The Sixteenth Amendment to the U.S. Constitution was ratified
one hundred years ago in 1913. It stated simply: “The Congress
shall have 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.” Given President
Obama’s insistence that individual tax rates on the rich, as he
defines “rich,” based on unelaborated Obamian principles of
“fairness” that appear to have no bounds, it is time that we amend
our Constitution to limit the ability of our Federal Government,
and our state and local governments, to tax.
First, a word about the principle of fairness. Arguably, based
on IRS figures, fairness would dictate that the tax rate on the
“rich” should be decreased while the tax rate on the middle income
should be increased. As Peter Ferrara
pointed out on this page on December 5: “[A]ccording to
official IRS data, the top 1 percent of income earners pay 39
percent of all federal income taxes, three times their 13 percent
share of income, and [] the middle class, the middle 20 percent of
income earners, pays less than 3 percent of all federal income
taxes, while earning 15 percent of income…”
And I don’t understand why it is fair to have the majority vote
to increase taxes on the “rich.” Why is it fair for people to vote
to increase the taxes of some others but exempt themselves? I might
add here that I find it remarkable that exit polls showed that 60%
favored increasing the taxes of the wealthiest 2%. Why do I find
this remarkable? Because only 60% favored it. Why would
not 99% (everyone in the 98% and half of those in the top 2%) favor
it? It may be that the middle class may know they will be next. As
the President
stated at a private home in Virginia on December 6, “Everybody
is going to have to share in some sacrifice, but it starts
with folks who are in the best position to sacrifice…” (italics
added). It starts with them, but will soon be coming to the rest of
you.
In France, President François Hollande has proposed raising the
highest tax rates to 75%. In principle, there is no reason that
such rates, or higher rates, could not be imposed in this country.
When the Sixteenth Amendment to our Constitution was drafted, it
should have included some form of cap. It is now right to put caps
into our Constitution rather than to rely on statutory law since,
as have seen, statutory law is subject to the vagaries of a vague,
unprincipled President and his Democratic Senate majority who think
they have received a mandate from the people in the 2012 election
that exceeds the mandate of the Republican majority in the U.S.
House of Representatives in the very same election.
While a Balanced Budget Amendment may still be useful and have
its independent rationale, it is time to limit the government’s
ability to tax. It is proper to insert such a limit in the
Constitution because limiting government was the rationale of the
American Revolution and is the subject of much of the Constitution
and its Bill of Rights.
The limits should appear in two ways. First, some forms of
taxation should be barred — by all levels of government: federal,
state and local. The precedent is California’s Prop 13 of 1978
limiting taxation of real property.
Two such forms we should consider are estate taxes and taxes on
dividends. The assets that form your estate at death were taxed at
the time they entered your estate. There is no reason to tax them
again when these assets leave your estate and go to your charities,
spouses, children, grandchildren, and other beneficiaries.
Similarly, profits of corporations were taxed before
dividends were declared. Dividends are paid after
corporate taxes are paid. There is no reason to tax these dividends
when stockholders receive them. At one time stocks were owned by
the “rich.” That is no longer the case. A huge percentage of
Americans own stock directly, or through their personal retirement
plans (401ks and IRAs), or through their union or employer pension
plans.
A third form is the exclusion from taxation by all levels of
government of money spent on health care. This is treating health
care like food. Many states exempt groceries from sales taxes.
Health care and food are necessities. Instead of narrowing Health
Savings Accounts as Obamacare did, we should expand the
non-taxation of health care expenses. This would help the poor, the
middle class, the elderly, the chronically ill, immensely.
The second form in which limits should appear in an amendment to
the federal Constitution is a numerical percentage cap. We have had
an Alternative Minimum Tax (AMT) for 30 years. We should have a
Maximum Tax. Just as a taxpayer now first prepares a tax return
according to normal tax principles, and then prepares an AMT, the
taxpayer would then prepare a return that shows the Maximum Tax and
would pay the lesser amount.
The language of the Constitutional amendment may be like the
following: “No person shall pay taxes on gross income or on
property in a year that shall exceed X% in all federal taxes, Y% in
all state taxes, and Z% in any other governmental taxes.” The
language should be kept simple.
I write “all federal taxes” and “all state taxes” because I
would include every form of federal taxes, every form of state
taxes, every form of local taxes — income, personal property, real
property, sales taxes, occupational taxes, excise taxes. So
limited, no level of government could shift taxation from a limited
form to an unlimited form of income or property.
Businesses could continue to grow and pay additional
taxes in absolute dollar amounts; it is the percentages
that would be capped. Also, I would not necessarily distinguish
between individuals and their businesses, or between small and
large corporations.
I would allow for an exception to the federal cap in the case of
a national emergency — declared by the president and confirmed by
two-thirds of Senate and two-thirds of governors, for a term of one
year, renewable by same process. We could consider how to
anticipate an emergency limited to one or more states that did not
arise to the level of a national emergency.
I would also want to consider how to address the temptation of a
taxing authority trying to bypass these caps by artificially
increasing the value of assets.
Maybe a Max Tax Constitutional Amendment should be included in
the negotiations on the fiscal cliff or the debt ceiling. If Obama
succeeds in raising tax rates, maybe it should be the last time any
President or Congress does so.
