The Unseen Hand - Ralph Epperson

Graduated Income Taxes

Author and economist Henry Hazlitt observed in his book Man vs. the Welfare State:

"In the Communist Manifesto of 1848, Marx and Engels frankly proposed a 'heavy progressive or graduated income tax' as an instrument by which the proletariat will use its political supremacy to wrest, by degrees, all capital from the bourgeois, to centralize all instruments of production in the hands of the State, and to make despotic inroads on the right of property . ."

How does the graduated income tax wrest property from the "bourgeois" (the propertied class?)

The graduated income tax increases the percentage of tax withdrawn from the taxpayer's income as his income increases. (A cartoon recently appeared in a newspaper that showed a husband explaining to his wife: "The 8 percent raise we got raises us even with inflation, but in a higher tax bracket We lose $10 a week!")

Karl Marx was the visible author of the plan of using the graduated income tax and the central bank together to destroy the wage earning middle class. And Senator Nelson Aldrich was the individual who introduced the legislation in the Congress of the United States that gave America both the graduated income tax and the central bank!

An example verifying the simple cartoon can be taken from the income tax tables prepared by the Internal Revenue Service:

Income: Tax: Percent income:
$5,000 $810 16%
10,000 1,820 18%
20,000 4,380 22%

Notice that as the income doubles, taxes go up as a percentage of that income because of the graduated features of the Personal Income Tax. In other words, those who belong to unions that claim that they have assisted their member- workers by obtaining a "cost of living increase," pegged to inflation rate increases, have in truth been hurt by their unions who did not include an increase to provide for the graduated income tax. What the unions should insist upon is a "cost of living increase, plus a graduated income tax increase" for their members. Notice that this generally doesn't happen. In fact, the unions are frequently blamed as being the cause of inflation, a charge not often refuted by the unions.

When the Graduated Income Tax was finally passed as the 16th Amendment to the Constitution, there were those who were in support of the Amendment that claimed that the tax imposed was not significant. They argued:

"No one who had taxable income under five thousand dollars had to pay any income tax at all.

"When (the wage earner) reached that sum all he had to pay was four-tenths of one percent—a tax of twenty dollars per year.

"If he had an income of ten thousand dollars, his tax was only seventy dollars per year.

"On an income of one hundred thousand dollars, the tax was two and one-half percent, or twenty-five hundred dollars.

"And on incomes of half a million dollars the tax was twenty-five thousand dollars or five percent."

But even this minimal tax could not fool those who felt that the tax would become an oppressive burden on the American taxpayer in the near future. During discussion of the Amendment in the Virginia House of Delegates, in 1910, Speaker Richard R. Byrd expressed his opposition to the income tax, by warning:

"It will extend the federal power so as to reach the citizen in the ordinary business of life.

"A hand from Washington will be stretched out and placed upon every man's business; the eye of a federal inspector will be in every man's counting house.

"The law will of necessity have inquisitorial features; it will provide penalties.

"It will create a complicated machinery. Under it business will be hauled into court distant from their business.

"Heavy fines imposed by . . . unfamiliar tribunals will constantly menace the taxpayer.

"They will compel men of business to show their books and disclose the secrets of their affairs

"They will require statements and affidavits . . . "

During the debate on the Amendment in the Senate, several Senators expressed the fear that the low tax rate would only be a beginning of higher taxes. One Senator suggested that the rate would increase to perhaps a rate as high as twenty percent of a taxpayer's income.

Senator William Borah of Idaho felt that such speculation was outrageous, declaring: "Who could ever impose such a confiscatory rate?"

But even with opposition and concern such as this, the Graduated Income Tax became the 16th Amendment to the Constitution on February 25, 1913.

What has happened to the taxpayer since the 16th Amendment has passed can be illustrated by the following table:

Year Income tax per capita
1913 approximately: $4
1980 approximately: $2,275

(That 1980 per capita tax amounts to about 40 percent of total personal income.)

A monitor of the impact on these income taxes upon the average wage earner is a group called the Tax Foundation, and they have coined a name for the day on which the taxpayer actually begins earning for himself. They call this day Tax Freedom Day, and that day has been occurring later each year in the following way:

Year Tax freedom day Percent of year completed
1930 February 13 11.8
1940 March 8 18.1
1950 April 4 25.5
1960 April 18 29.3
1970 April 30 32.6
1980 May 11 35.6

That means that, in 1980, the average wage earner worked 35.6 percent of the year, until May 11, for the government From that day on, what the wage-earner earned belonged to the individual.

Even though the tax was sold to the American people as a "soak the rich" scheme (making the rich pay the most taxes as a percentage of thenincome) it is the middle class income wage-earners who pay the majority of the taxes. This point was made clear by an Associated Press article on September 13, 1980, headlined: "Middle-incomers may be a minority, but they pay 60.1% of all taxes." 5

The article went on to report that tax returns with incomes:

  • under $10,000 accounting for 43.9 percent of nearly 91 million returns paid only 4.4 percent of the total.
  • incomes of from $15,000 to $50,000 were 38.2 percent of the returns processed and this group paid 60. 1 percent of the tax; and
  • incomes of more than $50,000 made 2.4 percent of the tax returns but paid 27.5 percent of the tax.

Now that the income tax and the central bank were in place, the planners could more rapidly increase the size of government For instance, Franklin Roosevelt was President in 1945 when the Federal Government spent a total of $95 billion. 1945 was obviously during World War II and the people expected a government to increase spending to pay the costs of the war. But since that time, government spending has truly escalated, as is illustrated by the following:

Year President Proposed the first
1962 John Kennedy $100 billion budget
1970 Richard Nixon $200 billion budget
1974 Nixon-Gerald Ford $300 billion budget
1978 Jimmy Carter $400 billion budget
1979 Jimmy Carter $500 billion budget
1981 Carter/Ronald Reagan $700 billion budget
1984 Reagan $800 billion budget
1986 projected $900 billion budget
1988 projected $1,000 billion budget

It is certainly a truism that the larger the budget, the more possibilities there are for waste to creep into the spending by the government In fact, as will be discussed in a later chapter of this book, government is intentionally wasting money by finding wasteful ways to spend it If government spending is a goal, then government waste is one easy method to increase government spending.

This would, at least partially, explain why such articles as these appear in America's newspapers and magazines, often without further action by the government:

"Welfare overpayments pass $1 billion mark."

"Billions down the Pentagon drain."

One other indication that the federal government was intentionally wasting money came from an article authored by Dr. Susan L.M. Huck who discovered that for the eighteen years since its inception in 1954 (until 1972) the budget for the Department of Health, Education and Welfare, (the HEW) had grown from $5.4 billion to $80 billion. But the most startling discovery of all was that "the Establishment Insiders set a 27.5 percent annual increase as their goal for the budget . . ."

In other words, the budget increases were set according to a predetermined percentage: the budgets were not set on need, but on spending money. HEW was obligated to spend a certain amount of money each year, whether or not there was a need to spend it! The HEW had to find ways to spend money! Spend, even if you must waste!

The spending continued after Dr. Huck's article. For instance, HEW spent over $200 billion in the 1979-80 fiscal year.

But this agency is riot alone in increasing the spending of government. In fact, seminars are now being promoted which instruct the attendee on "How to get More Grants" from the federal government.

Such spending proposals have been borne by the tax-paying American citizen as per capita spending by the Federal Government has grown from $6.90 per-capita in 1900 to over $3,000 in 1980.

This increase in spending enables the government to increase the deficits each year, thereby causing the national debt to increase. The increase in this national debt enables those who loan the money to the government, the central bank, in the United States the Federal Reserve, to charge interest payments to be paid for by the taxpayer.

The connection between government spending and the national debt and its annual interest payments can be illustrated in the following table:

Year National debt Per capita Annual interest
1845 15 million $ -74 $1 million
1917 3 billion 28.77 24 million
1920 24 billion 228.23 1 billion
1945 258 billion 1,853.00 4 billion
1973 493 billion 2,345.00 23 billion
1979 830 billion 3,600.00 45 billion
1980 1,000 billion 4,500.00 95 billion

These unbalanced budgets since 1978 become all the more ludricrous when it is realized that it is against the law to not balance the budget. Public Law 95-435, adopted in 1978, states unequivocally: "Beginning with the fiscal year 1981, the total budget outlays of the Federal government shall not exceed its receipts."

An even more dramatic set of statistics is the figure of how much the various Presidents of the United States spent each day while they were in office. For instance, George Washington spent, on the average, $14,000 each day while in office. That daily figure is compared to $1,325,000,000 spent by Jimmy Carter. 10 But President Ronald Reagan will become the unquestioned champion in daily spending. It is anticipated by his projected 1988 budget, if he is re-elected in 1984, that he will be spending $3,087,000,000 each day in 1988 (that is over $3 billion dollars every day.)

Just what is the end of all of this debt creation?

Perhaps the answer appeared in an Associated Press article that appeared in the Portland Oregonian on May 22, 1973. It was entitled: "Talks begin on changing money setup." The article included the following comments:

"With the dollar under pressure in Europe, a panel of international financial officials opened debate Monday on a draft of a new world monetary system. According to IMF sources (the IMF is the International Monetary Fund, the agency which met to draft the new outline) the draft outline . . . would provide more leeway in determining when a country with surpluses in its balance of payments would be forced to change the value of its currency."

Notice that the country with problems in their monetary system would have no choice in handling their own problems, but would have to submit to the orders of the new international agency which would force the nation to change the value of its currency.

The American people would truly lose control over their own money.