All Commentary
Tuesday, August 1, 1995

Taxation and Confiscation

What Should We Tax and in What Amounts?

Washington lawmakers are slowly beginning to admit a fact many of us have known for some time: our tax system is broken beyond repair. The grumblings have led to a stream of major tax-change proposals such as I have not seen in 15 years. Some advocate a flat tax, and others seek an even steeper graduated tax. Some call for a European-style value added tax and still others hope to create a pure consumption-based sales tax.

The center of the debate is the question of what type of tax system will raise the revenue demanded by the federal government. Lawmakers wrestle with increasing deficits and what appears to be a decreasing tax base. Since wages and income are the base upon which 80 percent of all federal revenue is raised, and since real wages are in decline, the genuine question of “what to tax and in what amounts” seems difficult to answer.

Throughout the entire debate, however, we have not seen the joinder of what I believe is the seminal question. The questions of what to tax and in what amounts are, in fact, secondary. The principal question America should be asking is whether to tax in the first place. Taxation, after all, is the primary means by which the functions of government are carried out. If we do not address the seminal question of whether to tax, the supposition is that any action the government undertakes is legitimate, providing it can be funded. This supposition is not only erroneous, it is most dangerous, as evidenced by our current federal debt.

The essays presented by FEE in Taxation and Confiscation are particularly relevant to this debate. Not only do the various authors address the secondary questions of what to tax and in what amounts, but the crucial threshold question is reached. In this regard, I am particularly impressed with Clarence Carson’s discussion of the “general welfare” clause of the United States Constitution. I am well satisfied it is the single most misunderstood phrase in the Constitution, if not the entire body of American law.

The “general welfare” clause has been used, or rather misused, to erect a welfare state which our Founding Fathers clearly never intended. In Taxation and Confiscation, Carson establishes the true meaning of the phrase, then skillfully answers the question of whether to tax. Until we all understand what he teaches, I fear there is little hope of dismantling the costly federal leviathan.

The collection of essays which comprise the pages of Taxation and Confiscation go well beyond this issue. From the pen of various authors, including William Henry Chamberlin and Ridgway K. Foley, Jr., we are taught important lessons about the nature of a fair tax system and the elements of the economy which form a sound tax base.

Another issue which is treated extensively in the book is the question of whether and to what extent a tax system should impose burdens upon capital. Authorities including Hans F. Sennholz, Robert G. Anderson, and John Semmens paint a clear and unmistakable picture of the relationship between capital and strong, sustainable economic growth. The case is plainly made for relieving the tax burden on America’s capital.

The one drawback to the book is the fact that some of the essays present economic statistics which are out of date. For example, the essay by Christopher Witzky and Rolf Wubbels addresses the negative effects our tax system has on national rates of savings and investment. The article, entitled “Government Policies and Capital Growth,” appeared originally in the October 1981 issue of The Freeman. It is important to note the principles outlined in this essay, and throughout the book, are timeless. Still, I would have liked to see more up-to-date numbers to illustrate the points made.

Overall, Taxation and Confiscation is a tremendously important guide to those of us who will shape tax policy over the coming years for the United States. It provides the solid support needed to help agitate in favor of a non-graduated tax system, a system which is simple, fair and efficient, and one which encourages savings and investment, as opposed to the current system in which none of these elements is present. Even better, the guide helps to measure the current proposals coming from Washington against these critical yardsticks. []

Mr. Pilla, a tax litigation consultant from St. Paul, Minnesota, is author of eight books dealing with taxpayers’ rights issues and tax policy and editor of a monthly newsletter, Pilla Talks Taxes. He is also the co-founder and executive director of the Tax Freedom Institute. His radio commentary, The Tax Rescue Minute, is syndicated nationally by the U.S.A. Radio Network.