Taxation, Representation and Morality

paul revere statue, north end, bostonDSC_0096DSC_0100

My wife’s recent visit to Bunker Hill in Boston on a trip to New England to see her family got me thinking about the “Boston Tea party” and the dumping of tea into the Boston Harbor to protest British taxation. “No taxation without representation” was the rallying cry at that time.

That slogan seems odd today. Taxes are a part of our lives and seemingly always have been. But it wasn’t always like that.

Federal taxation was very limited through the first 137 years after the Revolution. From 1791 to 1802, only certain goods were taxed. Sales taxes were used to fund the War of 1812 but were eliminated in 1817 when the funding was no longer necessary. The first federal income tax was imposed in 1862  to fund the Civil War and was eliminated in 1872 when it was no longer needed.

Until the twentieth century, federal taxes generally, including income taxes, were only used for specific purposes, primarily for protection of the country. That changed in 1913 with the 16th Amendment to the US . That year a permanent income tax was established, and we have not looked back. (Click here for more on the history of taxes.)

The level of taxation to which we have become accustomed is a modern construct, and federal government self-restraint is a now thing of the past.

We have traveled far from the days of the Revolution. Gone is the moral outrage over the taxation, among other things, that led to the Revolutionary War. Now we see a different morality at work that is evident in President Obama’s recent statement, “I don’t care if it’s legal, it’s wrong.” He was speaking of the increased tendency for corporations to move their headquarters out of the US to avoid the payment of higher taxes in the US, but that is an outgrowth of a new moral construct that has at work today.

Bear in mind, the President recognizes that the companies are doing nothing illegal. They are taking advantage of provisions written into the tax code. The present prevailing morality, however, of which the President is the chief spokesman, condemns the avoidance of taxation. Where our leaders once sought to be free of taxation and government rule in favor of private enterprise; now taxation and government control is the moral hue and cry.

Consider this however. There are mechanisms that all people and businesses use to avoid paying higher taxes. Those mechanisms are all written into the Internal Revenue Code. For instance, every person can assert an individual exemption, and taxpayers who are married with children may assert individual exemptions for each spouse and child. Is the use of those exemptions a moral issue?

People commonly refer to these mechanisms that are written into the tax code as “loopholes”. They are not loopholes, really, but provisions that are part of the tax code that are available to people and businesses to reduce the amount of tax they pay. The word, “loophole”, itself, suggests a moral position.

Many of the “loopholes” were designed to encourage certain behavior. For instance, we are allowed to deduct mortgage interest, which is an encouragement for people to buy houses. Deductions for the purchase of energy efficient appliances and home improvements are intended to encourage people to buy them. Charitable donations are meant to encourage charitable giving.

Some might might consider the exercise of individual taxpayers’ rights to minimize their taxes an exercise of individual representation that was won when the founding fathers shook of oppressive British control. But there is a counter revolution that is growing in support. The current Commander in Chief is the most prominent spokesman, but there is also a ground swell of grass roots support.

A large segment of modern US society seems to consider it immoral to avoid taxes, albeit legally. It is a selective morality to be sure. No one seems to argue that individuals should not use the exemptions available to them…. unless they are too successful at using those exemptions. But, where do we draw the line? When is it morally alright to avoid taxes, and when is it morally wrong? Is there a moral obligation to pay more taxes than one should?

Frankly, it is not a moral issue at all, and it never has been. It is control issue. It is an ideological issue. But, it is not a moral issue.

Some tax avoidance devices are are not as straight forward. Some mechanisms may not have been what Congress intended when it passed the current code and the amendments to it, but the mechanisms people use are based on the way the Internal Revenue Code is written. Certainly, the tax code is unnecessarily complicated, and that complexity has spawned a large industry based on maximizing the use of the tax code provisions to minimize taxes.

Instead of condemning behavior that is legal as immoral, albeit legal, should we not focus on changing the tax code instead condemning legal behavior?

That is how it should work, but we have a disturbing trend occurring. Congress is becoming more polarized and less effective and less capable of reaching consensus or compromise to get things done. Most people (even Congressmen) agree that tax reform (and immigration reform and other things) must be addressed, but they cannot work together to get anything done. Members of Congress seem more concerned about getting reelected and pandering to constituents than taking on these issues that must be addressed.

At the same time, we see our current President rushing into the void and wielding an ax and a pen to cut out and to add to the law as he, unilaterally, determines. The rule of law is being jeopardized in the process and power is concentrating in the executive office as it never has before in our history. I would add that it is not the raw number of executive orders and other executive actions, but the character and impact of them that threatens the checks and balances that have protected us from our government all these years.

Government is necessary in a civilized society, but government restraint is necessary in a free society. The larger our government gets, the more it has the ability to become oppressive. The further away from local control government is, the more out of touch it becomes. The larger government gets, the more bureaucratic and inefficient it becomes. These are principles that informed the founders of our country, but we seem to want to abandon them now.

Further, in spite of federal taxation that has been the rule for the last 100+ years, the budget deficit swells out of control. That is a moral issue, in my opinion, as we add every day to the burden our children and grandchildren will have to carry.

We are tending in a direction that I think our founding fathers would find frightening and disheartening. Taxation in and of itself is not a bad thing, but the rallying cry today might be, “No taxation without self-restraint!”

Congress does not effectively represent the people at this time in our history. The areas that most people agree need to be addressed are not being addressed because of partisanship, factions, incivility and unwillingness to compromise. Rhetoric on both sides is becoming increasingly polarized. Even our media is now partisan. At the same time, we see an increasing tendency toward a moralism that is above the law. That moralism is becoming the justification to make unilateral decisions that are not representative of the people, but representative of an ideology.

The combination of Congressional inaction, unilateral executive actions and selective enforcement of existing law is triggering state and individual reaction. There is change in the wind. The forces are lining up on either side and digging in. The future is at stake and the outcome is uncertain.

Change is inevitable, but will it be change that is representative of the people? Or will it be change that is imposed by a moral elite from the bully pulpit with the force of a powerful, central government that is loosing touch with the people?

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