Facing what I perceive as a saddening state of the state of American society, I find that the culprits to its demise are those who ignore the principles capitalism. America of the 19th century embraced capitalism with an industrial revolution that was relatively free from the constraints of government regulation and taxation. Innovation was left to flourish as it made America what it is today. The capability of America as the industrial giant evolved into the 20th century and brought it to the threshold of world power and economic superiority. Victories in WW I and WW II were accomplished largely on the industrial capacity to produce the mechanisms of war and out produce its enemies. Today we see that industrial prowess fearfully waning amidst a wash of government tax and spend policies that sap greatness of the American industrial prowess. Opportunistic taxation and politically motivated regulation coupled with the abdication of American production to foreign industrialists with less constraint is the recipe for the degradation of American society.

The late 19th century progressive movement brought about the constraint of the American income tax.  This singular change to American public finance brought with it the slow infectious cancer of socialist ideology. Founded on the heals of the civil war effort, the income tax was seen as a temporary convenience to the Union government to fund the war and war vehemently despised by the electorate. So much so that the income tax record from 1961 were torched and rightly so.  However, in the long run socialist ideology saw the tax in terms of a means to redistribution of wealth and pursued it. The sixteenth amendment made it a permanent part of American law. As a means to glorify this tax, evasion of the tax put Al Capone in a federal prison.

Cordell Hull, the author of the income tax law confided in his memoirs that the law was drafted on a socialist platform of wealth redistribution. In the era known as the gilded age great wealth was used as nasty societal lever as it is today. The age brought about the labeling of wealthy as “robber barons,” but the documented truth of the era was that overall incomes were at their highest during the gilded age. Nevertheless, the ostentatious homes of Newport Rhode Island were seen as evidence that wealth was distastefully concentrated in the hands of too few, as it is today. Nevertheless, in retrospect, the modern tours of these mansions actually cite the income tax as the key to the demise of the gilded age. The government collection of American wealth through the power to tax incomes started the sliding sloop away from the capitalism of the early 19th century to where it is today. One hundred and ten years have passed under America’s Internal Revenue Code. From its very beginning, judicial challenges morphed society and socialism was nurtured in this society.

The simple fact is that a tax on income is centered on a clear reflection of income. This means that tax law, not the capitalists really set the rules for the determination of income and therefore the income tax base. Over the 20th century, countless tax cases rose to US Supreme court ruling further entrenching the internal revenue code into the personal and business affairs of Americans. This was pivotal to American socialism and detrimental to the underlying freedoms that society had wrought in the 19th century when measuring income was the purview of the capitalist investors. If the government had a major role in the determination of income, then the government accedes to indirect control of the means of production. This is the definition of socialism. Although it is not directed public (governmental) control of national production, the regulatory constraint achieves the same end. Tax accounting in its entirety was codified by the 1986 Tax Reform Act. The Act resulted in a massive restructuring of income and expense recognition far apart from generally accepted accounting principles. All of this was done under the auspicious cloud of “protecting the revenue,” government revenue that is.    The income tax has never before seen as so far overreaching into American society until this time, but the evolution of the tax law over the last forty years and the coupling of large government programs has bred the metastasized intensity of socialist metamorphism.  

The evidence of governmental control over production through the tax code is wherever you look. It subtly amidst the tax accounting regulations but it is more evident when you examine the federal government’s overall power to tax. This was a pivotal factor in the supreme court’s decision on the constitutionality of the penalty for not having Obamacare medical insurance and the coupled enforcement of the penalty through the tax code. Forcing taxpayers to have insurance only part of the issue. The enforcement through the tax system is evidence of the overbearing modicum of control the government attempted by using the tax code as a control device.

If we look further into the probable cause and effect of the societal status quo, we see how the tax system affected American society. Prior to WW II the average American family consisted of two parents and children from that marriage. Today the norm is the single parent family. I submit that the tax code has degraded the American family unit and as a result degraded American society. Marital status and dependent children are woven into the tax code along with other regulations that direct American lives. Marriage and children (dependents) significantly quantified in a way that invites major fraud.  For example, the IRS estimates that between 21 percent to 26 percent of (earned income tax credit) EITC claims are paid in error. Some of the errors are unintentional caused by the complexity of the tax law itself, but many of the claims are result of the intentional disregard of the law.  The IRS estimates that fraud due to false income reporting in the EITC amounts to about $10 billion per year. This occurs when both married and unmarried couples intentionally split as a family unit and files using the unmarried head of household status and so the single parent family emerges based of the internal revenue code directly manipulating the American family. I most cases to game the system.

The Earned Income Tax Credit is the nation’s largest means-tested cash welfare program. Its major function is to provide “refundable” tax credits to low-income individuals. It is a welfare program bult into the tax code, something many would say doesn’t belong there. A “refundable tax credit” is simply a cash welfare grant to individuals who have no federal income tax liability. In 2012, 24.3 million individuals received refundable EITC payments at a cost of $56.2 billion. Fraud is prevalent in this expensive welfare program. An IRS audit conducted from 2006 to 2008 found that 43 percent to 50 percent of tax returns claiming the EITC involved erroneous overclaims. These overclaims were not minor filing errors; the overwhelming majority of individuals making overclaims were not eligible for the credit at all. According to the IRS, the erroneous, often fraudulent, overclaims accounted for 28 percent to 39 percent of all EITC payments. The total overclaim amounts were estimated at $14 billion to $19.3 billion per year during the period. ((Internal Revenue Service, “Compliance Estimates for the Earned Income Tax Credit Claimed on 2006–2008 Returns,” Publication 5162(8-2014), August 2014, p. iv.))

Seeing the forest from the trees, it is evident that American society is largely built around the tax code. That in itself is a travesty that should not be. The tax code’s involvement in American is a significant constraint to a free society and more over to economic growth. The question is, does a tax system have such an overbearing feature in our economic system? The answer is an astounding no. We have the means of collecting a fairly based tax without the government manipulating our lives and businesses. Simply stated, what is the purpose of any tax system? If you answer that by agreeing that the underpinnings of a tax system are ones that allows for government proliferation of monitoring every aspect of your life, then freedom is no longer possible.

A cash flow or withdrawals tax (Colabella & Coppinger 1999) would automatically and electronically collect a small tax base (say 5%) on the movement of cash out of operating bank accounts. Taxes would effectively be paid on the basis wealth moving into the system (much like a toll) as opposed to taxing wealth derived from the system which it currently is under the income tax.  The justification for the tax at the business level is that the government must maintain free an uninterrupted commerce, business risk is in the hands of free entrepreneurs and the government is not a part of those businesses. The difference between the withdrawals tax and the income tax is that the tax is based on cash flow out and becomes a cost of doing business as opposed to paying the tax out of the income derived from the venture. It is essentially a backloaded income tax when the profits are ultimately spent.

Moving to a withdrawal tax system takes away the government’s overbearing need to regulate the determination of income which is the income tax base. Instead, the tax base is the cash flow of money. (a rough calculation of the annual tax base would be the overall bank payouts that average about $180 trillion and roughly a tax at 5% would yield $9 trillion) It also eliminates the intrusion by the government into our every aspect lives where the creation of wealth inherently exists. Whatever wealth that is created will be taxed when it is realized by movement out of bank accounts. While this system has its advantages over the income tax, current technologies on the horizon present new problems. The impingement of digital currency makes income tax obsolete. This is so because cryptocurrency is not regulated, and income derived from digital transactions is impossible to monitor. Recent developments give us greater concern for our freedoms in the wake of deciding on a new tax system.

I submit that American society has been denigrated by the income tax, but a recent executive order shows a plethora of new issues. The issue of freedom and surveillance comes to light in the controversy over Executive Order 14067, signed by President Joe Biden, which purportedly replaces the U.S. dollar with “traceable digital currency” that will eliminate constitutional liberties like freedom and privacy. Many social media user posts alleged that U.S. President Joe Biden signed an executive order that would replace cash with cryptocurrency, and thereby allow the government to track and control people’s finances and spending. A Paradigm Press story dramatically asserts that the order basically sets up a “dystopian, authoritarian regime” by eliminating cash in favor of government-issued digital currency, allegedly authorizing the following:

“The language in Section 4 makes Order 14067……the most treacherous act by a sitting President in the history of our republic. Because Section 4 sets the stage for…Legal government surveillance of all US citizens…Total control over your bank accounts and purchases…And the ability to silence all dissenting voices for good. In this new war on freedom, the Dems aren’t coming for your guns. No, they’re thinking much bigger than that…They’re coming for your money.”

 Given the current state of affairs in America, we have much to research and much to think about!