Nick Giambruno’s Note: In today’s article, Jeff Thomas explains why tax reform is a myth.
Governments regularly claim that they favour tax reform. When this claim has been repeated so many times that virtually no one believes them anymore, they announce a tax reform, to show that they really mean it. They then reshuffle the existing taxes to give the appearance that taxation will actually be lowered.
When it becomes apparent that the reform is a sham, they often pull a rabbit out of a hat in the form of a “temporary” tax, that’s pre-legislated to end sometime in the future.
So, let’s have a look at one such temporary tax and see how things worked out.
The US government introduced the War Revenue Act of 1898—a tax on telephone use—under the claim that it was necessary to pay for the Spanish American War.
In what way does telephone use pertain to a government invading another country? Well, actually, one has nothing to do with the other. But, let’s leave that discussion for another day and see how this temporary tax played out.
The Act was repealed in 1902 but was reinstated, this time as the Emergency Internal Revenue Tax Act of 1914. The justification then given was that another war was on the way and increased taxation to pay for it couldn’t begin too soon. Telephone users needed to cough up.
It was decided by both parties to increase the tax on telephones and the War Revenue Act of 1917 was created. It hadn’t passed the debate stage until the war was over, but they decided that they’d implement it anyway, as the work had already been done. In the bargain, they introduced not only increased rates, but graduated rates.
This act was also repealed, in 1924, but was reinstated with the Revenue Act of 1932. Since that date, it has been reauthorised 29 times.
In 1941, an increase was put in place to pay for (you guessed it) another war—World War II. This was increased again in 1943, but people complained and the new law contained a provision that the increased rates would end six months after “the date of termination of hostilities in the present war.” However, the Excise Tax Act of 1947 was passed to assure that the tax would continue indefinitely.
Over the subsequent years, periodic changes were made. Although the rates went up and down like a bride’s nightie, most, not surprisingly, were upward.
As further (undeclared) wars came and went, taxation on telephone calls repeatedly needed to be increased and, regardless of the party in power, increases continued.
At long last, on 14 September, 2000, the House of Representatives took up legislation which included the repeal of the telephone excise tax. This measure passed both houses, but the fix was in. President Clinton vetoed the repeal. (The legislative branch and the executive branch have to take turns playing the bad cop, but the outcome is the same: increased taxation.)
Then, in 2006, a case was made (in the words of the Treasury Secretary), to amend the Internal Revenue Code “of an outdated, antiquated tax that has survived a century beyond its original purpose, and by now should have been ancient history.”
Finally, American citizens could wash their hands of a one-hundred-year theft of their earnings that, even at the start, was based upon a ludicrous concept.
Unfortunately… it didn’t happen.
The repeal was never enacted and Americans continue to pay for the Spanish American War today.
So, what’s the takeaway here?
Well, first off, this little history serves as a reminder that there’s nothing so permanent as a temporary government measure.
Second, although not a month goes by without one politician or another, from one party or the other, rising up in righteous indignation that a new tax or an expanded tax is absolutely necessary to continue the welfare of the American people, there is, in truth, no sincerity in their claim. They simply want more money.
Third, no amount of money is ever enough. Even if Washington, D.C., is the only part of the US that is enjoying prosperity, even if no congressman leaves office without more zeroes behind his net worth than when he went in, virtually every legislator will vote for increases in taxation.
And, fourth, there’s no such thing as tax reform. From time to time, legislators will need to trot out the idea of tax reform, and be seen to be arguing over the details, but will ultimately always do the same: the deck will be reshuffled, but somehow, taxes will rise once again.
But the overall lesson to be learned is that Government is, and has always been, a shell game. Its purpose is not to serve the electorate; it is to separate them from the fruits of their labours.
As former US Chief Justice John Marshall stated,
The power to tax involves the power to destroy.
More recently, Ron Holland offered the following:
Since the beginning of recorded history, the business of government has been wealth confiscation.
However, both these individuals were conservatives, and it would only be fair to ask for commentary from the liberal side. One such liberal political leader is none other than Vladimir Lenin, who stated,
The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.
Of course, the reader may wish to consider relocating to a jurisdiction where the taxation is far lower, but if he chooses to remain in the US, EU, Canada, or other jurisdiction where the tax level is already oppressive, his plans should include temporary taxes that are unlikely to end in his lifetime.
Editor’s Note: Few people realize this, but it is possible to escape the US government’s “power to destroy.” Find out how in The American Expatriation Guide: How to Divorce the US Government. Click here to download your free PDF copy now.
Editor’s Note: Our colleagues at The Palm Beach Letter have uncovered a bombshell in Trump’s tax reform plan. Some $2.6 trillion in tax “settlement checks” could soon go out to ordinary Americans. But they’ll have to “register” to collect their share. Click here to find out more.