Dr. Keyes is founder and chairman of the Declaration Foundation, a communications center for founding principles. This article first appeared in Business Reform Magazine, a Christian business magazine applying God's Word in the workplace.
Any businessperson who is also a serious citizen and Christian knows that few aspects of business can be completely cut off from the life of citizenship or of faith. Respecting the moral integrity of the people who are my business associates and customers is not just good business. It is also the crucial daily work of citizens in a free republic, and of believers seeking to respect the image of God in their brothers and sisters.
Americans are blessed to live in a regime of liberty, including economic liberty, founded in respect for the principle of equal human dignity as the gift of God, the Creator. In America, from the beginning, economic liberty, political justice, and shared friendship with God have been understood as compatible, even essentially linked, human goods.
Accordingly, Americans have a responsibility to approach economic questions in awareness of the political, even religious, implications of the choices we make. We, the people, are responsible for making decisions of economic policy that respect and confirm the equal dignity of our fellow citizens under God. Our economic debates need not, of course, be explicitly theological. But an understanding of American citizens as self-governing, rational, equal, and morally responsible agents must be the fundamental context in which our economic policies are evaluated and chosen.
In this sense, the debate over the national tax system is not a merely economic issue, but a political question of justice and of our equality as morally responsible before God. America was born in a dispute about taxes that inspired, ultimately, the great statement in the Declaration of Independence that all men are created equal. Today's simmering revolt against an oppressive and humiliating tax system is important for many of the same reasons. So let me turn now to a more detailed discussion of what is at stake for America in the issue of “tax reform.”
“Fundamental” Reform?
Few issues provide such an enduring occasion for political debate as the question of how to fund the activities of the federal government – the question of taxes. In recent years, we have approached national agreement that the current system is deeply and perhaps fatally flawed. Accordingly, the politicians have presented various versions of what they call “fundamental reform.”
But much of the talk of fundamental reform is really an effort to tinker with the existing tax system, in order to help diffuse growing public discomfort and even outrage. Few political leaders are willing to consider the most necessary change, because it would involve removing politicians from their gatekeeper role over the income and resources of all Americans.
Real reform requires abolishing the income tax and returning to the system our Founders intended, funding the federal government with tariffs, duties, and excise taxes – sales taxes – not with the privacy-destroying income tax. We should return to the original, constitutional tax system of the United States of America.
Our Founders frequently quoted a principle from Blackstone's commentaries on the laws of England: “A power over a man's resources is a power over his will.” To control the resource base of a decision-maker is to control his decision. But the ultimate decision-maker in American life and politics must be the people. And the people cannot be free without a resource base of material comfort and sustenance free from government domination or control. A tax system putting government in control of the people's income irresistibly tends to put government in control of political decisions as well.
The Founders sought to avoid this path to tyranny. So they made a direct tax on the income of individuals unconstitutional.
The Slavery of Income Tax
The reversal of that founding wisdom came during the “progressive” era, at the beginning of the twentieth century. A mentality of class warfare prevailed at the time, a first flush of socialism in American life, and the income tax movement was one of its results. With this mentality setting farmers against industrialists, urban folk against rural, and poor against rich, everyone was led to expect that an income tax would hit the other group harder. Chiefly, of course, the argument was that the rich would pay a disproportionate share. One thing they didn't tell us was that in this socialist scheme anyone with a private dollar is suspected of being too rich.
We ought to have realized that the income tax is utterly incompatible with liberty – it is actually a form of slavery. A slave is not someone with nothing, but someone denied control over the fruit of his labor. A slave is someone who has only what the master lets him have.
Under the income tax, the government takes whatever percentage of the earner's income it wants. The income tax therefore represents national surrender to the government of control over all the money we earn. There are, in principle, no restrictions to the preemptive claim of government upon our income.
No American government has seriously pressed this preemptive claim on our income to its logical conclusion, the explicit demand that all income is to be handed over to the government, and any private expenditure made subject to government approval. But we are deeply unwise to underestimate the power of the confiscatory principle in the hands of a government determined to pursue its advantage. The federal government could bankrupt the country in short order, merely by more aggressively expropriating the money we have already agreed it has the right to take.
The withholding tax system disguises this dangerous loss of control. One of the effects of withholding is that we don't even realize that government money is actually our money. Most of us think that only our net pay – our actual paycheck – is our money, and what is withheld is the government's money. We tend to think this because the government simply grabs part of the money we have earned. I once heard a caller to a talk radio show object to the proposal that taxpayers pay for the savings and loan debacle, demanding instead that the government pay for it, as though the government could pay for anything without using dollars taken from us!
The income tax threatens our liberty in many ways, but surely the most alarming and outrageous is its requirement that we surrender our privacy by exposing all the sources of our income to the government. One of the prudent protections of liberty is to treat the government that today seems to be your friend as if tomorrow it could become your enemy. No army exposes all of its lines of supply and all of its resources even to its allies, much less to its potential enemies. And while our government is not our enemy in the traditional sense, our Founders were ever mindful that liberty depends upon vigilance against the temptations of tyranny. That's why, if we mean to retain our freedom, it is our duty to maintain material resources for action that the government cannot control and manipulate. But with the income tax we surrender the ability to maintain economic associations without the knowledge of the government.
It gets even worse, particularly for Christian believers. Through government social engineering, such as bestowing a revocable 501(c)3 non-profit status on our churches, the government is able to manipulate the tax system in order to gain control over our institutions of conscience, character, and moral formation. The American Revolution itself would never have happened without the courage of such institutions, particularly our churches. The same is true of the abolitionist movement, and of all the other great movements of conscience in American history. These efforts were decisively motivated by principled private associations. The role once played by those institutions in boldly challenging us to oppose inroads against our liberty has been gutted. As a result of the income tax we have subjected the entire sector of conscience to the control and manipulation of the government, muffling what ought to be the voice of independent faith and conscientious action in our society.
We don't need to “improve” the income tax. We need to get rid of it, and return to the original design of our Founding Fathers. Theirs was the simple and clear vision of a citizenry with control over the money it worked to earn, and with the corresponding ability and independent judgment to exercise its rightful authority over government.
A National Sales Tax
Whether to save our money, spend it on necessities, or spend it on luxuries was to be a matter of the sovereign liberty of the citizen, who would make the first decision of what to do with every dollar. Under a national sales tax, this is exactly what would happen. Only after we decide what to do with our money can the portion used for purchases in the open marketplace be subject to tax.
The sales tax requires no surrender of privacy, no confession to the government of our entire economic life.
On the other hand, a sales tax would make it much harder to avoid paying legitimate federal tax without good reason. A sales tax on end user products is a more equitable system, because the incidence of taxation is more evenly distributed throughout the population. Those in criminal enterprises who have never filed a federal tax return would have to pay the national sales tax charged by the merchants who provide their goods and services. When such a person enters the marketplace to make a purchase he would pay the tax that everyone else is paying.
But under a national sales tax system, equity would not come at the price of giving up control of our money. Rather, a national sales tax would restore to American working people their control over the incidence of taxation. Only the relatively well-off have that opportunity under the present system, because they can hire lawyers and accountants to calculate the most advantageous tax strategies, and take advantage of arbitrary technicalities.
The most important goal of tax policy must be reclaiming control over the incidence of taxation – on which dollars and on how much of our income tax actually falls. Today, the incidence of taxation is entirely out of the control of most working Americans, because it is determined by politicians and bureaucrats and manipulated by clever lawyers and accountants. The liberating power of a national sales tax system is that it would end the control of these few elites. Under a sales tax system, individual citizens would again be sovereign in deciding how much of their money will be subject to the tax at any given moment, according to their particular financial circumstances. Such a system will give us back a control over our money that we have not had in generations, since the income tax was imposed.
And that control will be financially crucial to families. When times are tight, instead of praying that the politicians pass a beneficent tax cut, every American will have the power to give himself a tax cut just by changing the pattern of his own spending and saving. We already reduce our discretionary expenditures when money becomes tight, and under a sales tax system our tax burden would also become a discretionary expenditure.
Returning to Liberty
Congress will pass a national sales tax only when the people insist on it. To bring this day closer, it will be necessary to turn the attention of grassroots America to the real tax debate. That debate is not only about the rate of taxation or bloated size of government. Most importantly, it is about the right to property and the preservation of our liberty. Americans must come to see that the tax reform we so urgently need is not more back room manipulation of the income tax and its ever-mutable rates, schedules, and regulations, but it is rather a total replacement with the system our Founders intended.
We must remind our fellow citizens that the income tax is less than a hundred years old, and that the nation did fine for a long time without it. A national sales tax is not a radical new proposal, but is actually a return to the sensible and consistent understanding of liberty that the Founders of America established from the beginning. Returning to a sales tax is sound conservative thinking, which restores the system of taxation that stood the test of time in its proven compatibility with liberties of our people. The Republic survived difficult trials in its early years in part because we had a tax system that left the citizenry independent enough to successfully discipline their government.
America was built by people who used rightly and nobly the control over their actions and resources that a wise political order secured to them. The income tax expropriates the independence that made possible American prosperity, American character, and ultimately American self-government. By keeping the income tax we are inexorably encouraging the moral poverty – the poverty of motivation, of discipline, and of responsibility – that we all sense has deepened in the America of recent decades.
By wisely turning back now to the wisdom of our Founders, we can renew an economic environment of wholesome motivation in which responsibility pays, and in which discipline makes a difference. Real tax reform can help us make an historic break with the servile and passive habits of recent years, and begin a new era of confident liberty. If we still believe we deserve – and have the capacity – to be free, ending the income tax is a duty to ourselves, to our posterity, and, we must not shrink from acknowledging, to the God who created us equal that we might govern ourselves in justice.
