I did some digging regarding the sources of revenue for the US Federal Government and this is what I found to be (what I believe is) the most accurate data available to the public. There are several sites where you can presumably get data regarding federal revenue, but nothing seems to correlate with anything else even when they claim to be interpreting the same numbers. My data has come directly from the Congressional Budget Office (CBO). While their website is terrible to get through, I was eventually able to find historical data going back to 1969 regarding the government's income and expenditures in a handy Excel format! Using those numbers, I made some graphs to see how right Dr. Paul's numbers were.
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Looking at the data, it is clear that the Individual Income Tax has never been as low as 40% of the total revenue of the Federal Government since 1969, but it isn't far off from that. In 2008, the individual income tax was 45% of the overall government revenue. The thing that interested me was each of the buckets the CBO decided to break the revenue into. Remembering back to my schooling, I wasn't exactly sure what each one meant. That can mean only one thing: I need to educate myself!
Individual Income Taxes
This is what you pay to the Federal Government when you file your taxes. The income tax was originally introduced through the Revenue Act of 1861 to fund the Civil War. In the new Revenue Act of 1862, a graduated tax was introduced as well as the stipulation that the tax was to end in 1966, as the income tax was only thought to have been a temporary measure. The income tax wasn't actually abolished until 1872. During the years following the civil war, the primary source of income was through tariffs and an excise tax (explained below) mostly from alcohol and tobacco products.
From 1868-1913, nearly all federal revenue was from excise taxes. Additionally, the US Supreme Court ruled in 1895 that it was unconstitutional for the federal government to collect taxes from an individual's income that is not proportional to the population of each state. The War Revenue Act of 1899 was enacted to fund the Spanish-American War by selling war bonds, taxing recreational facilities used by workers, doubled excises taxes on beer and tobacco, and other excise taxes (including one on chewing gum). The federal government's expenditures were continuing to rise in the areas of public welfare, highways, and education.
The people were becoming increasingly upset with high excise taxes and tariffs, so congress was looking for other ways of generating revenue. The leading ideas (taking into consideration that the US Supreme Court has already ruled that an income tax is unconstitutional) was either a federal property tax or increased excises tax. This pitted representatives from the southern and western US (with a majority of agricultural constituents with lots of land) against the industrialized northeast (where most of the products were made that would suffer from increased excise tax). Eventually, the 16th amendment was ratified in 1909 which allowed the taxation of individuals and companies to be taxed without regard to the proportion of a state's population.
Corporate Income Taxes
Basically the same thing as the individual income tax, but it is what companies pay to the Federal Government. This was also enacted with the ratification of the 16th amendment to the US Constitution.
Social Insurance Taxes
Though you can't find this exact term anywhere on the internet (except when people are saying "don't you mean Social Security Tax?"), I found that it is an umbrella term used for every type of government-funded social welfare. This includes Social Security, Medicare, Medicaid, Welfare, etc. Basically, when you look on your pay check, the automatic deductions called Sociity Tax and Medicare Tax are bundled into Social Insurance Taxes.
Excise Taxes
This one is a little more vague and harder to identify because of the definition of an excise tax. Excise tax is an event tax which basically means that whenever a taxable event occurs, the government gets excise tax. An example of a taxable event is receiving money (income), selling an item, or receiving gifts. The event is taxed as opposed to the person, so excise law doesn't specify who has to pay the tax, just that the tax gets paid. Inevitably, the party that ends up paying is the person receiving something - like when you pay sales tax for something you buy.
In the old days (before the 16th amendment was ratified), excise tax changed a lot. During war times, the excise tax was essentially a national sales tax on all goods to provide funding for the war effort. During slower times, it was used more like a "sin tax" where products that were thought to negatively affect the public's welfare were taxed, like alcohol and tobacco.
Today, the excise tax seems to be used as a "sin tax." I found this source which lists several items that are impacted by excise taxes including: firearms, "gas guzzler" automobiles, and gambling.
Estate and Gift Taxes
This commonly falls under an excise tax, but apparently there is so much giving in the US that it warrants its own category on the list of revenue sources. Whenever someone dies and leaves things to other people, estate taxes may be involved. Likewise, whenever someone receives something as a gift, there are gift taxes involved. For more information, I allow you to read up on the IRS Estate and Gift Tax information. I feel like I have a pretty good handle on it and it doesn't seem to have an interesting history, so I'm not going into any more detail here.
Customs Duties
Everyone knows about customs on international flights where you have to declare the things you purchased abroad when you return to your country of origin. The duty free stores are also a good place to pick up those last-minute bulk gifts. This also includes tariffs on foreign goods... which have a much more interesting history that customs duties.
The Tariff Act of 1789 created the first national source of revenue for the United States. This act (also the second act EVER for the US) was intended to pay for all US debts and fund all expenses of the federal government. It taxed imported goods between 5% and 10%, depending on the cost of the product. It was believed at the time that higher tariffs would protect newly developing industry in the US from low-cost competition in England, so the tariff rates rose to over 50% with the passage of the Tariff of 1828.
There are some that believe that debates over tariff rates may have been another factor in the cause of the US Civil War. While the tariffs were doing a good job of protecting industry in the northeast, southern and western states that relied mostly on agriculture (and had to import finished goods from either the north or overseas) saw the costs of their necessary imports going up.
Today, tariffs have settled down for the most part, but there is still a lot of controversy. There are agreements in place which regulate tariffs such as the Canada-US Free Trade Agreement of 1987 and the North American Free Trade Agreement (NAFTA) of 1994. Since these items are a hot-button issue for some, I'm not going into them.
From what I have learned, it is quite clear that eliminating 45% of the federal budget would allow the elimination of the individual income tax. However, I have also learned that the federal government is no longer primarily funded through tariffs as the founding fathers had originally intended. In the end, I am left with more questions about why different revenue sources were changed.
I know this has been a long post, but I hope you found the information presented here clear, educating, and without bias. One of my biggest pet-peeves is when someone presents only one side of an argument to further their goal. If I missed, or misrepresented something, drop me a comment!
Something to keep in mind is that levying the income tax costs serious money. If we eliminated the income tax, we would also eliminate a huge expense. So if income taxes generate X, they cost Y to collect. So really you are only eliminating (X - Y) from the government's budget.
ReplyDeleteAccording to this site: http://www.nteuirswatch.org/Numbers2.htm, the IRS budget for 2008 exceeded $11 billion. That's not chump change.
Another thing to note is that Dr. Paul's plans involve not cutting Social Security, Medicaid, Medicare, etc. but instead to pay for those plans with a huge reduction in military spending (by say, bringing our troops home) and keeping the promise made to generations of Americans. By making these plans optional for younger Americans, people can actually make a choice for themselves instead of being forced in to a plan they may not wish to take part in.
But overall, good stuff. Where's the opinion, though?
Another one of the tabs in the handy excel sheet I found at the CBO lists expenditures. In 2008, the government spent 2,978.5 Billion Dollars. They have broken the spending into a couple of big buckets including Discretionary Spending (Defense, International, and Domestic), Mandatory Spending (Social Security, Medicare, Medicaid, Income Security, Other Retirement and Disability, and Other Programs) and Net Interest. The entire amount of Discretionary spending was 1,134.8 Billion Dollars... that is only 38.1% of the over all expenditures. Even if the US was to withdraw from all foreign activity, they would not be able to meet the 45% reduction requirement to eliminate income taxes. There would need to be a lot more changed than cutting the military budget.
ReplyDeleteRegarding the IRS, this agency began with the passage of the Revenue Act of 1861 the the appointment of George S. Boutwell as the first Commissioner of Internal Revenue (thought it wasn't officially called the IRS until the 1950's). It not only looks over individual income taxes, but all revenue sources for the US. While certainly some of its functions would be obsolete, there is still a lot for it to do.
The more I dig into this budget thing, the thicker the web seems to get. I think there is still a way out, but it will definitely take some more thought.
I should be clear - my goal is a REDUCTION in what the Federal Government spends. I don't want them to be able to continue to spend the way they have. So if they have to cut stuff, I'm fine with that.
ReplyDeleteFor me, it doesn't take much thought. I feel people should own what they produce and the government should protect those property rights, not encroach upon them.