An Old Taxes Tale–Part 1

28Mar09

I got an email from a friend the other day.  It was that poem about all the different ways the government has found to tax us.  (Tax his land, Tax his bed, Tax the table At which he’s fed…)  Then at the end there is this big list of different taxes (44 of them) and commentary to the effect that none of them having existed 100 years ago, we had no national debt, the largest middle class in the world, and “Mom could stay home to raise the kids while Dad earned enough for everyone to get by, and for many, to prosper.”  I got to wondering exactly how much truth existed in this whole diatribe.

First, I started looking at the list of taxes itself.  I find myself trying to decide exactly how they defined a “tax”.  It seems like absolutely any money paid to any level of the government is being called a tax (Building Permit Tax, Fishing License Tax, Marriage License Tax, etc.)  I’ll kind of let that go as an issue of semantics–fee/tax; po-tay-to/po-tah-to.  Then I noticed other things in the list.  Seven separate listings for telephone “taxes”, although some of these are actually Sales Taxes so shouldn’t be listed separately.  Others are “Usage Taxes”–usage fees that if a private company owned the infrastructure they would still need to be paid.  Also combined under Sales Taxes should be “Vehicle Sales Tax” (isn’t the name a clue?) .  Also I’ll argue that the “Cigarette Tax” and “Liquor Tax” are actually Sales Taxes also–taxes on the sale of liquor and cigarettes.  Several should actually be combined as one under “Personal Property Tax”. Some make very little sense in the context.  The poem is concentrating on personal taxes, but we throw some corporate ones into the list–Corporate Income Tax?  I was really puzzled by “Accounts Receivable Tax” but in talking to someone in the family who has an accounting degree, it is essentially part of the Corporate Income Taxes–if doing taxes on an accrual basis you would be taxed on Accounts Receivable.  A couple other very puzzling ones: “School Tax” I can’ t really find examples of this outside of most places have taxes for the school district as part of the area’s Property Taxes, except for Ohio which has a School District Income Tax.  Is “Utility Tax” referring to the fact that you have to pay for minor conveniences such as electricity and indoor plumbing?  Or is it the Sales Tax that’s imposed on the bill?  If you’re going to call IRS Interest Charges a “tax on a tax” why not call credit card interest “Too Stupid to Pay Cash Tax”.  If IRS Penalties are a “tax on a tax on a tax” (even though you don’t necessarily have penalties AND interest and it’s more related to the original taxes owed than the interest) why isn’t a speeding ticket a “Breaking the Law Tax”.

Now, I agree that our taxes are higher than they need to be because of governmental waste and inefficiencies.  But they are needed.  Does anyone really think we could fund the Police or Fire Department with voluntary donations?  Or should they be privatized so whoever pays more gets priority on calls–and if you have to pay to get service anyway how would that be different than being taxed anyway.  You’re going to tell me that Workers Compensation Tax (paid by the employer not the worker) is a bad idea?  It would be better if you get hurt at work, your employer says “Tough nuts,” and you get NOTHING?  People who are on unemployment because they got laid off should have seen it coming and gotten another job before it happened, right?  (Unemployment Tax is also paid by the company not the worker.)  Medicare is a bad idea?  You think any senior citizen should be able to afford all their doctor’s bills and medications or be able to pay the thousands of dollar monthly premiums to get insurance from a private company?

OK, enough of that.  None of these existed 100 years ago.  Well, how does anyone think the government was able to afford to do anything before then?  Shortly after the Revolutionary War the federal government did rely on donations from the states.  (And how did the states get the money?  They just printed it which made the money already out there sink in value.)  Very little got “donated” which didn’t work for very long so the Continental Congress had to start print their own money too.  Starting in 1791 the government relied on TAXES on distilled spirits (Liquor Tax), tobacco and snuff (Cigarette Tax), carriages (Vehicle Registration Tax) and a few other things.  The very expensive War of 1812 saw SALES TAXES on gold, silverware, jewelry and watches.  1817 saw Congress beginning to rely on only tariffs on imports to fund its workings.  Fast forward to 1862.  Here we see the first Income Tax.  Also, Congress inposed excise taxes on various items and started charging license fees for several professions.  The income tax was repealed in 1872 then reappeared in 1894 until the Supreme Court declared it unconstitutional in 1895.  Then in 1913 the 16th Ammendment to the Constitution allowed the income taxes we pay today.  So as you can see many of the taxes being complained about have existed (albeit not continuously) for well over 100 years.  (For references to  much of this info see here and here.)

There was absolutely no national debt 100 years ago.  If you look here you will see that on July 1, 1909 we had a national debt of over $2.6 billion.  Part of the deal in getting the states to allow Congress to tax and regulate interstate commerce back almost 220 years ago was that the federal government would assume ALL of the debts the individual states had acumulated, which at the time was over $75 million.  The lowest the national debt has EVER been at the end of any fiscal year was January 1, 1835 when it was all the way down to $33,733.  The last time the national debt was under $1 billion was 1862.

This post has gone on long enough, so I’ll tackle further points in the next one.

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