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(The Deconstruction Era Essays are a series of Essays based on discussing reforms of the current U.S. government to be a more classically Liberal free-market body - the DEE provides a platform for thought into the political hypothetical)

As I discussed in part 1, one of my first actions in a Libertarian administration would be to abolish the income tax. Income taxes are a vital and primary form of funding for government today, so why would I just axe the entire program? Isn't that like draining the baby's bathwater before it's done being bathed?

The Constitution does rule on government forms of taxation, and our Founding Fathers were very careful in scripting it. In the times of pre-federalized America, colonialists were afraid of the powers of arbitrary government rule, especially the ability of legislators to levy whatever taxes they please. That was the core reason they fought the British. So the Constitution was carefully weighted with checks and balances to prevent it from giving the new federal U.S. government powers that were unlimited and arbitrary, especially in the area of levying taxes.

On the issue of Taxes, the Constitution is very clear. There are only two forms of constitutional taxes, Direct, and Indirect.

1) Direct Taxes are those on the individual and other private property, but they must be divided equally amongst the states. Property tax is an example of a direct tax. Article 1, Section 2 of the Constitution states "Representatives and direct taxes shall be apportioned among the several states which may be included within this union, according to their respective numbers." These taxes can be laid but only if divided amongst the States proportionately. So the government can tax a person's income, but that income cannot be used to fund a special federal project or go to a federal reserve, it must be divvied up amongst the States for their use.

2) Indirect Taxes are excises and other taxes on actions, like selling, trading, other transfers of property. For instance, the sales tax is an indirect tax. According to Article 1, Section 8 of the Constitution, "The Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States." This means that Congress can create a tax on gas or car manufacturers to fund special projects or build a reserve for the military, but the tax must be uniform throughout the states, if gas is taxed by the federal government 10 cents on the gallon in Texas, it must also be the same in Michigan, California, and the other states.

From these definitions of Constitutional tax, is our current tax policy Constitutional? It's neither uniform (it is a graduated and progressive income tax, wage brackets define how much you pay), nor is it apportioned amongst the states evenly. It is direct in that it is a tax on private property and not economic action, but is it not compatible with the kinds of direct taxation allowed by the Constitution.

So, after roughly 40 years of trying and partially succeeding (with Abraham Lincoln, even though his income tax was deemed unconstitutional as time passed) in creating income taxes that contradict these definitions, Congress drafted and ratified an Amendment to the Constitution to fix this issue (people have questioned the legitimacy of the ratification, we won't address that here). This Amendment is the 16th Amendment.

Amendment XVI:

"The Congress shall have the 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 seems here that in pretty plain text that government now has the ability to tax pretty much any form of income to whatever degree it sees fit without needing to have even distribution of the funds. This makes direct non-apportioned taxes of any size legal.

So what we see here is that the income tax has been around for a while, and that it is legal. Originally our form of the income tax would've been properly unconstitutional, but with the 16th Amendment, and the court's rulings in indifference to the issue, it seems that now that the institution of income tax is pretty stable. This is in spite of a long series of court rulings juggling the definitions of direct and indirect taxes.

Now, it might be noted that tax law and liability can be challenged. Since you cannot be required to file (doing so is a breach of 5th Amendment rights and the tax code clearly states only foreigners and non-resident aliens are required to file), and filing is a litmus for liability, you cannot be required to be liable for the income tax as a part of Internal Revenue Code. This issue is not one we will entertain or go into now, since regardless of the legitimacy of such a debate, it is not respected in courts and will likely get citizens arrested.

The problem then is not so much the constitutionality of the income tax today as it is whether or not it's a legitimate form of government finance backed by the founding principles of our government. First of all, this allows for an unlimited seizure of personal income by the state, to whatever degree it sees fit. A progressive, graduating income tax is the fuel behind classic Communism (being a vital plank of the Communist Manifesto) and is the antithesis of free market economies. This is because tax increases can be passed easily and graduated with only slim amounts of representation preventing them, and they can occur to such extreme amounts that it hinders the free trade of goods in the market. It is a regulation of sorts in the ways that income can be invested, and generally spent.

Redistributing wealth was not the purpose of a federalized government, but instead, the civil defense and establishment of rights was. The Constitution most definitely does not call for the primary uses of income tax reserves, such as social welfare and domestic aid programs and subsidies. Since it doesn't, we should question the legitimacy of these reforms and the functions that follow.

The 'NAM is all about discussing these issues one by one, so we won't cover them all now. What we will address is the vital point that graduated and progressive income taxes are unhealthy to a free state but allowed to exist in this one. Right now income is taxed to a degree of 30-50% depending on an individual's earnings, and signs have not shown that this money can be spent in a way that reduces poverty levels or brings up the poverty line.

So, what would a legislator or congressional official or President do about this? Draft and propose a change.

Amendment XXVIII:

"Congress may only levy direct taxes on income if they are apportioned among representatives of the state."

Now, if I were drafting amendments, I would probably round out this government finance amendment with something dealing with federal budgets. But regardless, that's the extent of wording necessary to effectively repeal the 16th Amendment. One of the simple truths of government is that the stricter and more succinct wording is more successful in preventing long-term abuses, I'd follow that by keeping the wording and phrasing of such a delicate amendment concise and clear (as shown above).

This Amendment is intentionally short, to be concise, but the following legislation needed to change the function and scope of U.S. tax bodies would need a little more wording. Keep in mind that I am not a congressman and that this first draft is something of a work in progress. This wording is taking in mind the above Constitutional amendment, and if you think I've missed something, be sure to contact me at phoebus@PAOracle.com with ideas as to how this bill could be improved.

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A BILL

To revoke the powers and authority of the Internal Revenue Service and the Federal Reserve System, and to create a new tax code.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE

(1) (a) Short Title - This Act may be cited as the "Freedom From Tax Act of 20XX"

SECTION 2. CORE PRINCIPLES AND FINDINGS

(1) Congress finds that the income tax is ---

(a) No longer Constitutionally fit

(b) Irreparably flawed and in need of total replacement

(c) Administered by a body which hinders citizen's 5th amendment rights

(d) Unfair for people of all levels of income and damaging to the health of the free state

(2) To correct these problems Congress will

(a) Abolish the IRS and the Federal Reserve System

(b) Declare all citizens free of income tax liability

(c) Declare a new tax code to replace the existing one

(d) Create a new Congressional budget to match the new tax code

SECTION 3. CREATING A NEW TAX SYSTEM

(1) Abolish the IRS and FRS

(a) The Federal Reserve System will be summarily disbanded. It's properties will be sold in no less than one year of the passage of this bill, and monies in it's care will be returned to their respective owners or, in cases where the property is that of the Federal Reserve's, transferred to the Department of the Treasury to be applied to the national deficit. All regulations and rulings of the board of the Federal Reserve will be overturned, and those in violations of these rulings are no longer held liable for penalties.

(b) The Internal Revenue Service will be summarily disbanded. It's properties will be sold in no less than one year of the passage of this bill, and monies in it's care will be returned to their respective owners.

(c) An Office of Internal Revenue Investigations will be formed to handle the processing of existing refund claims, which are to be paid in full. For the current tax year, no tax liability will be made, and the Office of Internal Revenue Investigations will work as an arm of the Department of the Treasury to ensure all withheld taxes for this tax year are returned to all citizens with existing withholdings, without deducted tax liability. The Office of Internal Revenue Investigations will also handle the archiving and storage of all Internal Revenue Service tax documents as well as investigate existing legal disputes between citizens and the former Internal Revenue Service. The Office of Internal Revenue Investigations will investigate Internal Revenue Service asset forfeiture practices and locate and contact owners of these assets for return to their previous owners. Claims on properties that were confiscated through asset forfeiture practices will be accepted and investigated in no less than three months of the passage of this bill. The Office of Internal Revenue Investigations will also create a simple process of claiming confiscated assets, and no asset confiscated will be auctioned until it has been unclaimed for a period of 10 years past the formation of the Office of Internal Revenue Investigations, at which time all assets will be auctioned to the general public and profits handed over to the Department of the Treasury for application to the national deficit.

(2) Declare all citizens free of the Income Tax

(a) No citizens or foreign non-residents are liable for any income tax. All parties are hereby exempt from any pending income tax liability. Those being charged on the basis of tax evasion will have charges dismissed and any assets returned to them.

(b) Those imprisoned on the basis of tax evasion will be pardoned, or in cases where other charges are present, the jail sentence will be reduced by the degree to which the crime of tax evasion contributed to it.

(3) Declaring a New Tax Code

[...]

(4) Declaring a New Federal Budget System

[...]

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But this bill is incomplete. It still needs a Section 3 Part 3 which would declare a new tax code (and a Section 3 Part 4 but we'll go into that at a later time, when I decide to discuss balancing the federal budget). What kind of new tax policy should a Libertarian government embrace? Government still needs to be funded, after all. It would be losing over 2 trillion dollars in revenue, and even though much of the current income tax revenue is tied up in paying down interest on the government deficit, 2 trillion dollars is roughly the annual U.S. budget itself, which effectively bankrupts a sizable portion of government.

There are several options we will briefly run over before I wrap things up.

The Flat Tax

The flat tax is another income tax, but it is at a flat percentage, not graduated. This is much like the first income tax, which was 1% of each individual's income. The problem with this alternative is that the flat tax has the same problems in practice and in principle as the current income tax. For this reason, we will not consider it.

Indirect Taxes

The following, because they are all Indirect Taxes, must be uniform throughout all states.

1. Tariffs

Tariffs, or taxes on imported and exported goods, would be a good place to look. Taxing imports and exports weaken our economy by reducing the flow of business, but with the economic boom of an income tax free U.S., productivity at home and abroad should increase enough to counteract the problem of increased tariffs. A small increase in tariffs could fill in many of the funding problems of a income tax free Federal budget.

2. Excises

Excises are taxes placed on the consumption, sale or production of a good. Creating a federal excise tax on gasoline, for instance, might help the federal economy balance the loss of the income tax. A federal excise tax on gasoline could be something to the order of 2 cents on the gallon, and annually that could produce roughly $2.50 Trillion in revenue (Americans in 2002 consumed about 125 Trillion gallons of gasoline) - that's roughly the same amount the IRS claimed to collect for that year in revenue from the income tax system (these figures are unscientific, and open to scrutiny, but used to prove the point that other forms of taxes can produce comparably to the income tax but be far more painless to the American public).

Another kind of excise tax could be a federal sales tax. On only a few cents on the dollar, the U.S. government could easily match the income tax's revenue, especially in the booming economy following income tax liberation. Any form of taxation will reciprocate to damage the economy, but many forms are simply less invasive and less damaging than others, and the income tax is a prime example of a tax that is both invasive and damaging.

Other Non-Tax forms of Revenue

1. Selling government lands

Government owns 40% of America's soil - it doesn't need all that land. If downsized, it could give many of those lands back to the people for their own development or preservation. This would reduce rampant government pollution and provide many Americans with new business opportunities. It could pay down it's existing deficits substantially if it engaged in isolating unused and unneeded lands to auction off to the public.

2. Federal Lottery Program

Just as the public schools are partially funded by lotteries, so could the federal government. At least as an option, there could be a Federal Lottery Program used to help bring down total government indebtedness. If used, this system should pay down existing debts so less taxes would be need to be collected elsewhere.

3. Downsizing

The Federal government is too big, and while not really a form of revenue, downsizing could save it a lot of money. Getting rid of extraneous welfare programs, subsidies, regulatory agencies, and other unnecessary bodies could relieve the funding gap some. How far should government be downsized? We'll discuss more on that at a later time.

Taxation is a touchy issue, but one that should be addressed. Where possible, we should bind our government to the principle of limited taxation, taxation only to the degree it is necessary to operate a civil government. Anything else is damaging to Americans and their freedoms. When an American pays his taxes, it's to protect his liberties, not to empower the government to take more and more.

In Part 3, we'll discuss some of the philosophical problems of a Libertarian administration coming to power, and what Congress has to say about all of this. We'll also discuss what it might take to get a Libertarian candidate this far. Then we'll continue discussing practical policy making in a post-Libertarian government.