"That corruption in the Internal Revenue Bureau runs high needs no proof. It would be easy to fill up many pages with "sensational" stuff by merely recounting what has appeared in the public press, even in the last few years. But that would be like serving up a full course of filth, disgusting and hardly illuminating. It is now part of American folklore that agents of the Internal Revenue Bureau have been amenable to bribery, that "pull" has played a part in the adjustment of disputed tax returns, that cases against tax dodgers have been quashed by higher-ups after field agents have conscientiously worked them up. The Bureau itself has made some disclosures of such malpractice, and the opposition party, always mindful of a "corruption" issue for the coming election, has made much of what it could dig up. "
The Income Tax: Root of all Evil
by Frank Chodorov
CHAPTER VII
Corruption and Corruption
"The imposition of the [income] tax will corrupt the people. It will bring in its train the spy and the informer. It will necessitate a swarm of officials with inquisitorial powers. It will be a step toward centralization…. It breaks another canon of taxation in that it is expensive in its collection and cannot be fairly imposed;… and, finally, it is contrary to the traditions and principles of republican government." -- REPRESENTATIVE ROBERT ADAMS, January 26, 1894.
THE WORD "corruption," in American usage, suggests the use of office for the betterment of the politician. The word has other meanings. The fact that this political meaning comes to mind first, indicates that the practice is common. Is it because the men we put in office are of particularly low character, innately, that political corruption is so common, or is it because the opportunities to better one’s circumstances are so inviting in public office? Since in our form of government the officials are not born into it, but are drawn from private life, we must conclude that they are no worse and no better than the rest of us, and that their moral deterioration results from the temptations political power generates. Therefore, the more political power the more corruption. And political power concerned directly with the nation’s wealth contains the most corruptive possibilities.
That corruption in the Internal Revenue Bureau runs high needs no proof. It would be easy to fill up many pages with "sensational" stuff by merely recounting what has appeared in the public press, even in the last few years. But that would be like serving up a full course of filth, disgusting and hardly illuminating. It is now part of American folklore that agents of the Internal Revenue Bureau have been amenable to bribery, that "pull" has played a part in the adjustment of disputed tax returns, that cases against tax dodgers have been quashed by higher-ups after field agents have conscientiously worked them up. The Bureau itself has made some disclosures of such malpractice, and the opposition party, always mindful of a "corruption" issue for the coming election, has made much of what it could dig up.
It would be miraculous if things were otherwise. The Internal Revenue Bureau is charged with the task of enforcing an immoral law, a law that violates the principle of private property. The taxpayer, even though he prates about his willingness to pay his "just share" of government expenses, always finds his "just share" unjust. And so it is. Even the doctrinaire socialist, while decrying the iniquity of private property, resents being deprived of his own; after all, the socialist is a human. It is written into our consciousness that "mine is mine," and all the tomes in support of income taxation cannot wipe out that thought.
The Internal Revenue Bureau quite sensibly takes the view that every one of us is a potential lawbreaker, as far as the income-tax law is concerned. To approach its task with any other point of view would undermine its effectiveness. It has a war against society on its hands, and to win that war it must make use of the artifices of war, such as espionage, deception, and force. Society, on the other hand, though necessarily on the defensive, is not entirely helpless. It knows that the weakness of the Internal Revenue Bureau is the fact that its operatives are also human. They too are always on the lookout for an easy dollar. Thus, the natural inclination of the agent blends with the natural inclination of the taxpayer to form a setting for the circumvention of the unnatural law. Why expect anything else? If this setting produces corruption, we must look to the law, not to the human beings involved, for cause.
Aiding the agent in his collusion with the taxpayer is the disparity of numbers in this struggle; the potential lawbreakers are entirely too numerous for the handful of collectors. If the number of enforcement agents were to be increased to a proper balance, the cost would eat into the "profits" of the operation. For political reasons, it is necessary for the IRB to show that the cost of collection is little, compared to the amount collected. Knowing this, and knowing also that his usefulness to the Bureau is measured by the amount of the collections he is able to effect, the agent is inclined to settle a disputed tax case; if, incidentally, the settlement is topped with a clandestine gratuity, so much the better. One senator is currently making a name for himself by bringing to light settlements amounting to as little as a few cents on the dollar, when the taxpayer, although admitting his indebtedness to the government, proves he is virtually bankrupt. The Bureau’s answer is that "something is better than nothing," and the senator, unable to prove what he obviously suspects, must accept that sensible answer.
It is a certainty that the wage earner cannot be a party to such corruption; not that he is above it, but that he lacks opportunity; what is taken from his envelope is beyond settlement. Besides, what can he offer in the way of a bribe? Only the taxpayer in the higher brackets is in position to "do business" with officials. The "business" is aided by the complexities in the laws designed to tap their incomes. And these complexities, which result in interpretations, which encourage corruption, are unavoidable.
All taxes come from production. A tax law that stops production is self-defeating. Hence, in framing the statute the government must try to get all that the traffic will bear without stopping the traffic. The producer must be allowed to keep enough of his returns so that he will be able to continue to operate; the victim must not be strangulated. This presents a difficult problem in lawmaking, especially when the victim is a large and complicated business; or when the law seeks to cover every contingency in all the industries that make up the complicated national economy. The lawmakers must overlook something; they cannot anticipate every new scheme that man, in his desire to get along in the world, will think up. Therefore, "loopholes" in the law show up, and sometimes these loopholes are deliberately put into the law at the behest of some important pressure group.1
The ingenious entrepreneur, trying to "beat the rap," will take advantage of the clauses in the law which were intended only to permit him to stay in business, after taxes. With the help of expert accountants, he finds ways of squeezing an extra dollar through the "loopholes," or discovers a "loophole" not intended by the lawmakers. But here he may come into conflict with the government’s agent, whose opinion on what are legitimate expenses of business may differ from his. Was too much deducted for depreciation? Was the inventory taken at true value, and what is true value? How about those large expense accounts, that costly public-relations program? Are they necessary to the conduct of the business? The agent says this, the taxpayer says that, and thus we have the makings of a costly lawsuit. The natural inclination of the taxpayer is to seek some other way out, and sometimes the agent is quite amenable to "reason." The corruption is written into the law.
However, if corruption were limited to the mere giving or taking of bribes, direct and indirect, we could write it off as of secondary importance; it is simply the inevitable consequence incident to the operation of an immoral law. Of far greater concern is the use of income taxation to undermine the principles of republican government and to make a mockery of our tradition of freedom.
In 1931-that was before the arrogance of federal power had reached the point to which the administration of Franklin D. Roosevelt ultimately brought it-the infamous case of William H. Malone began. This man, who ran for Governor of Illinois on the Republican ticket in 1932, had been Chairman of the Illinois Tax Commission. In that position he had offended the Pullman Company and the Chicago Traction Lines; that is, he had made decisions unfavorable to the tax claims of these companies. Their resentment flowered into the passion of revenge. Somehow, the passion found _expression_ in a case against Malone, instituted by the Internal Revenue Bureau, for "willful evasion" of his income taxes.
The case lasted six years. The record of the case, written up in a book entitled They Got Their Man, by Elmer Lynn Williams, indicates that witnesses were coerced and threatened, that bribes were tendered to secure an indictment, that the District Attorney, who later rose to a judgeship, conducted the trial with "the fury of a political feud." The presiding judge, who sentenced Malone to two years in the penitentiary, was known to be active in the campaign of the District Attorney for U. S. Senator. It should be pointed out that Malone had protested certain taxes levied against him, that he promised to pay the sum in dispute if the Board of Tax Appeals decided against him, that he cooperated with the investigating agents, as they themselves testified. Nevertheless, the charge was "willful evasion," which is a criminal offense, and Malone was sent to jail. He was a political undesirable.
Sixteen years later, a similar case sprang up in Boston. A sixty-four-year-old businessman decided to give his time and talents to public service. He ran on the Republican ticket for the General Council and was elected. Before his election he had had some disagreement with the Labor Commissioner, who came from his own town. After election he recommended to the Governor the dismissal of this man from office. The ousted Labor Commissioner thirsted for revenge. He was a loyal member of the party in the federal saddle. Whether this had anything to do with it or not, the fact is that shortly after he had taken office, Alfred Calvin Gaunt was charged by the Internal Revenue Bureau with "willful evasion."
The case involved the matter of evaluating depreciation; there was a dispute over the value Gaunt put upon the plant in 1931, which in turn had a bearing on his tax returns. In the investigation, Gaunt, like Malone before him, hid nothing from the agents, but went out of his way to furnish them with every scrap of evidence in his possession as far back as they wanted to go. There was certainly nothing that could be called "moral turpitude" in his behavior or in his background, and it seemed that the most the Bureau could ask for would be additional taxes, based on a different evaluation of the plant, plus interest and penalties. The conduct of the case, however, indicates that the Bureau was acting under political pressure. They wanted Gaunt, not his money. They got him. He was sentenced to serve eighteen months in jail.
The two cases are identical in significance, and are here offered as examples because they occurred under different Washington administrations. The composition of the ruling regime makes no difference; the Internal Revenue Bureau is a self-operating inquisitorial body. It has the means of harassing, intimidating, and crushing the citizen who falls into its disfavor. In the two cases cited the starting point was a difference of opinion on the correctness of a bookkeeping entry. The Bureau could have sued for the recovery of taxes, a civil case; it chose to bring the criminal charge of "willful evasion." The Bureau has that choice. The tax laws are so intricate, and made more so by Bureau rulings and Tax Court decisions, that it is virtually impossible for an accountant to be sure his method of arriving at a taxable income, or his computation of the tax, is beyond question. The technicalities that the Bureau may bring up are legion. Therefore, whenever the Bureau has reason to "get" somebody it has ample means at its disposal. And its viciousness in pursuing a chosen victim, as in the cases mentioned, is unrelenting, simply because its reputation for success is at stake. It must not fail.
This is what the late Senator Schall of Minnesota had to say about this phase of corruption:
"The one glaring governmental agency that constitutes a menace to the citizens is the Income Tax Bureau, which often goes outside the constitutional limitations and frequently harasses citizens by unjust exactions and by the oppressive conduct of its agents. This system has one defect that is fundamental. That is its lack of certainty, involving not only the time and manner of payment but also the clear, definite and fixed amount. While the Bureau is a Babel of conflicting regulations and opinions, it believes it is so entrenched by authority granted and assumed, and by its anonymous character, that it even dares to attack the citizens by a charge of fraud without substantial pretext or cause….
"The bureau is inquisitorial. It is bureaucracy. Washington is cluttered up with its offices. Its forces swarm over the country, and the cardinal doctrine under which it operates is to inspire the citizen with fear. Agents, spies and snoopers annoy and plague the citizens. The agents, rarely of high order in point of skill or character, must show some kind of results. The Bureau grades them for promotion to increased salary, or better still for the honor roll, not on what taxes are finally returned to the government, but by the amounts they mark up first or charge against the taxpayer.
"That practice permits and promotes, if it does not direct, a species of blackmail against the American citizen…. Once having started in pursuit, the agent assumes authority to impute fraud to the most innocent transactions, and the perfectly honest taxpayer must submit to indignities, odium and accusations of criminality and be put to heavy expense to prove to his own government that he is not a criminal."
Nor is that all. There have been cases-for obvious reasons not many have received publicity-where citizens who have offended the party in power were suddenly visited by agents of the Bureau and subjected to interrogation and examination. Of course, the Bureau is entirely within its legal right to do so, and there is no proof that the citizens’ views prompted these special investigations. It cannot be proved that the purpose was to silence opposition. But the practice is so well known that men of means have scrupulously avoided involvement in movements critical of the Administration, even though privately they are in sympathy with such movements.
The corruption of freedom on the individual level is bad enough. But the corruption of freedom on a mass scale is worse. When the political establishment undertakes to undermine the integrity of the people as a whole, to weaken their power of resistance to authority, and even to lure them into an acceptance of it, then freedom has no leg to stand on. This is exactly what income taxation does, particularly with its exemption device. Bribery through exemption is a most insidious form of corruption.
The Civil War income-tax laws did not exempt churches or educational institutions. While it seems that the government did not get much revenue from them, churchmen and educators had no special reason to support income taxation. They did not like it any more than did other citizens. Whether or not the later advocates of income taxation recalled this fact is not known; but they did advertise it around, when the Amendment was under consideration, that the proposed law would exempt the incomes of institutions "not operated for profit." Furthermore, they promised, the law would permit contributors to such institutions to deduct donations from their taxable incomes. Clergy and educators were quick to see that this privilege would give them an advantage in soliciting contributions, an advantage that gave rise to the slogan: "You might as well give it to us as to the government." Income taxation thus won over a large body of opinion farmers. They were bribed into support of an immoral law.
Before 1913, economics textbooks did not make much of the ability-to-pay doctrine. Some professors did advocate taxes on corporations, for revenue purposes, but only the few avowed socialists among them ventured to advocate "taxation for social purposes." Today, practically every textbook used in our college economics courses proclaims the virtue of progressive income taxation as a means of "distributing wealth." Whether the exemption privilege enjoyed by the colleges had anything to do with this change of thought, it would be impossible to prove; but the inference is justified.
And now that income taxation has reached the point that contributors to colleges cannot be as liberal as they used to be, and the colleges are finding it difficult to meet their expenses, there is a great tendency to look to the government for subsidies. Many educators are concerned lest their cherished "academic freedom" suffer from government intervention. Nevertheless, the prevailing attitude among educators toward Big Government-and therefore heavier taxes-is more than favorable, and one wonders whether this attitude is influenced by the need of the colleges for funds. And one cannot help wondering whether the economics textbooks produced since 1913 would have found so much good in income taxation-and so much bad in private property-if these institutions had not been singled out for special favor.
In 1946, the artifice of bribery through exemption was linked to a law to regulate lobbying. This law requires citizens or groups who are engaged in attempting to influence legislation to register with the government. The corollary of this law is that registered lobbying organizations cannot enjoy tax exemption under the "nonprofit" provision of the income-tax law; it is interesting to note that religious bodies which maintain lobbying committees in Washington do not have to register, and therefore do not jeopardize their tax-exempt status.
The effect of this registration law was not to reduce the practice of lobbying-in fact, lobbying has become an important business-but to intimidate the directors of foundations; for fear that they might lose their tax-exemption privilege by supporting any movement that even by indirection might be called "political," or by "attempting to influence legislation," they are most scrupulous in examining applications for donations. They must give money only to "educational" ventures-as if education were free from ideological bias. Thus, the so-called lobbying law has had the effect of bribing Americans into abandoning their right of protest.
In 1950, the ruling regime made an attempt to press this lobbying law against several organizations attempting to influence thought unpleasant to the Administration. The government set up a Congressional committee2 to investigate all lobbying activities, but by odd coincidence this committee selected for study only a few that were distributing anticollectivistic and pro-limited-government literature.
The committee began its "investigation" by redefining lobbying; it asserted that any "substantial effort"-meaning any effort backed with some money-to influence thought that might even indirectly influence legislation must come under the head of "lobbying"; those behind any such effort should register. Since the organizations selected for scrutiny enjoyed the tax-exempt privilege, this meant, if the committee had its way, a loss of revenue; the supporters of these organizations could not deduct their contributions for tax purposes. The committee went onto demand of these organizations a list of their contributors; this insistence on disclosure had only one purpose, that of intimidating and harassing citizens who supported organizations the Administration did not like. Though nothing came of the work of this committee, for political reasons, the point was driven home that organizations enjoying tax exemption had better be careful.
The corruption of freedom is in proportion to the moral deterioration of the people. For a people who have lost their sense of self-respect have no need for freedom. And the income tax, by transferring the property of earners to the State, has disintegrated the moral fiber of Americans to such a degree that they do not even recognize the fact.
Due to the revenues from income taxation, the government is now the largest employer in the country, the largest financier, the largest buyer of goods and services; and, of course, the largest eleemosynary institution. Millions of people are dependent upon it for a livelihood. They lean upon the State, the one propertied "person," even as a bonded servant leans upon his master. They demand doles and subsidies from it, and willingly exchange their conscience (as at the ballot booth) for the gift of sustenance. Wardship under the State, by way of unemployment insurance, public housing, gratuities for not producing, and bounties of one kind or another, has become the normal way of getting along; and in this habit of accepting and expecting handouts, the pride of personality is lost.
Because abolition of income taxes would undermine the value of the government bonds in the banker’s vaults, would do away with the subventions by which manufacturers and farmers thrive, would force into productive work the millions who now feed at the public trough, would lessen the special benefits ex-soldiers would expect-who would be for abolition? Socialism has a way of corroding human dignity.
Moral deterioration is a progressive process. Just as a worn part of a machine will affect contiguous parts and finally destroy the entire mechanism, so the loss of one moral value must ultimately undermine the sense of morality.
The income tax, by attacking the dignity of the individual at the very base, has led to the practice of perjury, fraud, deception, and bribery. Avoidance or evasion of the levies has become the great American game, and talents of the highest order are employed in the effort to save something from the clutches of the State. People who in their private lives are above reproach will resort to the meanest devices to effect some saving and will even brag of their ingenuity. The necessity of trying to get along under the income tax has made us a corrupt people.
http://mises.org/etexts/rootofevilb.asp#CHAPTER_7 --
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