Lay Low the Rich

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Earlier this year, a series of news reports revealed that the government’s tax enforcers were applying disproportionate pressure on the working class and the working poor. It turns out, extensive audits showed, that quite a few backyard auto mechanics, diner waitresses, and clock punchers of all sorts weren’t reporting all their income.

Well, how can our illustrious political class expect to serve us but by squeezing every last dime out of these working folks? So they were looted even more, to some degree of public skepticism.

Well, responding to the criticism, and sensing a change in public mood, the tax authorities now have a new tactic: they will disproportionately target the rich. Do we hear loud cheers? Could be, in this age of envy, but that would still be strange. It would be the equivalent of celebrating when a crime wave moves from the inner city to the suburbs.

With taxes at historic highs and government spending increasing at rates not seen since the 1960s, it is hardly surprising that the Republicans are looking for ways out. Some bright light with the Bush administration realized that the rich are the people who have the most money, so if money is what they want, they should go after those who have it first. In any case, it is the rich who have the resources to employ fancy tactics to reduce tax liability.

A typical case cited in the campaign involves a scheme promoted by Ernst & Young that used foreign currency transactions to eliminate taxes. Others involve setting up off-shore companies and creating partnerships to redefine income as business expenses. Another class of cases is more famous now: people who have credit cards from offshore banks where taxes do not exist. This is said to be the easiest means of avoiding taxes, and up to 2 million Americans use it, so of course it must be smashed.

But another class of tax dissidents has really irked the government: those who make the claim, based on a cranky interpretation of a portion of the tax code, that taxes are voluntary and therefore they do not have to pay. The section in question is apparently numbered 861, which does indeed use the word voluntary.

Now, the people who believe that the government should be held to its word are hardly a rich and sophisticated bunch. In fact, there is something about these people that should interest all of us. Their claim that they should not have to pay taxes is based on a literal reading of the law (mistake #1), combined with the view that the government courts are bound by law (mistake #2), and finally, that an appeal to good sense will prevail over the obvious injustice if an allegedly free country would be so brutal as to jail someone for sincerely disputing a point of regulatory law (mistake #3).

Of course, anyone involved in libertarian politics at any level has had plenty of encounters with these people. They will tell you that they haven’t paid any income taxes in some seven years. They announce this triumphantly and demand to know what’s wrong with you that you would pay taxes when you don’t have to. Sounds impressive until the next time you hear from them and it’s from the pokey.

The line on these people is that they are crazy and paranoid. Quite the opposite is true. The problem with these people is not that they do not trust the state. It is that they trust it too much.

They believe government courts would actually rule against the interests of the government. They believe that the tax authorities would actually feel trapped by a literal reading of the tax code. They believe that this is still a nation of laws — laws that can be read and understood by the common man — rather than a nation run by bandits out to get every dime.

If you try to tell these people that they are naïve, that the government is so bad that it doesn’t matter what they discover hidden in the code, the state will still want their money, they are shocked at your cynicism and lack of patriotism. It is their conviction that this is a great country with a Constitution and no such country could possibly permit the political class to steal their money with such abandon.

Another claim of these people is that the income-tax authorizing 16th Amendment wasn’t validly ratified. I’m prepared to believe that. I’m prepared to believe that amendments 11 through whatever the latest one is were not validly ratified. But what does that matter? Many of the states that originally entered the union did so on the condition that they could peacefully leave if they wanted to, and we know how that turned out.

For that matter, I’m prepared to believe that the Constitution itself was never validly ratified, and that the near-anarchism of the Articles of Confederation should be our guiding light. Whether that is true or not, however, is of purely academic interest. This country is run by a voracious regime of tax eaters and imperialists who care nothing about liberty, tradition, the ideals of the founding, Christian morality, and the like. Appealing to these considerations is like explaining the virtue of chastity to a rapist. It’s a pious act, but not likely to affect the outcome.

A final change in enforcement tactics that needs to be mentioned: the government plans a new two-pronged assault to use the most brutal methods available in both civil and criminal law. In short, pay up or go to jail. There you have it: compassionate conservatism in a nutshell.

There’s an easier way to make sure that everyone pays, and it is the one long emphasized by Charles Adams: make taxes low enough so that paying does not become burdensome. But that would also require lowering spending, shrinking government, and otherwise permitting freedom.

If you think that the regime is going to do that voluntarily, you probably also believe that section 861 entitles you to keep the money you make. In short, you have underestimated the extent of the problem.

Llewellyn H. Rockwell, Jr. [send him mail], is president of the Ludwig von Mises Institute in Auburn, Alabama, and editor of LewRockwell.com.

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