#242  

 April 1999




Congress Considers Tax Limitation Constitutional Amendment

by Amy Ridenour


In the year 1057, Lady Godiva urged her husband Leofric, Earl of Mercia, to lower taxes on the people of Coventry. Leofric replied that he would do so only if his wife rode naked through the town marketplace.

Lady Godiva met her husband's conditions. Covering her body with her long hair, she protected both her own modesty and her husband's pride, permitting him to lower taxes without loss of face.1

Lady Godiva's spirit lives on. On April 15, the date over 120 million tax returns are due at the Internal Revenue Service,2 the U.S. House of Representatives will vote on a tax limitation constitutional amendment to make it harder to raise taxes. If approved by Congress and the states, this amendment would require two-thirds approval of Congress to raise taxes, except in wartime and in periods of national emergency.

Last April, the Tax Limitation Amendment passed the House 238-186, just 47 votes short of the two-thirds majority needed to approve a constitutional amendment.3 The proposal's fate this year is uncertain, but one thing is sure: If every taxpayer realized the full extent of the taxes he or she pays, Congress would feel enough heat to stop raising taxes.

Wall Street Journal writer Amity Shales's new book, "The Greedy Hand: How Taxes Drive Americans Crazy and What to Do About It"4 is an excellent source of such information. Did you know, for instance, that when Congress established the first income tax in 1913 - a tax that was supposed to apply only to the very rich - a millionaire's income tax rate was 7%? Today, says Shales, a teenager starting out at McDonald's qualifies for a 7.65% tax rate.

Shales also tells us that Americans each year pay $1.48 trillion in taxes, an amount equal to the size of the entire British economy. U.S. federal taxes today equal one-fifth the U.S. economy - the highest it has ever been in peacetime.

Shales also shares Tax Foundation data showing that, in 1957, a two-earner American family spent a quarter of their budget in taxes, much less than it spent for food and housing. In 1998, a typical two-earner family spent nearly 40% of its income on taxes - more than it spent on food, clothing and housing combined.

Rep. Joe Barton (R-TX), who is sponsoring the Tax Limitation Amendment with Senator Jon Kyl (R-AZ), says his proposal is necessary because our government structure is biased toward more and more spending. Barton points out that most government benefits target distinct special interests that have a strong economic incentive to band together to lobby for increased government spending. Taxpayers, he says, are different: They are spread around the country and find it difficult and uneconomical to band together to stop spending and tax increases.

In a 1997 poll, 70% of the public supported Barton's Tax Limitation Amendment.5

Barton hits upon something political philosophers have long recognized. In the 19th century, John Stuart Mill wrote: "The 'people' who exercise the power are not always the same people over whom it is exercised."6 Quite so. And those who pay the taxes are not always those who sought spending increases.

One group that agrees with Barton is Americans for Tax Reform (ATR), a coalition of 90,000 taxpayers and taxpayer groups. ATR supports a Tax Limitation Amendment to the U.S. Constitution, noting that 14 states have tax limitation provisions, while 15 states will consider adopting them sometime in 1999.

In support of tax limitation efforts, ATR is educating Americans about "hidden taxes" that drive up tax bills in ways most never realize. ATR describes the tax bite in popular consumer goods:

* Beer: 43% of the price goes for taxes.

* Bread: 31% of the price paid is taxes.

* Cars: 45% of sale price is taxes.

* Cigarettes: 75% of the sale price is for taxes.

* Electricity: 25% of your bill goes for taxes.

* Gasoline: 54% of the price is taxes.

* Guns: 46% of the sale price is taxes.

* Hotel stays: 43% is taxes.

* Liquor: 44% of the price of a bottle of distilled spirits goes for taxes.

* Pizza: 38% is taxes.

* Restaurant meals: 27% of the price is taxes.

* Soda: 35% is taxes.

* Telephone calls: 50% is taxes.

* Tires: 36% is taxes.7

Shales highlights another tax hidden to most Americans: the double taxation of income that occurs because the government withdraws 7.65% of every employee's paycheck for Federal Insurance Contributions Act, or FICA, taxes (less after $70,000 in income) but then charges each taxpayer income taxes computed against the taxpayer's full gross income. Thus, taxpayers are forced to pay income tax on income they never receive.

FICA taxes aren't small. In 1996, Shales says, the government collected $476.3 billion in FICA-type employment taxes, and $656.4 billion in individual income tax.

Senator John Ashcroft (R-MO), among others, has worked in Congress to end this practice of double taxation, but so far without success.

The need for tax reform may be highlighted by these facts: According to the Tax Foundation, total 1998 tax collections in the U.S. will equal $2.667 trillion. This is equal to an average of $26,434 for every U.S. household or $9,881 for every American. It also is an increase of 5.7% over 1997 tax receipts and a 58.4% increase over 1990 tax receipts.8

Compared to the actions of Lady Godiva, the Tax Limitation Amendment is a moderate proposal. On April 15, we'll see if it is moderate enough to gather the support of two-thirds of the Congress.

 


Footnotes

1 Clifton Fadiman, General Editor, "The Little, Brown Book of Anecdotes," Little, Brown and Company, 1985, p. 245.

2 Tax World website, "Tax Statistics," http://www.taxworld.org/TaxStats/tax_statistics.htm, downloaded April 9, 1999

3 Information supplied by Rep. Joe Barton (R-TX), March 1999.

4 Published 1999 by Random House.

5 1997 poll by The Polling Company, Washington, D.C.

6 John Gross, Editor, "The Oxford Book of Aphorisms," Oxford University Press, 1983, p. 121.

7 Information from a series of Americans for Tax Reform press releases released in October 1998 and from the Americans for Tax Reform website, http://www.atr.org/taxbites/index.htm, downloaded April 8, 1999.

8 "Total Tax Collections Climb to $2.667 Trillion in 1998," Tax Foundation, 1998; downloaded April 8, 1999 from http://www.taxfoundation.org/prtotaltaxflow.html.


# # #


Amy Ridenour is president of The National Center for Public Policy Research. Comments may be sent to [email protected]




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