The Internal Revenue Service scandal over the targeting of conservative groups has highlighted the agency’s power to obstruct our political freedoms. Filing taxes every April also drives home how the government reduces our freedom.
Chief Justice John Marshall famously observed in 1819 that “the power to tax involves the power to destroy.” That’s true of any tax, but the massive federal income tax harms civil liberties much more than is necessary to raise the needed funds.
Some members of Congress have been talking about tax reform. But their efforts so far have been accounting-driven exercises that simply tweak the monstrous code. Instead, Congress should pursue major tax reforms that not only unshackle the economy but also expand our civil liberties.
Here are 10 freedom-crushing aspects of the income tax that policymakers should tackle:
1. Complexity and Ambiguity. Certainty in the law is a bulwark against arbitrary and abusive government. But there is no certainty under the income tax because it has an inherently complex base that is shot full of loopholes. Many studies have found that citizens, tax professionals, and the IRS all commit a large number of errors on their tax calculations. Looking at these studies, Professor David Vance of Rutgers University recently concluded that “the tax code is so complex that it is unconstitutionally vague,” likely violating due process under the Fifth Amendment.
2. Huge Size and Instability. Citizens are required to know the laws and comply with them. Yet federal tax rules are massive in scope and constantly changing. Tax laws, regulations, and related rules span 74,608 pages, according to CCH Inc. The number of pages has more than tripled since President Jimmy Carter called the tax system “a disgrace to the human race.” CCH estimates that there have been almost 5,000 changes to the federal tax code over the last decade.
3. Vertical Inequality. Although equality under the law is a bedrock American principle, the income tax treats citizens very unequally. Vertical inequality means different tax burdens on citizens of different incomes. For example, households earning between $100,000 and $500,000 pay an average income tax rate two and a half times higher than those earning between $50,000 and $100,000. Such inequities violate the spirit of equal protection under the Constitution.
4. Horizontal Inequality. Even people with similar incomes are treated unequally by the many exemptions, deductions, credits of the income tax. For example, the tax differences between homeowners and renters with the same incomes can be thousands of dollars because of the mortgage interest deduction.
5. Lack of Privacy. The income tax generates a large invasion of our privacy. The IRS gains access to mortgage records, credit card data, bank records, college tuition data, medical expenses, and much else. The broad IRS authority to obtain records without court supervision was referred to by the Supreme Court in 1964 as “a power of inquisition.” A huge and growing problem with the IRS amassing all this data is identity theft. The IRS has had to assign more than 3,000 agents to deal with this crime.
6. Denial of Due Process. In addition to the tax code’s complexity, the Fifth Amendment right to due process is ignored in other respects under the income tax. Due process requires that government provide accused citizens a clear notice of a claim against them and allow them a hearing before executing enforcement action. But the IRS engages in many summary judgments, and enforces them prior to any judicial determinations.