 2001 as dates in American history that shall forever live in infamy. The Sixteenth Amendment was ratified and the income tax was born.

Is the government ever satisfied? Well of course not. With this income tax system people had a choice to pay their taxes in one lump sum or in quarters throughout the year. If people were smart they could put some of their tax money aside in a savings account and draw interest. This was a way to help them pay their income tax, and when it was due they would have earned some interest and would pay their taxes in one lump sum. In 1942, at the urging of the Treasury Department, Walt Disney produced and distributed an animated feature called “The New Spirit“.  It featured Donald Duck as a patriotic spirit, dancing to patriotic songs and it dramatically increased the prompt payment of taxes by the public. Tens of millions of Americans saw the film and Gallup reported 37% felt Donald Duck had a positive effect. Propaganda and manipulations are not enough something else is needed.

Beardsley Ruml, an economist, developed the Ruml Plan, a-pay-as-you-go system. It started another round with the government and its people. The government forgave all income taxes for the entire year of 1941.  Beginning in 1942, the government withheld taxes from payroll checks – so it would be convenient to never worry about paying the income taxes once a year or every quarter of year.

You notice you no longer get the interest if you put income tax in a savings then paid in lump sum. How convenient.  There are the Social Security and Medicare withholdings that you never think about and now you won’t notice from your check.  Also, no one told me that if I work more than 40 hours a week I have to pay more income tax on those extra hours I worked.

Let me throw this one in- I am  sure, because I have done this myself, and I am willing to bet all the money I have seen in my whole 52 year of life that the very first thing you do is look at is the what?  Yes I thought you would say that you look at your “net pay” first when you get your check, to see what you are bringing home before you want to know how much the government is “stealing” from you in that income tax bracket. You don’t want to look at your “gross pay” and compare it to the income taxes, Social Security and Medicare taxes. The government knows this and started this program we now have. Try to argue the point and it will be like arguing about the tax cut of today. The government has a name for this program and plan “withholding”. Thank you Mr. Ruml for your plan in “screwing” the American workers. The way to “soften” the impact was using an American Icon, Donald Duck, against us. Yes, we the people of the United States fell for this one called “Current Tax Payment Act of 1943″.

In 1970 our government was at it again, but this time the effort failed because Americans were learning and understanding that all this taxing was costing them additional earnings.  President Jimmy Carter attempted to have withholding extended to interest and dividends. But wait a minute, lets make sure, in 1982 President Ronald Reagan thought he try the same attempt to extend withholding on interest and dividends. Congress hurried to pass it, but once again American were not pleased, and Congress who just authorized this plan repealed it a month later. I have a question for you to think about, would Congress have been able to sneak another tax under the nose of the American people?

Here is something to look at, corporate tax.  One thing to remember is that the corporations are not paying taxes. Oh, there are taxes for the corporations to pay. No corporations or businesses are really paying taxes because they pass that tax on to you the taxpayer to pay. Corporations pass that tax to you through the product you buy. Taxpayers are taxed from the government withholding from their paychecks, then taxpayers are paying taxes when they buy commodities. That means taxpayers are shouldering the whole tax burden. Its call being deceptive and how does this work? Politicians pledge to raise corporate taxes, and the myrmidon (people, person or the faithful followers carry on without questioning) actually praise the politicians for it. What a wonderful world for the politician, looking in the eyes of the taxpayer with his smile, “I’m going to take even more money out of your pockets by increasing the corporate tax.” You, the myrmidon taxpaying citizen smiling back, “Thank you very much Senator, We think you are our man!” The cost of these taxes is then embedded into the cost of the products that you buy.

Washington is crawling with these high priced attorneys and accountants, who are mostly paid by the taxpayers doing one thing – manipulating and gaming the federal tax system for their corporate clients. They are setting tax codes, setting the stage for the Beltway heroics and earning huge paychecks. This money is paid to the Washington lobbyist for tax code manipulation. Money is spent complying with the tax code and not for the benefit of growing our economy and creating new jobs.

Did you know in 2005, average American taxpayer spent 27 hours filling out their tax forms? December 2005 reports calculated 6 billion hours and
$ 265 billion were spent complying with the federal income tax. There are about 100,000 workers for the IRS, who we pay with our tax dollars, costing the taxpayers $10 billion yearly. In 2002, the federal government collected $950 billion in individual income taxes. If the taxpayers were allowed to hold that money until it was due, like it was done prior to 1941, and invested in secured “T” bills, the taxpayers would have pocketed nearly $24 billion in investment payments.

The cost of our tax system began to steadily increase after 1954. According to the current director of the Congressional Budget Office, causes individuals and corporations to make “tax decisions” and not ‘economic decisions”. This practice cost our economy 18% of our gross domestic product. (GDP). The cost of $500 billion to comply with all the tax codes is blown from the economy, instead of helping to balance the budget. This is not an efficiency way to treat the taxpayer, the country or our national security.  American taxpayers have enough of this and changes are needed. All this waste is just plain dumb and  stupid on our government’s part, it must stop today!

Here are some things to read and remember:

“Under the 16th amendment Congress can take all 100% of our income at anytime, if it wants to. At this moment it is imposing a tax as high as 91 %”
T. Coleman Andrews

“We might hope to see the finance of the Union as clear and intelligible as a merchant’s books, so that every member of Congress and every man of any mind in the Union should be able to comprehend them. To investigate abuses, and consequently to control them. Our predecessors have endeavored by intricacies of system and shuffling the investigation over from one office to another, to cover everything from detection. I hope we shall go in the contrary direction, and that, by our honest and judicious reformation, we may able… to bring back to that simple and intelligible system on which they should have been organized at first.”
Thomas Jefferson to Albert Gallatin 1802

” Those who can not remember the past are condemned to repeat it.”
American Philosopher, George Santayana.

”Congress went beyond merely enacting an income tax law and repealed Article IV of the Bill of Rights, by empowering the tax collector to do the very things from which that article says we were to be secure. It open up our homes, our papers, our effects of the prying eyes of the government agents and set the stage for searches of our books and vaults and for inquiries into private affairs when ever the tax men might decide, ever though there might not be any justification beyond mere cynical suspicion.
The income tax is bad because it has robbed you and me of the guarantee of privacy and the respect for our property that was given to us in Article IV of the Bill of Rights. This invasion is absolute and complete as far as the amount of tax that can be assessed in concerned. Please remember that under the sixteenth Amendment, Congress can take 100% of our income anytime it wants to. As a matter of fact, now it imposes a tax as high as 91%. This is downright confiscation and cannot be defended on any grounds.
The income tax is bad because it was conceived in class hatred, in an instrument of vengeance and plays right into the hands of the communists. It employs the vicious communist principle of taking from each according to his accumulation of the fruits of his labor and giving to others according to their needs, regardless of whether those needs are the result of indolence or lack of pride, self-respect, personal dignity or attributes of men.
The income tax is fulfilling the Marxist prophecy that the surest way to destroy a capitalist society is by steeply graduation taxes on income and heavy levies upon the estate of people when they die.
As matter now stands if our children make the most of their capabilities and training, they will have to give most of it to the tax collector and so become slaves of the government. People cannot pull themselves up by the bootstraps anymore because the tax collector gets the boots and straps as well.
The income tax is bad because it is oppressive to all and discriminates particularly against those people who prove themselves most adept at keeping the wheels of business turning and create maximum employment and a high standard of living for their fellow men.
I believe that a better way to raise revenue not only be found but must be found because I am convinced that the present system is leading us right back to the very tyranny from which those, who established this land of freedom, risked their lives, their fortunes and their scared honor to forever free themselves……”
T. Coleman Andrews anticommunist
Commissioner of Internal Revenue
1953-1955

All across America people, taxpayers, businessmen are asking……
Who said that history cannot repeat itself, with the surge of the popular support for a repeal of the 16th Amendment to end the income tax and transition to a consumption tax system?
What will it take to make Fair Tax a reality?
It is a simple answer, there is only one answer. It takes all of us.
We the people of the United States, can, will and shall!

Charlie Prochaska

Everything I have written has been researched here are some resources where you can look up some of this information for yourself.
Karl Marx
Receivership
Tax withholding in the United States
The New Spirit
Beardsley Ruml
Feudalism
Capitalism
Myrmidons
The Fair Tax Book