Is the Federal income tax, as it is presently conceived, compatible with a liberal, democratic society?
Our present income tax is only about 65 years old, and in its present form much less than that. It is to be expected that our experience with the system should point out implications that were unsuspected at an earlier time. I wish to urge that we consider the totality of the political cost of this system and ask if we should not consider some other system for raising revenues, one that is less costly in terms of individual liberty and less intrusive of human privacy and dignity.
We might start with compulsory testimony, not because it is necessarily the worst, but merely because it is the most obvious. Each person who has had income, whether a tax is due or not, is required to identify himself to the government and testify, under penalty of perjury, to various details of his conduct. He is required to keep certain records of his activities and present these for inspection at the demand of a petty official. If he has derived income from an activity currently considered illegal, he is required to report it, and thereby confess to the illegal conduct. Thus, the prostitute is compelled to confess her conduct, while the rapist is not.
The enforced disclosure of the tax return is not limited to the particular office enforcing the tax law, for once the data is in government hands, it tends to be available to other governmental agencies for their own purposes.
To insure compliance, an elaborate system of recordkeeping is required, whereby almost all transactions involving the exchange of money are recorded for potential government inspection. These records may disclose not only weekly wages but also contributions to the Black Panthers. As one writer remarked, these make possible the maintenance of complete financial dossiers on all citizens, dossiers which are readily available through data banks keyed to social security numbers.
The "personal dossier" phenomenon is a function of the progressive nature of the tax, since it is necessary to have access to the cumulative records of an individual in order to apply the progressive tax.
For administrative convenience, most of these records are merely kept by the private institution required to record them, but others, thought by the government to be more interesting, are required to be reported, that is, brought directly to their attention. In the case of third party record keepers, such as banks, the party is required (without pay) to inform on the taxpayer. This represents a regularization of the traditional paid informer system, which has also been retained.
In order to expedite the gathering of revenue, there are draconian collection procedures whereby property may be summarily seized at the instance of a minor official to collect taxes alleged but unproved before any court or independent body. The ruin attendant individuals who are the target of such procedures, either through mental anguish or loss of property or disruption of business, is of course beyond any redress, for the official's acts are clothed in sovereign immunity.
The aggrieved taxpayer, whether the subject of these medieval collection procedures or in the course of a simple civil dispute over taxes due, is denied the intervention of a court through the Anti-Injunction Act, which provides (as its name suggests) that injunctions shall not be issued to restrain the collection of a disputed tax.
The taxpayer is further denied the guarantee of trial by jury, unless he consents to pay the tax claimed due (which may of course involve a serious financial burden, for which he cannot recover) and goes to court as a plaintiff, i.e., as one who must bear the burden of disproving the government's claim.
The individual is, in fact, denied any prior independent judicial determination of the government's claimed taxes, unless he complies with highly formalized procedures to obtain a hearing before a "court" constituted by the very arm of the government which is assessing the tax.
These denials of prior judicial scrutiny of the tax assessment are thought necessary in dealing with the large number of individual tax collections. Otherwise the government would become bogged down in a sea of litigation in the ordinary course of tax collection.
Patterns of economic interaction are astoundingly complex, and any effort to determine the income derived by such interactions is necessarily also complex. The Byzantine intricacy of the Internal Revenue Code is not the result of human perversity; it necessarily follows from the task required of it—i.e., the taxing of income.
It is precisely the attempt to arrive at a fair determination of income out of the intricate and continually shifting pattern of a human economy that renders the tax law so complex.
The complexity of the law creates uncertainties which in turn give advantages to the government in dealing with taxpayers. For example, this writer was told by a director that many film stars were persuaded to make public service spots promoting savings bonds by the threat of an unfriendly audit. The political leverage available to the government through the rigorous administration of the tax laws against certain disfavored persons was, of course, highlighted by the Watergate hearings.
Even among persons whose affairs are relatively uncomplicated, this complexity creates an atmosphere of uncertainty and fear of the government audit, as the taxpayer can never be sure that he has complied with the law's manifold demands.
The attempt to tax such a dispersed and diverse base as "income" requires reliance on self-assessment, whereby each taxpayer is required to report the various details of his financial conduct and calculate his own tax. In order to make this process work, it is thought necessary to have severe criminal and civil sanctions to deter the slacker.
These are but a few illustrations of the ways in which our attempt to tax incomes has forced us to retreat from the liberal, democratic ideal of individual rights; yet each, taken by itself, is not felt to outweigh the social benefit of a viable tax system. What I would like to suggest is that, taken together, the costs of our present tax system—in terms of individual rights—are excessive.
Income is only one of a number of economic aggregates that is, or might be, taxed, and it is by no means the largest. As we have gained sophistication in these matters, we now realize that much income cannot be taxed at all and, in any event, we are greatly in ignorance of the true burden of any tax, as we have come to realize that the person who truly bears the burden of a tax may have no relation to the person who pays the Treasury.
It is time, perhaps, to rethink the problem of taxation. Perhaps the government may be supported by a turnover tax or a value-added tax or a flat-rate wage and salary tax, or a tax on some other base which does not require the intricate rules or intrusive enforcement apparatus of a tax on income.
It should be noted that this approach says nothing about the morality or level of taxation or the use of taxation as a tool of redistribution. It is simply addressed to the proposition that our present system of taxing incomes has necessary implications which are becoming increasingly disturbing to any person who is concerned for civil liberties.
If there is sufficient interest, I would be willing to help organize a conference of lawyers, political scientists, and others to examine these issues, and I would appreciate hearing from any who feel that it is worth pursuing.
Davis Keeler's Money column alternates monthly In REASON with John J. Pierce's Science Fiction column. © 1976 Davis E. Keeler.
This article originally appeared in print under the headline "Money: Rethinking the Income Tax".