Prior to 1913 the US government was financed by tariffs. It was under tariffs, not free trade, that the United States industrialized and became a manufacturing nation. Indeed, the Union invaded and destroyed the Confederacy in order to impose the Morrill Tariff on the South that enabled the North to industrialize. The North could not compete with British industry and required the protection of a tariff.
It is extraordinary to me that it has gone unremarked for 112 years that the income tax, which required a constitutional amendment, resurrected slavery. In actuality, white people voted to impose slavery on themselves.
Americans did not realize what was happening. The income threshold for being subject to the tax was so high that few qualified to be taxed. Moreover, the first tax rate was 1% and the progression halted at 7%. To be taxed at 7% you had to have a phenomenal amount of income for those days of more than $500,000, the equivalent of multi-millions today. In the US in the 1900s a person who made $70,000 a year was considered extremely wealthy. When Henry Ford’s innovation of the moving assembly line was introduced in 1913, he raised his workers’ pay from $2.34 per day to $5, producing an annual income of $1,300.
Only 3% of the US population was subject to the income tax. Many years ago I wrote an account of how the income tax amendment passed. In Georgia the state legislative leader said Georgia had no objection to the amendment as no one in the state of Georgia had an income high enough to be subject to the tax.
Everyone overlooked that once an income tax was in place, the thresholds could be lowered and the rates raised. By 1918, that is, within 5 years, the top tax rate had jumped to 77%, dropping to 25% in 1925.
When the 16th Amendment to the Constitution was passed, slavery was resurrected. Historically, the definition of a free person is a person who owns his own labor. Serfs and slaves did not own their own labor. Serfs were not owned by feudal lords, the the lords had use rights to as much as 30% of a serf’s labor. The labor of an enslaved person belonged to the slave’s owner.
An income tax establishes government ownership over part of your labor. How much depends on your income and the tax rate at the time. If you fail to deliver the government’s share of your income, you are severely punished and can spend many years in prison. Every American income taxpayer is partly enslaved and partly free.
A tariff is a tax on consumption, the preferable means of taxation according to the classical economists. It establishes no government ownership rights in your income. An income tax not only gives government a part ownership of your working time, it is also a tax on factors of production — labor and capital. Taxing factors of production reduces economic growth and Gross Domestic Product. It is a counter-productive tax that suppresses output.
The substitution of a tariff for an income tax is a pro-growth policy that will produce higher incomes and raise living standards. Free labor is always more productive because you are working for yourself and your family.
Out-of-date neoliberal economists argue wrongly that tariffs violate free trade and reduce economic growth. In the Lionel Robbins Lecture in 2000, published by the MIT Press, Ralph E. Gomory and William J. Baumol proved that the case for free trade was false and that at best the notion that free trade was mutually beneficial was an occasional special case. Paul Samuelson found their proof convincing, but overall the economists have preferred their free trade indoctrination to the effort it takes to master a new understanding.
The information from DOGE of the enormous fraud, abuse, and self-dealing that the US budget contains as a slush fund for insiders and for bribing foreign politicians and overthrowing foreign governments indicates that sufficient reductions are possible to establish a tariff at a reasonable rate.
To rescue Americans from the slavery of an income tax would be one the greatest achievements in history. Let’s achieve it. See this.
_____________________________________________________
Paul Craig Roberts, a former Assistant Secretary of the US Treasury and former associate editor of the Wall Street Journal, has been reporting shocking cases of prosecutorial abuse for two decades. A new edition of his book, The Tyranny of Good Intentions, co-authored with Lawrence Stratton, a documented account of how americans lost the protection of law, has been released by Random House. Visit his website.
