Paul L. Caron

Wednesday, September 5, 2018

McCaffery: The Death of the Income Tax

Edward J. McCaffery (USC), The Death of the Income Tax (or, the Rise of America's Universal Wage Tax):

In 1913, with whispers of progressive politics in the air, Americans ratified a Constitutional amendment allowing for a tax on “all incomes, from whatever source derived.” This set the stage for the individual income tax, a tax meant to fall on wealth and the wealthy. It was a small step, but it was a step. Capital and labor, wealth and wages, would each be paying the price of civilization. The corporate income and gift and estate taxes soon formed a troika of wealth taxes, though the individual income tax fell on upper-income wages as well.

Things changed. Over a century later, the “income” tax has slowly, steadily morphed into a wage tax for the masses — a simple tax on wages, withheld from paychecks, with little or nothing to add or subtract, heading towards a postcard or formlessness. As this script, edited by Grover Norquist and like-minded conservatives, has played out, all taxes on wealth have been falling. The corporate income tax, once a major player in federal revenues, has been slashed yet again by President Trump. The death tax is almost dead, again nearly killed for good by Trump, persisting as cover for political games affecting the wealthy. And while an Ur-Income Tax remains, ostensibly to collect some revenue from wealth not wages, its commitment to truly taxing wealth remains as porous as ever — none of the original income tax’s Achilles heels, Buy/Borrow/Die, have been addressed. Meantime, the payroll tax has continued its steady growth, the small exceptional hiccup of President Obama’s payroll tax holiday only proving the rule of America’s inexorable march towards wage taxation.

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