> From email@example.com Sun Apr 24 05:05:45 1994
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> Subject: For the political file
One of the first civilizations we know anything about began 6,000 years
ago in Sumer, a fertile plain between the Tigris and Euphrates rivers in
what is now Iraq. The dawn of history -- and of tax history -- is
recorded on clay cones excavated in the town of Lagash in Sumer. The
leadership of Lagash instituted heavy taxation during a terrible war.
When the war ended, the tax men refused to give up their taxing powers.
As a result, a proverb circulated, recorded on clay tablets, which
reads: "You can have a Lord, you can have a King, but the man to fear is
the tax collector."
Thus has it remained for millennia. Taxes have helped build mighty
civilizations and paved the way to economic strength and security. At
the same time, they have strangled economic growth, ignited bloody
conflict, and ushered in national decline. How we as a nation tax and
spend helps determine whether we are prosperous or poor, vigorous or
languid, free or enslaved.
The Glory That Was Rome
Historians consider the 200 years from Augustus to Marcus Aurelius (30
B.C. to A.D. 180) as the high-water mark of Roman greatness. Edward
Gibbon, author of The Decline and Fall of the Roman Empire, claimed this
was the greatest period of peace and prosperity ever enjoyed by the
human race. How did the Pax Romana come about?
Part of the answer can be traced to a moderate, uniform, and forgiving
tax system. Unlike the contemporary American tax system, in Rome's
better days taxpayer interests were of prime consideration. In about
A.D. 35, for example, Emperor Tiberius was asked to increase provincial
taxes. Tiberius replied that the governors should "have my sheep shorn,
not skinned alive." The first century Roman press simply would not
tolerate abusive revenue agents; it once castigated city officials for
hiring "the most merciless of tax collectors, full of inhumanity."
Meanwhile, steps were taken to ward off taxpayer rebellion: The penalty
for excessive tax collection was fixed at 10 times the excessive tax.
Tax moratoriums were frequently used if harvests were poor. In the
second century, both Hadrian and Marcus Aurelius decided to cancel
delinquent taxes -- and ordered Praetorian guards to burn the tax
This sensitivity to excessive taxation was an important safety valve for
maintaining taxpayer contentment and building and sustaining the empire.
Tax revolts led by Mithridates the Great in the first century B.C. had
taught the Romans that angry taxpayers were a greater threat to peace
than the barbarians of the north. Never in history -- and certainly not
in recent American history -- had a government made such a conscientious
effort to make its tax system palatable to taxpayers. Pax Romana was to
a large extent a tax-pax-Romana.
The Glory Fades
Sooner or later, it seems, Rome's glory had to fade. Decline began under
Diocletian and his greatly enlarged military and civil bureaucracy in
the end of the 3rd century. Like Augustus, he reorganized the empire and
restored order to Rome -- but unlike Augustus, he centralized and
nationalized the state. Augustus achieved peace by dismantling the army,
decentralizing the state, and reducing taxes. Diocletian moved in the
opposite direction -- centralizing the state, accelerating tax rates,
and nationalizing everybody and everything. He tackled inflation with
military commands, ordering prices to remain stable under penalty of
death. To his surprise, prices kept rising. He began a tedious process
of valuing farming operations, based on what a farm should produce,
rather than what it did produce -- forcing many farmers to abandon their
Numerous ancient documents confirm that Diocletian's system gave birth
to a monstrous bureaucracy, with more tax collectors on the government
payroll than actual taxpayers. From Lactantius, a Christian apologist of
the 4th century, we read: "The number of those receiving pay was so much
larger than the number of those paying taxes and that because of the
enormous size of the assessments. The resources of the tenant farmers
were exhausted, fields were abandoned, and cultivated areas transformed
into a wilderness."
Diocletian's new tax system could not work unless all citizens,
particularly farmers, stayed on their land. Farmers eventually were
taxed on the number of workers on their land, and they began to flee
their farms in droves. Then came the imperial crackdown: All farmers,
their children, and their children's children were bound to the land
forever. Thus, the fundamental right of all Roman citizens to move about
the empire was destroyed. After 800 years, Roman citizens were finally
to lose their liberties -- not to an alien power, but to the very
government that was supposed to protect them. As in contemporary
America, civil liberties in Rome were adjusted to a tax system; the tax
system was not adjusted to civil liberties.
Thus began Rome's gradual decline, instigated by capricious and
burdensome taxation. Indeed, it is not too much to say that oppressive
taxation eventually led to the fall of Rome to the barbarians. How so?
In the early Republic, the small citizen farmer served -- without pay --
in the military as a patriotic duty. He was the best fighting man in the
world. But in the last century of the empire uncontrolled tax evasion
became rampant and the quality of the legions changed. The frontier
garrisons were composed of overpaid misfits from Italy and self-seeking
barbarians. Conscription was used as a tax dodge. The city of Rome fell
because it could not defend itself against a third-class military force.
No nation better illustrates the hazards of reckless taxation than
Imperial Spain. When Charles V assumed the Spanish and Hapsburg thrones
in the early 16th century, he was emperor over most of Europe. At the
same time, Spanish explorers brought much of the New World into the
empire. For more than a century, Spain was more powerful than any other
European state since the Romans. Her overseas empire was the largest the
world has ever known.
The Reign in Spain
In the 17th century, however, this vast empire began to disintegrate. A
nation with the greatest military and naval forces in the world, with
vast riches arriving every month from the New World, with control over
most of the world, collapsed for no apparent reason.
Again, taxes provide the clue. The most hated of all Spanish taxes was
the alcabala, a 10 percent excise on the transfer of all real and
personal property, which expanded to include food. Worse, the tax had to
be paid many times over on the same goods as they changed hands, pricing
Spanish goods out of the market at home and abroad. As the rates
increased -- and they did so dramatically under Charles V -- the
alcabala had a depressing effect on industry and trade.
A terrible imbalance of payments developed as foreign goods (usually
smuggled) underpriced Spanish goods on local markets. As a consequence,
Spanish men of commerce engineered what was probably the best system of
fraud and evasion that history has ever known -- perhaps 10 times what
the government actually collected. Spanish businessmen transformed
Atlantic commerce into one massive smuggling operation to evade the
Royal Fifth, a 20-percent customs tax on silver and goods from the
Castille, the political and economic heart of Spain, was especially hard
hit by a myriad of imperial taxes, many approaching 20 percent. For
decades, tens of thousands of peasants and workers literally fled the
province for tax-exempt places and jobs. Indeed, rather than the plague
or the expulsion of the Moors and Jews, tax flight was the primary cause
of Castille's depopulation. One early 17th century Spanish writer
observed that "the wonder is that any of them remain."
Despite the turmoil in Castille, a government study in 1619 concluded
that the outlying Spanish provinces -- including Catalonia, Naples,
Sicily, and Portugal -- must pay more taxes and share not only the
military defense but also the revenue burdens of Spain's unwieldy
empire. The provinces received this news with horror.
The Crown used the Spanish bayonet to enforce the new taxation,
eventually triggering a war in Catalonia that many historians believe
mortally wounded the empire. The 10-year civil war occurred at a time
when Spain needed all her reserves for crucial military battles against
the Dutch, French, and English. Instead, Spain's last reserves were
spent at home fighting tax rebels. Taxation was at the heart of Spain's
decline, but it was angry taxpayers -- who resorted to flight, fraud,
and violence -- that brought about the collapse of this once-mighty
The Feckless French
A French writer during the Hundred Years' War said that if the Devil
himself had been given a free hand to ruin France, he could not have
invented a scheme more likely to achieve that objective than the system
of taxation then in operation.
Indeed, the revenue system that evolved out of the taxing powers granted
to the French monarch was everything a good tax system should not be.
First, there was the taille, an annual land and wealth tax that
fluctuated with the king's military needs. The problem was that it was
not applied to the kingdom as a whole -- the nobility and the clergy,
along with some cities and provinces, were exempt or had reduced rates.
By the 18th century, the taille was called the "peasant's tax" because
almost everyone else had found some way to avoid it. Thus, the taille
became an annual exercise in sowing taxpayer discontent among France's
largest social class.
Next there was a burdensome excise tax, the gabelle, levied on just
about everything -- including food. On wine, for example, there were
five kinds of excises: a tax on the vine, harvest, manufacture,
transportation, and sale of the wine. The poor drank cider. The top rate
of the gabelle was as high as 60 percent of the value of certain goods.
It grew to be hated, along with those who collected it, called
gabeleurs. An eyewitness describes a peasant tax revolt in Blanzac in
1636 in which an angry mob "tore to pieces an unfortunate surgeon whom
they suspected of being a gabeleur. After stripping him naked and
cutting off one of his arms, they made him walk around the fair, and
then finished him off."
In addition to individual taxes, the nation's tax infrastructure, called
tax-farming, was a major factor in the system's unraveling. First
appearing in the Middle Ages, private tax collectors eventually formed
national corporations, in which they paid lords a fixed sum of cash to
collect various levies, promising periodic payments over six years in
the form of notes. The French Crown could use these notes to pay its
debts; they were secured by future tax receipts, just like today's
modern treasury bills and notes. Thus, the tax farmers were to the
ancien regime what the Federal Reserve Board or the Bank of England are
to their countries. Since our government operates on the same principle,
what could go wrong?
In truth, just about anything. The risks in this elementary national
banking system were tax revolts, wars, droughts, plagues -- or anything
else that might bring about a failure of the tax harvest. The most
serious danger to the system was a lack of controls: At times, when the
government was short of cash, it would issue cheques against future,
undetermined tax receipts, without the knowledge of the tax farmers.
This fiscal irresponsibility frequently drove the system to the edge of
The combined effect of the French tax system was to drive the nation
toward revolution. The tax objective of the state -- "what the traffic
would bear" -- was the amount of tax that could be extracted one step
short of causing a major revolt. Naturally, the government misjudged
repeatedly. Ten years after a tax revolt near Bordeaux, the finance
minister confessed to the queen that it was safer for a French soldier
to walk through a Spanish village -- France was at war with Spain --
than for a French tax man to walk the streets of Bordeaux.
By 1789, however, no tax collector was safe in any province. Numerous
tax revolts throughout the 17th century, which generally were not
anti-regime, became intensely so by the late 18th century. Tax
rebellions that had always been localized and tied to specific taxes
suddenly culminated in a national upheaval.
This occurred, ironically, because Louis XVI called all classes of
French society to Versailles, to reform the tax system. This brought the
overtaxed commoners together for the first time. They took control of
the state and soon thereafter the king's tax men were herded together,
tried en masse for treason, and beheaded. They were condemned for
fleecing the French people out of 300 million livres, about $1 billion
in 1994 dollars. The final irony is that the king's tax men hadn't
collected more than the law permitted. The problem was that the tax law
was so rotten and so inequitable, angry taxpayers took their rage out on
every tax man in sight.
It's a pity the French aristocracy was not better attuned to the lessons
of history -- particularly those from ancient Egypt. In the 3rd century,
B.C., Egypt was near total collapse from the toll of excessive taxes and
tax enforcement. The Egyptian kings taxed everything at least 20
percent, setting off land confiscations, flight to avoid taxes, massive
arrests, and civil war.
Out of this chaos came the Rosetta Stone, the most important Egyptian
archaeological discovery of all time, for it provided the key to
understanding the lost languages of Egypt. But the story on the Rosetta
Stone was of great significance as well, for it painted the picture of a
dying Egypt, racked with civil disorder over taxation. Before the
Rosetta Stone, the king's orders to control a rogue tax bureau went
unheeded. Those orders were written on papyrus.
Finally, the king made one last effort to bring the tax bureau under
control and end civil strife. He issued a broad decree, called a
"Proclamation of Peace." It ordered all tax debts cancelled; all
confiscated lands returned; all taxpayers freed from prison; and all tax
fugitives invited to return to their lands and jobs. To make sure the
tax bureau got the message, it was chiselled in stone, in three
languages, one of which was the familiar Greek. Apparently, it worked,
bringing peace for more than a century.
If the French could be forgiven for neglecting the hard lessons of the
Egyptians, they can hardly be excused for ignoring the example of their
contemporary rival to the north, Great Britain. In the 18th century,
British parliamentary government, with its approach to taxation, remains
a model for our day. Taxes were, primarily, the people's business -- and
they let their will be known peacefully through the House of Commons or
not so peacefully to the Crown through rebellion.
Government spending was restricted by a tight purse, which resulted more
from uncooperative taxpayers and downright evasion than the wishes of an
enlightened Parliament and Crown. For example, throughout the 17th and
most of the 18th centuries, Britain was the only major European country
without extensive excise taxes. Britons simply rejected them, along with
the hearth tax on fireplaces, (which would have allowed tax men to
invade private homes), the poll taxes, and a burdensome land tax.
The British came to accept a system of many taxes that, as a whole, were
reasonably fair. Everyone shouldered some of the burdens of the state.
Landowners paid land taxes, but they were protected by a tradition of
extremely low assessments. Homeowners paid a house and window tax that
exempted the poor. Merchants paid customs and some excises, but
lightened their burden through smuggling and evasion. The most
remarkable aspect of the system was the absence of tax immunity for the
rich -- a lesson clearly lost on the French.
At the same time, English tax designers grasped a critical piece of
economic common sense: If British workers were forced to pay high taxes,
British capitalists would have to pay high wages. This would inflate the
price of British goods on foreign markets and hurt trade. By keeping
workers relatively free from taxation, English traders could outsell
their competitors from the Continent. This is precisely what they did,
and Britain became the leading commercial nation of the world for 200
Prior to its souring relations with the American colonies, the British
government learned the hard way that taxation by consent meant more than
lobbying a tax bill through Parliament. Henry Fox, who succeeded Robert
Walpole as prime minister, warned the House of Commons that "All
governments must have a regard not only for what the people are able to
bear, but what they are willing to pay, and the manner in which they are
willing to pay, without being provoked to a rebellion."
The Founders' Tax Wisdom
Though many of the lessons of tax history may be lost on our
contemporary political leadership, they were vividly implanted in the
minds of America's Founders. One of the most important characteristics
of 18th century thinkers is that they had few illusions about
government. "Government," wrote Thomas Paine in his famous pamphlet
Common Sense, "even at its best state is but a necessary evil, in its
worst state an intolerable one." George Washington distributed Paine's
pamphlets to his troops during the early years of the Revolutionary War.
It is important to recall that one of Paine's themes was that taxation
produced tyranny. The root of the problem, Paine said, was a naive trust
in government: When this happens, "excessive revenues are obtained."
The Founders set up constitutional controls over both taxing and
spending. The delegates to Philadelphia in 1787, struggling to approve
the Constitution, knew the dangers in granting a federal government
taxing powers. They all agreed -- standards, limits, and controls were
absolutely necessary. No one ever suggested Congress should have the
power to tax at will. Without strict and clear constitutional standards
for federal tax-making, ratification of the Constitution wouldn't have
had a prayer.
Taxpayers also were protected by the Ninth and Tenth Amendments, which
provide that the federal government can do only what it is expressly
authorized to do in the Constitution. All other political powers are
reserved to the states and to the people. Indeed, throughout Western
history -- going back throughout the Middle Ages, from Magna Carta to
the modern era -- we see a continuing drama of checks on taxation
through fundamental charters, treaties, and constitutions.
Unfortunately, on the federal level, we live in a period devoid of
protection. The recent history of constitutional law is a history of how
to circumvent the limitations against unlimited federal power. As
Washington has expanded the scope of its concerns, it has inflated the
size of its budget -- and the breadth and depth of its tax net. The
growth of federal taxes -- for the average household, a jump from less
than 2 percent in 1948 to 24 percent in 1993 -- would have been
inconceivable to the men who fearfully gave Congress the right to levy
A Strategy for Tax Reform
The present administration, however, conspicuously lacks any fearful
regard for taxpayers. Laura D'Andrea Tyson, head of President Clinton's
Council of Economic Advisers, last year told a congressional committee
that America is "an undertaxed nation." This seems to be the operating
assumption of our intrusive and unwieldy tax bureaucracy, the Internal
Revenue Service. Coupled with a massive, complex and onerous tax system,
the IRS annually threatens each of us with tax audits, fines and jail
What follows are some ways we can curb the most vicious aspects of our
federal income tax system and help tame the tax monster:
Restrain the power of the tax man: Adjudicate tax disputes like any
other debt. It is time to put an end to special laws giving
extraordinary rights and powers to tax men. The tax collector is usually
a creditor claiming money. He should have the same rights - - and
obligations -- as any other creditor, and taxpayers should have the same
rights and duties as any other debtor. If the tax man claims you owe,
then he should have to sue you just like everyone else. Similarly, if
you have paid too much, you should be able to sue the tax man and have
the same status as any other creditor.
Indeed, the entire legal apparatus of the tax process operates in a
world of its own, separate from the ordinary rules of law for settling
money disputes. This is what got the Egyptians into deep trouble. The
pharaohs lost control of their tax collectors -- we know it because they
were flooded with petitions complaining about abusive behavior and harsh
penalties. The tax officials of the pharaoh were everywhere snooping,
inspecting, recording, arresting. They even surveyed the nests of
pigeons to count the eggs and make sure the pharaoh got his 20 percent.
Although we have abolished torture and other ancient enforcement rites,
there are many abusive tax enforcement laws that put due process to
shame. In a tax dispute, for example, taxpayers who want to challenge
their tax assessment in a federal district court must first pay the
disputed tax and then sue to get their money back. The counterpart of
this is that you can't enjoin the collection of an illegal tax. If you
can't pay -- if the tax might destroy your business or take away your
home or livelihood -- that is too bad. Bankruptcy offers no relief as
it does for ordinary debts.
There are over 150 penalty provisions to trap and punish you for just
about any error or slip up, no matter how excusable, that you may make
in dealing with the vast jungle of tax rules and regulations. Penalties
often exceed the taxes owed, adding a kind of audit-terrorism to the
system. The General Accounting Office reports that the IRS can't manage
this vast web of entrapments, and that 44 percent of all penalties
assessed by the IRS are wrong. If this is true, how many are wrongly
paid by taxpayers wanting to get the tax man off their backs?
On the criminal side of tax enforcement, a tax fraud should be a
genuine, honest-to-goodness fraud, with the same ingredients as a common
law fraud. In California in 1987, a physician was convicted of felony
tax evasion for intentionally not paying the tax he accurately declared
on his tax return. While the ruling was reversed on appeal, the concept
is an outrage. If we applied this to ordinary civil debts, it would mean
that if you deliberately didn't pay your American Express bill, you
would have committed a felony. That's federal overkill.
Perhaps we need to balance our government's tilt toward tax collectors
by adopting a medieval view of taxation, in which excessive tax
collections were considered sins against God. IRS agents take note:
William the Good of the Netherlands was called "the Good" because he
executed errant tax men.
Be sensitive to taxpayer unrest: Decriminalize the tax law. The
penalties Congress piles up every year to trap taxpayers, innocent or
guilty, along with fuzzy criminal provisions, amount to barbarism. It
reminds one of the queen in Alice in Wonderland, who proclaimed, "Off
with his head!" for every offense.
Our tax law is so complex, so incomprehensible, that in most complicated
financial arrangements the line between avoidance (which is legal) and
evasion (which is illegal) is too difficult even for the experts to
determine. Harry Margolis, a California tax lawyer, was indicted over a
period of 10 years for 34 different criminal tax felonies. After lengthy
and costly trials, not one charge was ever sustained against him.
Because of the breadth and complexity of our tax laws, it is a mistake
to criminalize tax evasion; the lines separating the legal use of tax
codes to shelter income (avoidance) and their illegal use (evasion) are
simply too blurry. Political leaders have long recognized the
difficulties involved: The 4th-century emperor Constantine, for example,
decriminalized the Roman tax law. Rome even granted a series of tax
amnesties -- in A.D. 401, 411, 434, 445, 450, and 458 -- so that "the
very memory of delinquent taxes may perish from the earth." In many
nations only tax fraud (deliberately falsifying documents) is a crime;
tax evasion (not reporting income) is not.
Our current practice puts America on a par with the former Soviet Union
and its arbitrary use of synthetic, or arbitrary economic crimes as a
weapon against dissidents. Thomas Paine told us in Dissertation on the
First Principles of Government, "An avidity to punish is always
dangerous to liberty." The French essayist Michel de Montaigne wrote in
the 16th century that no man is so honest or upright that if he were
carefully observed in his actions and thoughts, under the law, "ten
times in his life he might not be lawfully hanged." That certainly would
apply to almost everyone under our criminal tax laws.
Yes, if the vague tax crimes in the tax code were vigorously enforced,
most taxpayers would be indictable after a cursory audit. Thus, tax
fraud should be a crime; tax evasion should not. It would be wise to
purge the tax law of its many synthetic crimes and let the civil
penalties take care of real tax sins.
Ease the burden on taxpayers: Keep tax rates low and make the system
simple. The concept of the income tax originated with the British to
finance the war against Napoleon. It was primarily a uniform tax,
collected at the source. It also was consistent with America's
constitutional provision known as the "uniformity clause," in which tax
rates would be the same for all. Since the beginning of the 20th
century, this clause has become, in the words of tax scholars, an "empty
shell," replaced by a maddening array of tax exemptions, loopholes,
goodies and unequal rates.
If, as various economists have suggested, we had a flat tax rate of 10
percent for most people, there would be no April 15, no confrontation
between citizen and state, no intimidation. Only payers of those in
business would have to file a tax return. Ten percent is selected
because this was the tax that served well the ancient worlds of Israel,
Greece, and Rome and China.
We don't need to delve into the history of taxes to see that simplicity
works. Today, Japanese scholars assert that one of the great virtues of
Japan's income tax is that most Japanese don't file tax returns. As one
of Japan's leading tax scholars, Hiromitsu Ishi, has noted, the
simplicity of the system helps to produce enormous capital formation and
savings. They rely heavily on an indirect system based on broad
withholding. "A good tax system," says Mr. Ishi, "should be as simple as
possible." This pattern of modest and simple income taxes is repeated in
the Asian "miracle economies" of South Korea, Hong Kong, Taiwan, and
Compare this with the complexity of the U.S. system: The American people
spend 5.4 billion hours annually on federal tax work, according to James
Payne's groundbreaking study. The tax system costs an estimated $618
billion, which includes compliance costs, litigation, and economic drag.
The income tax law is beyond understanding partly because we have tried
to accomplish what is beyond the possible -- like raising all the
revenue the government wants, stimulating economic growth, and policing
the world. Alexander Hamilton warned in Federalist No. 35 against
having a single form of taxation to satisfy all possible revenue needs,
since it would spur tax evasion and work as a drag on the economy.
The Dutch tried to do precisely this with their excise tax in the 17th
and 18th centuries. It was a disaster: Goods in Amsterdam cost twice as
much as in London; taxes were many times higher; the tax burden on Dutch
goods priced them out of world markets. The result was the shipwreck of
a remarkably prosperous empire, the superpower of its era.
History reveals, however, that smart taxes can build empires. The
British under Queen Elizabeth, who gave 16th-century England the lowest
rates in Europe, put that nation on the road to superpower status. How?
By adjusting her government to whatever revenues Parliament provided.
She even reduced tax valuations to extremely low levels -- in effect
reducing tax rates. About 150 years later, Britain adopted excise taxes,
but limited the number of goods to be taxed and kept the rates modest.
This kept the price of British goods low in world markets. The result
was steady economic growth and one of the earliest illustrations of the
fruits of supply-side economic theory.
An Index to Civilizations
Taxation is a good barometer of a social order. A society can best be
evaluated by examining who is taxed, what is taxed, and how taxes are
assessed, collected, and spent. The bondage of the once-free Roman
citizen was the tax man's final victory over the extensive frauds and
flight that had endangered the emperor's revenue.
Will we end up as citizen-serf-taxpayers like the later Romans? The
current direction of our tax system's penal laws and spying devices
makes this a possibility. We could find ourselves shackled to a kind of
neo-serfdom to the modern fiscus. If that happens, the struggle between
democracies and dictatorships will enter a new phase in which the choice
will not be liberty or bondage, but which kind of bureaucratic bondage.
We ignore history's verdict at our own peril: Tax laws have taken away
liberty far more often than any foreign invaders.
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