Recent discussions about tax policy, for example, Warren Buffett’s view that he and his rich friends should pay more, indicate that there is support for reforming the Internal Revenue Code. Perhaps this could cut across partisan and ideological lines. The last major reform – in 1986 – was a bipartisan accomplishment, and it appears to have had beneficial effects. Unfortunately, federal tax policy has been used for just about everything other than primarily raising revenue. This was true even before the income tax was enacted in the early 20th Century. The history of the use of the tariff and excise taxes for protecting industries and discouraging certain activities began with the first Congress. The tariff caused the South Carolina Nullification Crisis in 1830, and a tax on whiskey led to an insurrection in Pennsylvania during George Washington’s Administration.
During my lifetime, the Tax Code has been used to woo special interests of all sorts. We all can doubtless come up with numerous examples. One thing for sure, it generally does benefit those members of the Aristocracy of Pull on K Street in our Nation’s Capital.
With so many citizens unhappy with the tax code, its complexity, and its disparate treatment of taxpayers, one wonders how it was enacted by our elected representatives without general protest. The late Ferdinand Lundberg (1905 – 1995), a journalist and economist with an engaging style of writing provided one of the best answers to that question in the chapter in his 1968 book The Rich and the Super-Rich entitled “The Great Tax Swindle.” I provide the following excerpt from that chapter. (Bear in mind that it is somewhat dated in its allusions, though not so in its essence.)
“When Jack Dempsey the world heavyweight boxing champion he went on an exhibition tour of the hinterland. As a feature, a goodly sum was offered to any man who could stay in the ring for three rounds with him. A certain region of the Tennessee hills the champion was challenged by the local strong man, who had beaten men for miles around in boxing and wrestling and who could bend iron bars with his bare hands. A large local crowd turned out at the arena to see the outside smart-aleck get a dose of real country medicine.
“‘Look out for this fellow, Jack. He’s awfully strong and could hurt you,’” said one of his handlers to the champion as they watch the strong-an jump into the ring.
“‘Watch him walk into my right,’” said the champion coolly, according to newspaper men who reported the event.
“Need one continue?
“As they squared off, the champion flatfooted, the strong-man suddenly rushed. The champion’s left glove slicked stingingly into his face and was instantly followed by a powerful right cross to the jaw. The strong-man, without ever having landed a blow, sank unconscious to the floor. The audience sat bewildered. They had just seen a champion against a novice.
“Dempsey figures in the story as the politician, the controlling element, and the strong-man symbolizes the people. The governmental method used by Dempsey was that of letting them come to you and then belting them.
“This method alone does not work with large groups. With them it is necessary to play either on their inherent divisiveness, or to divide them arbitrarily in order to rule. This Napoleonic method is well exemplified in the tax laws, which divide and subdivide the populace into many bits and shreds. It is Napoleonic because the general strategy of the little Corsican was to strike successfully each section of divided forces with his full, massed force.
“Government uses these methods, it should be noticed, when the public is reluctant or unwilling. Apart from taxation, it is used to good effect in conscription. Let us briefly examine it there in order to understand the tax outcome, which otherwise, in the absence of a hostile conquering force, is inexplicable.
“Most men are instinctively reluctant to serve in the armed forces, where one may be killed or maimed. We know this because, if they were not, all they would have to do is join at any of the many recruiting stations scattered around. Most of them must be ordered to serve.
“If, as in World War II, government wants some thirteen million men is obviously difficult to order them forward at once, risking the political ire of such a multitude. Again, government at no time possesses the manpower to force thirteen million to obey. The FBI, resourceful though it is, could hardly cope with the situation.
“The government here brings into play two tactics – Dempsey’s lethal punch and the doctrine of divide and rule.
“First, the government divides the manpower into classes – by ages and by marital and parental status. It then summons first those who are politically and psychologically weakest, the single youths age eighteen to twenty-one who don’t even have the vote. Excepting the few true-blue patriots and excitement hunters who rush to the recruiting offices, all others, thankfully feeling they have been excused from danger, cheer in approval and tell the bewildered youngsters they are only doing their patriotic duty; older men and women hurry off, like often criticized Germans, to better paying jobs in munitions plants. Next to be summoned are single man aged twenty-one to twenty-five, while married men approvingly urge the victims on. For the government gets much assistance from that part of the populace it is not at the moment corralling. Any of those who have shown strong signs of not wishing to go are shouted down by their fellow men, shamed. Some who have watched and cheered the process meanwhile have rushed off to get married to the first unattached female they could find; for the government, it seems it has a soft spot in its heart for married men – whom it is not calling.
“But now, with a considerable force in training under arms, the government has enough men to deal handily with any late-showing dawdlers. Moreover, the men under arms feel scant sympathy for those who have not been called. The conscript army would, in fact, relish an order to go and get them at bayonet point. As in a wrestling match, the weight has been shifted. Where at first the forward-thrust of weight was with those not called, who chivvied up the tender youths into service, this weight has now shifted to the youths under arms who now regard others as slackers and are ready to kill on command. The slackers are summoned – first the battle shy married man and then those stalwarts with children up to a dozen and beyond.
“On the battle line, finally, one finds single men eighteen to forty-five, and married men with a dozen more children – men wearing glasses, with fallen arches, flat feet, no teeth and leaky hearts. As the rule was finally explicated by the soldiers themselves in World War II, “If you can walk, you’re in.” They are now all, as soldiers themselves pronounced, “dogfaces,” nobodies. (They were that, too, in civilian life but didn’t know it.)
“Most of the populace initially acquiesced in this process because it seemed that somebody else was going to be soaked. On this basis they gave their full-hearted consent to the process of finally snared them.
“A similar technique is used with respect to the imposition of unfair taxes. For it always appears in reading the tax laws that somebody else is going to be soaked, or at least soaked more than the reader. Does it not clearly appear that some are going to be soaked up to perhaps 91 percent? On 1 million of income that is $910,000 leaving the bloody no good bastard only $90,000 or about twenty times too much. Three cheers for Congress!
“The tax laws divide people into many more groups then the conscription laws. There are, first the single, the married, the married with children and heads of household; next comes minor students, adults and persons over sixty-five. Those over sixty-five and retired and unretired, with and without income, blind or still with vision. But this is only the beginning. People are divided also according to sources of income. The basic divisions between earned and earned income, the latter of many varieties. But there is also taxable and nontaxable income, foreign and domestic income, etc.”
Could a tax of a certain percentage of all net income, without any deductions or credits for favored economic activities (or penalties for non-criminal disfavored ones), and beginning with a small percentage of the first dollar received, and graduated to a maximum of 20% or so gain some traction? Perhaps not. The Napoleonic principle is universal, I fear.
Cheers!
Bob Reagan
