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Appeal of income tax
September, 11th 2009

How about a tax on fizzy drinks to help lower obesity malaise, wonders the US President Barack Obama, even while conceding that such a sin tax may not find favour in the Capitol Hill.

Looking back, however, sin taxes -- on whiskey, tobacco, and sugar -- were what supported the US in its first hundred years, recount William Bonner and Addison Wiggin in The New Empire of Debt, second edition (www.wiley.com). By 1817, all internal taxes were abolished by the Congress, leaving only tariffs on imported goods as a means for supporting the government.

The first income tax that the citizens were forced to endure came about because Congress had been asked to fund the War between the States, the book informs. In 1862, a tax on incomes between $600 and $10,000 was assessed at the rate of 3 per cent, and the Internal Revenue Service (IRS) was created. The war was costing $1.75 million per day.

The government sold off land, borrowed heavily, enacted various fees, and increased excise taxes, but it simply wasnt enough, the authors continue. The income tax seemed like the only way to finance the war and service the countrys then-staggering $505 million debt.

That tax was promoted as a temporary wartime measure. Temporary it was. In 1872, after servicing the Reconstruction, Congress yanked the temporary tax.

But, as they say of cat that relishes what it once tasted, empire builders had discovered that income tax possessed the potential to offer enough cash. Bizarrely, income-tax had another appeal, too to the larceny and envy in the hearts of ordinary citizens, as the authors observe.

The logic is simple. People who are more productive should be forced to pay a bigger share of their common expenses. But this kind of logic had no place in a free republic where all men were supposedly created equal; if they were equal they could each carry their own share of the burden of central government.

Which is what Robert Adams, a member of the House of Representatives, voiced in 1894, when the debate to impose progressive income tax was in the air: The imposition of the income tax will corrupt the people It will necessitate a swarm of officials with inquisitorial powers. It will be a step toward centralisation It breaks another canon of taxation in that it is expensive in its collection and cannot be fairly imposed.

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