It is almost unimaginable for Americans living today to see themselves in the place of the Pilgrims, Patriots, and the very ordinary people who turned this continent from a wilderness—where almost everyone had to work constantly and strenuously just to obtain food—to the America of today where we are so challenged by overeating.
It is just as unimaginable for Americans living today to see themselves in a society without income taxes. The income tax rate in Colonial America, for both rich and poor, was zero. People expected to keep one hundred percent of the profit they earned from their constant and strenuous work. There was no debate in Congress about how much tax to impose on this group or that, no army of lobbyists seeking some loophole for their favored cause—because Congress had no power to tax income. Early Americans lived in an income tax paradise. In total contrast was the unfortunate lot of slaves and serfs in older cultures who were allowed to keep only a bare subsistence from what they produced. The slave owner, landlord, or government in socialist societies claimed the rest.
This economic relationship between ruler and ruled could be viewed as a business arrangement—how much do citizens have to pay their government which, hopefully, provides life, liberty, and the right to pursue happiness? That is the bargain that everyone makes with their rulers. Similar bargains are made in business. If you had a great idea for a business, one you were sure would prosper, you would need to get the capital from somewhere so you could rent a store, buy equipment, hire workers, etc. and begin prospering. Your rich uncle might be willing to provide the necessary capital, but only for a share of the profits. Ultimately you would set up a partnership or corporation of some sort giving your uncle a legal right to some agreed upon percentage of the profits. As an owner of that percentage of the business he would be entitled to those profits, just as you would be entitled to the rest. The negotiations would determine how much you got to keep. Everyone faces the same question: what percentage of your earnings does the government take—just as if it owned that percentage of your business?
Corporations pay up to 38% income tax on what they earn. When those profits are paid out as dividends to the owners of the corporation, the owners are taxed—in addition to what the corporation has already paid—up to 35% on the dividends. Owners are taxed again when they sell their shares (ownership) in the company—either at normal or long term capital gains rates—and, if they don’t sell, are taxed when they bequeath their ownership to their descendants. The total tax on those who own and earn their income from businesses is staggering. Add to this state income taxes and it is not unusual for government to take over 50% of the profits of any commercial activity, just as though we lived in a socialist country. Is that a good deal? Certainly medieval peasants would have been thrilled to be able to keep fifty percent of what they earned, but then they were little better than slaves. Our Founding Fathers would have been appalled at the idea that they should pay half of their earnings to the government. Compared to the Colonials, we are about 50% serfs—at least those of us who pay income taxes. Hi, half-serf! Are you really content with your deal with the government? If not, where’s the outrage?
There are always those in favor of keeping things as they are: slave owners liked slavery, lords liked ruling over serfs, recipients of government largesse taken from others who pay taxes want it to continue. Some societies were built on slavery and claimed it was the natural order, just as some claim today that taking from those who are Earners to give to the Takers is the proper order of things. But the Takers in each case could only do so at the expense of the life, liberty and property of Earners. It was wrong then and is wrong now.