THE REASON FOR OUR NATIONS GROWTH and PROSPERITY.
William G. Burmer
The Constitution opened the doors to the emigration of a number of inventors, and scientists to develop and sell their ideas. They were able to receive personal patents, and to capitalize from their discoveries. For centuries European growth languished because any inventions or discoveries made, if exposed for use, became the property of the state. Little or no incentive was given to the provider of an invention or discovery to reveal their secrets. The new Union became a refuge for their talents.
“Congress shall have power to promote the Progress of Science and useful arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” (Article 1 Section 8, U.S. Constitution.)
This new industrial boon in the United States created immediate wealth for some individuals. However, divisions between those who provided the jobs, and those who provided the labor arose; small business successes lived and died at the whim of larger monopolies. There also arose divisions between the individual states over apportionment.
Apportionment meant that some states were required to pay higher excise taxes than another. The economic status previously enjoyed by the farmer declined in favor of urban industries. Railroads for instance were unrestricted on how they administered fees for service. Numerous social and economic ills developed not anticipated by leaders in government. In addition the nation’s money supply had not kept up with the population growth; and as a result was worth less. The nation was now experiencing growing pains, and was struggling to meet new and unanticipated demands upon government for solutions to these ills.
Beginning with Benjamin Harrison’s election in 1888: “The administration attempted to solve pressing economic problems by passing four important laws in 1890. The Sherman Antitrust Act, outlawing trusts and monopolies that hindered trade, met the demands of farmers and small businessmen who sought protection from corporations that controlled market prices and destroyed competition. The Sherman Silver Purchase act, increasing the amount of silver that could be coined, reassured farmers who believed that the free coinage of silver would avert bankruptcy and foreclosures, which were threatening because of failing farm prices. The McKinley Tariff Act, setting tariffs at record highs, was designed mainly, to protect American manufactures during a period of rapid industrialization. The Dependent Pension Act, which benefited all Civil War veterans who could not perform manual labor, was passed despite the fact that the resulting cost of pensions would rise from $88 million in 1889 to $159 million in 1893.”2.
The issue of silver coinage to boost the falling gold price during the 70’s and 80’s became moot with the discovery of gold in the Klondike in 1896 and in South Africa ten years previous. This new discovery eventually enlarged the national money supply. Silver thereafter remained a useful means of boosting the money supply in the United States. It has always been used as a medium of monitory exchange in Europe, most notably in Spain.
In the interim, Congress enacted legislation introducing a flat tax of 2% on all annual incomes over $4,000.00. This was the Wilson-Gorman Tariff Act, or the income tax act of 1894. Challenged in the Supreme Court under Pollock vs. Farmer’s Loan and Trust Co. 157 U.S. 429 and at 158 U.S. 601 (1895), this decision defined the issue of a direct tax.
Pollock filed a stockholders suit against the Trust Company to prevent it from complying with the Statute, which imposed a direct tax without apportioning it among the states on the basis of population. Mr. Chief Justice (Melville Weston Fuller 1833-1910) delivered the opinion of the Supreme Court:
“Our conclusions may, therefore, be summed up as follows: First: We adhere to the opinion already announced, that, taxes on real estate being indisputably direct, taxes on the rents or income of real estate are equally direct taxes. Second: We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes. Third: The tax imposed by sections 27 to 37, inclusive, of the act of 1894, so far as it falls on the income of real estate and of personal property, being a direct tax within the meaning of the Constitution, and therefore, unconstitutional and void because not apportioned according to representation, all those sections, Constituting one entire scheme of taxation, are necessarily invalid.” 3.
One needs to study carefully the entire text of Pollock vs. Farmers’ Loan and Trust Co., however, in brief; the Court held that the Congressional power to levy a direct tax was only to be used in cases of necessity such as in the Civil War, where greater sums of money were needed to support the troops. In addition, direct taxes were to be collected according to apportionment (Census). If a particular states population represented 2% of the total population, then the State would collect 2% from the taxpayers to be paid to the National treasury.
Another element, which controlled the Direct Tax, was that of Representation. The taxpayer requires their representative to qualify any continued need for the tax or risk a voter’s judgment, as to their devotion to duty, at the ballot box. Here again the people controlled the purse strings in the Congress. (Taxation with representation). The people determined the need to continue any direct tax.
“In his dissenting opinion Justice Harlin . . . complained that parts of the statute which were not unconstitutional, may be reenacted by Congress.
“The decision, said Brown . . . made the tax burden fall most heavily and oppressively upon those having the least ability to pay. “With the defeat of the 1894 Tax Act, (--the Pollock case—has never been challenged)
Congress raised almost all of its revenues from excise taxes and tariffs, whose burden fell mainly on the consumers. The Democratic Party, in the mean time, recommended an amendment to the Constitution vesting Congress with the power denied by the Supreme Court. For another 18 years while Congress, the legislators, educators, and bankers argued the merits of amending the Constitution, Americas misdistribution of wealth intensified while the great fortunes went un-taxed.” (Ital. Added)
President Theodore Roosevelt suggested that a “Graduated income tax of the proper type would be a desirable feature of federal taxation, and it is to be hoped that one may be devised which the supreme court will declare Constitutional.” 4
President Taft on June 16, 1909 said: “Although I have not considered a constitutional amendment as necessary to the exercise of certain phases of this power (the direct tax), a mature consideration has satisfied me that an amendment is the only proper course for its establishment to its full extent . . . I have become convinced that a great majority of the people of this country are in favor of . . . an income tax.” Spoken like a true politician. Ital. Added
Mr. McCall, of Massachusetts, in the Congressional record, Vol. 44, Part IV, p 4391 stated: “I imagine that nothing which I may be able to say will defeat the prearranged program . . . for the House to . . . pass a joint resolution without first considering it by committee, strikes me as a proceeding of extra ordinary levity.” Here again if the bill had gone to committee our representative would have been made aware and so might the taxpayer. “The object of the pending Constitutional Amendment is to simply remove this discrimination (direct tax) and to make it possible to tax incomes without apportionment.” Ital. Added
Alexander Hamilton in the Federalist Papers, No35, said, “It is dangerous to use only one kind of taxation. If great revenues are needed in time of war or a national emergency, the tax rates for this single tax will become excessive. This will foster evasion and hurt commerce.” (Our income tax has certainly done that, that is,” foster evasion”)
Hamilton’s thinking is as sound today as it was then. When great revenues are needed Congress should have many sources, thereby spreading the burden over all wealth, not just income . . . Make our federal tax system indirect as much as possible. An indirect tax is one that is not assessed against the individual. See original intent as engrossed in the constitution, Article 1, Section 9, and Paragraph 4. Montesquieu, a French philosopher whose political ideas influenced the writers of our Constitution said: “Direct taxes are the badge of slavery, and indirect taxes the badge of liberty” 5.
“. . . A government may make all kinds of laws and regulations for the good of a society, but when it came to tax, tax laws had to have the consent of the taxpayer; other laws did not. Lord William Pitt, who tried hard to prevent the Revolution in the colonies, explained the concept with these words: “taxation is no part of the governing or legislative power. The taxes are a voluntary gift and grant of the Commons alone. 6.
“He was supported by a large number of leading British statesmen, one none other than the Chancellor of the Exchequer, Lord Camden, who served from 1766 to 1770 and who helped in the repeal of the Stamp Act; Said Camden: “My position is this---I repeat it---I will maintain it to my last hour, ---taxation and representation are inseparable---this position is founded on the laws of nature; it is more, it is itself and eternal law of nature, for whatever is a man’s own, is absolutely his own; no man hath a right to take it from him without his consent, either expressed by himself or representative; whoever attempts to do it attempts an injury; whoever does it commits a robbery; he throws down and destroys the distinction between liberty and slavery. Taxation and representation are coeval (coexistent) with and essential to this constitution.’ Ital. Added
“. . . A hundred years later the concept was still alive, and had been very much alive in the nineteenth century. Thomas Cooley, the leading constitutional law scholar of the age, explained the meaning of arbitrary taxation: “Taxes are distinguished from arbitrary levies in that they are laid according to some rule which apportions the burden between the subjects thereof. An exaction, which is made without regard to any rule of apportionment, is therefore not a tax. “If it is not a tax, what is it? Justice Cooley, like so many in the nineteenth century, was probably a disciple of Adam Smith, or at least a scholar who respected the founder of modern economics. Smith had said when you abandon the principle of apportionment; you enter the realm of extortion.” 7.
2. Encyclopedia Americana, The. Vol. 13 p 819-20.
3. Encyclopedia of the American Constitution. p 1423
4. The income Tax pp. 471-2 York. Oxford University Press.
Seligman, Edwin R. A. The Income Tax. A Study of the History, Theory, and Practice of.
5. Ibid. p 468.
6. Ibid. p 282-3
7. The Income Tax pp. 464-465
Next: THE INTERNAL REVENUE SERVICE A Short story.
“WE THE PEOPLE” and the American Constitution
By: William Grant Burmer ISBN 978-1-4363-2186-0
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