How Did Our Founding Fathers View Taxes?

This month, we celebrate the 238th birthday of America. But now that we are separated from our founding fathers by nearly two and a half centuries. Many have forgotten what the men who drafted the Declaration of Independence and Constitution believed about taxes. The truth is that this country was founded on the principle of limited government; a government that would do little more than provide for the common defense of the country. In addition, a limited government should bring limited taxation to its citizens. Mount Rushmore

Perhaps James Madison best summed up what the founders believed about taxes when he stated:

“A national revenue must be obtained; but the system must be such a one that, while it secures the object of revenue it shall not be oppressive to our constituents.”

In other words, the founders acknowledged the need to collect revenue to pay the country’s bills, but they did not want to create a system that oppressed the citizens in the process.

When Was the Federal Income Tax Created?

Many are surprised to learn that there was actually no federal income tax at the time of this country’s founding; it was actually not ratified until nearly a century and a half later. In the beginning, the only tax imposed by Congress was on foreign imports. This may seem counter-intuitive in today’s globalized world where nearly every politician is an advocate of free trade, but it appears that our founders gave favor to those that produced goods right here on American soil.

In addition to the external sales tax, there was a provision in the founding documents to impose a direct tax (apportioned by the states) in order to close an annual deficit. There were “temporary” income taxes imposed at various times during the 1800s, but the U.S. Supreme Court declared the income tax unconstitutional in 1895. This prompted a movement by many in government to alter the Constitution.

In 1913, the states ratified the Sixteenth Amendment to the U.S. Constitution, allowing for the first time a permanent Federal Income tax. The amendment was passed under the guise that only a few rich people would ever have to pay the tax. As we all know, it did not quite work out that way. Today, nearly two thirds of Americans pay either an income or payroll tax (or both). At over 80,000 pages, the Internal Revenue Code (IRC) is so complicated even many tax professionals have a difficult time understanding it.

So would the founders approve of the current tax code and the conduct of the agency that oversees it? Clearly, most people would answer “no” to that question. However, it is a different world today and America has far greater financial obligations than it had in 1789. Advocates of a flatter and simpler tax code often point to the quotes of our founders to support their position, and this debate is likely to continue for several years to come.

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