Thursday, April 11, 2013

The Real Tax "Loophole": The Sixteenth Amendment

This letter appeared in the NJ Star-Ledger on March 8, 2013:

Part of the problem 
Closing the loopholes sounds easy enough and certainly seems like the right thing to do, but why don’t we do it? I agree with “Jersey’s budget solution hiding in tax loopholes” (op-ed, March 6). We can fix many of our budget problems by plugging up the loopholes. 
It’s about time we stood up to the wealthy, powerful people and businesses that are greedy. The problem is many of the lawmakers are the wealthy and powerful, and are invested in these businesses. It’s no wonder the problem is not fixed. 
Carlo A. Canestri, Franklin Park

I left these comments:

RE: Part of the Problem

The common reference to tax deductions, credits, etc. as "loopholes" is implies an inverted moral premise; that the government has an inherent claim on America's wealth, and whatever portion of our money we get to keep is only by grace of government permission. This tribal view of wealth is factually and morally wrong.

Money is created by productive individuals, and is first and foremost the individual earner's rightful property. Any legal means of avoiding taxes is not a "loophole," because the individual who earned the money, not the government, has first claim on that money.

The people who take advantage of tax deductions and credits to keep more of their own money are not the greedy ones. It's those who want to take their money who are the truly greedy. The real tax loophole is the Sixteenth Amendment, which allowed government to seize people's income.

Is the Sixteenth Amendment unconstitutional? To say I'm not an expert on constitutional law would be an understatement. Acknowledging that, here are a few thoughts on the question.

The constitution is vague on this point. It doesn't specifically authorize a broad-based tax like the income tax. But, it does authorize the federal government to "lay and collect taxes." It also forbids government from seizing property without due process. Given the protections of property rights coupled with the tax clause, it logically follows, in my view, that the government may collect narrowly defined taxes directly related to the exercise of its enumerated powers. I find it hard to swallow that the Founders would have ever sanctioned a federal income tax. Therefor, given that no such tax authorization specifically exists in the original constitution, my conclusion is that the income tax is unconstitutional. The 16th Amendment is, therefor, invalid.

One thing is sure. A general tax on income violates individual rights. Sure, people have a moral obligation to pay for the governmental service of protecting their rights. But, taxes--ideally of the voluntary variety--should be narrowly tailored to specific, clearly defined purposes like paying for the local police or to maintain a military. To have government seize the individual's earnings for whatever purpose it chooses, whether technically constitutional or not, is a loophole of statism in the philosophical framework of this nation.

Related Reading:

In the Spirit of "Compromise," How About a Flat Tax

'Loophole': Anti-Euphemism of Statists, by Craig Biddle

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