What Would the Founders Do about Our Income Tax?
WOULD THE FOUNDERS BE SATISFIED WITH JUST ‘SIMPLIFYING’ THE INCOME TAX CODE?
Among the several tax-related bills we analyzed in our annual guide, The Best & Worst of the General Assembly, is legislation purporting to simplify the state’s tax code and lower taxes on South Carolinians. H.3266 would reduce the state’s current six income tax brackets to three tax brackets, although it wouldn’t do anything to lower the rate or raise the income level for the top bracket that affects most citizens. In essence, the bill might make calculation a little bit easier for Department of Revenue employees and tax preparers, but it would provide little in the way of tax relief to South Carolinians.
If passed, the bill would give a surface-level plausibility to some legislators’ claim that the tax code has been simplified and the tax burden lightened. Such a claim would be absolutely false, however: even if H.3266 passes South Carolina will have made no serious effort to reform the tax code or lower taxes, as incidentally North Carolina has.
Do the American founders’ thoughts on taxes afford us much insight into whether and to what extent H.3266 accords with the nation’s bedrock principles? They do. Even aside from the fact that the bill is more of a low-level reshuffling of state regulatory and bureaucratic policy than anything resembling tax reform or tax relief, the founders would have viewed a tax on income – particularly a regressive one like South Carolina’s – as an improper confiscation of the rightful rewards that labor had earned.
In fact, the United States had no permanent national income tax until passage of the Sixteenth Amendment in 1913 (a national income tax existed briefly during the Civil War). A national income tax required the passage of a constitutional amendment since, up until that time, many (correctly) viewed a federal income tax as by definition unconstitutional. That opinion had been affirmed by the Supreme Court in 1895.
As with the national government, most states did not have what we would recognize as a general income tax until the early twentieth century; and indeed many states didn’t pass a general income tax until after the passage of the Sixteenth Amendment.
There are two principal reasons for Americans’ long reluctance to tax income. The first is that the nation’s founders believed that the necessary functions of government could be financed by more limited excise taxes. They believed, second, that citizens were entitled to keep the fruits of their labor, and it was unjust to deprive them of such rewards.
The second reason is the more powerful and sweeping. It springs from the centuries-long British tradition of venerating the right to one’s own property. “A wise and frugal Government, which shall restrain men from injuring one another” remarked Jefferson in his First Innaugural Address in 1801, “shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and thus is necessary to close the circle of our felicities.”
Madison, speaking much later, in 1829, to the Virginia State Convention, thought the whole reason for government was to protect a man’s property from confiscation. “It is sufficiently obvious, that persons and property are the two great subjects on which Governments are to act; and that the rights of persons, and the rights of property, are the objects, for the protection of which Government was instituted.”
Thomas Paine, though not a founder in the technical sense, summarized the American founders’ thinking when he remarked, in the second part of Rights of Man (1792), that “what at first was plunder, assumed the softer name of revenue.” It’s hard to see how a tax on income is anything but plunder: a confiscation of lawfully acquired wealth for no reason other than that it’s there to take.
While South Carolina can do little to eliminate the onerous federal income tax with which Americans are faced today, state government can and should follow both the philosophy and practices of the founding generation by eliminating the state income tax and allowing citizens to keep and dispose of what they have rightfully earned.