[+Donny]

Chapter 3
Constitutional Taxation

One of the most important and debated issues of civil government is taxation. Theories range from anarchism, which advocates the absence of civil government (and thus the absence of taxation) to communism, which sets forth a messianic state that controls 100% of the property of a nation. There are also theories on what types of taxes should be instituted and what their purpose should be. Mercantilism proposes that the government should tax imports heavily to support a favorable balance of trade, while capitalism sets forth a market free from government intervention. In this chapter I seek to lay out what exactly the Constitution did and did not support, and then to critique the Constitutional system of taxation.

Regulation of Commerce

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States; (1:8:1)

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes; (1:8:3)

According to the Constitution, the federal government (specifically Congress) has the power to regulate commerce, specifically with foreign nations. The theory behind this is mercantilism, which was discussed briefly in chapter 1. According to this theory, a nation should tax imports to make them less favorable. This is supposed to encourage the purchase of domestic goods and exports, which would then increase the amount of money flowing into the country (from the exports) and decrease the money flowing out (the tax on imports).
We see evidence of this form of taxation repeatedly in early America. Soon after independence, and before the Constitution was written, many states passed tariffs to give domestic manufacturers an advantage over foreign manufacturers. In fact, a major “accomplishment” of the Constitution was giving the power of the regulation of commerce to the federal government instead of the states (the power was virtually taken away from state governments). Hamilton, the author of the majority of the letters making up The Federalist, was a known mercantilist. Madison, one of the leaders of the Constitutional Convention, basically took regulation of commerce for granted in letters 42 and 56 of The Federalist. Like natural law, the civil government’s regulation of commerce was virtually assumed by many of the leading Americans.
There are many problems with this theory. The first, which was listed earlier, is that it reduces the incentive to work. Continuing with the earlier example, the American TV companies know that they will be aided by the government with high import taxes, and thus do not need to beat out the Japanese companies with their product, only the American companies. Because of this, the Japanese TV companies have less incentive to produce a better TV, since beating the American companies would not be as profitable (because of the high import taxes). Therefore, the Japanese TV companies also have their competition field lowered, and thus their TV’s have lower quality and higher prices.
This destruction of competition only benefits the America TV companies. American customers must deal with the lower quality and higher prices and the Japanese TV companies lose customers. It is true that this does not directly affect the Japanese consumers unless the Japanese government employs this same tactic. Assuming that the Japanese government refrains from taxing imports from America, the Japanese consumers still can choose between the American and Japanese TV’s. However, they are hurt indirectly because the field of competition is reduced. Since the American and Japanese companies no longer are fighting over the American consumers, the American companies will not fight as hard for the Japanese consumers (since they have American consumers), and thus the Japanese companies will not have to fight as hard over the Japanese consumers. Therefore, the Japanese customers are still indirectly affected because of the poorer quality of Japanese TV’s.
Another problem is the development of irresponsible companies. Being constantly aided by the government makes the said companies dependent on such help. Like an addictive drug, these companies could not survive if removed from the government aid. These companies must constantly be aided by the theft of consumers (because of the higher prices they are forced to pay). Weak companies and unhappy consumers are the only products of government-supported companies.
Of course, this example is extremely simplified (containing only two countries, instead of the many more that would be involved in the competition), but it certainly gets this point across: government support of a domestic company is wealth redistribution. This is the final problem with government-aided companies. The government is essentially taking the would-be profits from Japanese companies and the savings of American consumers from the would-be lower prices of Japanese goods and giving this wealth to the American companies. Such wealth redistribution is unbiblical, because it teaches against the responsibility of recipients and goes against biblical “welfare”.
Scripture consistently teaches that people are responsible for making their own living. Those who are lazy and irresponsible will be poor (Proverbs 10:4; 20:13; 21:17; Ephesians 4:28; 2 Thessalonians 3:10). This does not mean we are not to give to the poor and needy, but this giving is charitable (Proverbs 14:31; 19:17; 21:13; 22:9, 22; 28:27; 29:7; 31:20), through the family (Mark 7:9-13; 1 Timothy 5:4, 8) and the church (1 Timothy 5:9-10). This giving is not to be enforced by a state run welfare program. Now, mercantilism’s primary goal is not to help the poor, but to stimulate the economy (which, as has been shown, it fails at doing). It, however, does have the affect of a wealth redistributing welfare program, which gives yet another reason to reject it. David Chilton makes the following comment about such government-intervention: “The argument that ‘infant industries’ need tariff protection is false. If the new industries are unproductive, they are unnecessary, and capital should be invested elsewhere. Without state aid, the new industry may not become a superpower overnight, but if it is really needed-if it is supplying consumers with demanded goods-it will grow as other businesses have. But protected industries have a way of never growing up, always dependent upon legal plunder. Tariffs bring nothing but subsidized irresponsibility and more poverty-poverty caused by outright theft, and by teaching the ethic of remaining an unproductive, irresponsible ‘infant’.”

Direct Taxation

No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken. (1:9:4)

Here we see a restriction against any form of direct tax, though this was changed by the 16th amendment. This is where we see yet another example of the influence of secular thought on the framers of the Constitution. Hamilton writes about the distinction between direct and indirect taxes in the twenty-first letter of The Federalist. He claims that indirect taxes, since they are taxes on goods, can be regulated by the people themselves. The people choose what they buy and how much of it they buy, so they control how much they pay the government. However, he says that direct taxes are controlled solely by the government, therefore subject the people to the possibility of abuse and oppression.
The supposed advantage of indirect taxation, however, is not an advantage at all. In this case, since Hamilton is speaking of raving revenue and not specifically regulating commerce for the advantage of domestic manufacturers, let us use the example of a sales tax. If the government, following the Constitutional system of taxation, establishes a sales tax (or any other item), the people do, as Hamilton said, have a freedom to avoid paying these taxes by simply refusing to buy the item. In other words, they can avoid the high prices by not buying as many goods. Thus, there are two choices for both the consumers and the manufacturers.
First, the manufacturer can choose to lower his price in response to the sales tax (the manufacturer gets the same result if he chooses to make the price with the tax equal to the old price without it, or just to lower it a fraction of the sales tax), or he can leave the price the same, and thus leaving the consumer to pay the price. This will not raise the amount of items he sells, since the price with the tax is not any lower than the price without the tax, and he will be making less money for each item. Therefore, he receives less money from the consumers. For example, a bookstore used to sell its hardcover books at $15.99 a book. However, the government creates a sales tax of 10%. The book’s price, if the bookstore does nothing, would jump to $17.59. This would mean that consumers would buy fewer books, therefore costing the bookstore money. The bookstore could lower the price to $14.54, making the final price $15.99 with tax. This would mean the bookstore would sell the same amount of books, but with a lower profit per book. Of course, the bookstore can choose to charge somewhere between $15.99 and 14.54 per book, but it will always lose money to the lower profit per book and/or the fewer books sold. Therefore, with a sales tax, the manufacturer loses money to the government.
Second, following the same example, the consumer can choose to buy fewer books (because of the raised price) or can buy the normal amount of books at the high price. This will, of course, go along with the decision of the bookstore. What will happen is that the price (with tax) will end up somewhere between $17.59 and $15.99. The majority of the consumers will agree to pay slightly more for the book, while the bookstore will lose some of its sales (because of the raised price, there will be less demand for the item). Therefore, a sales tax will end up costing everyone (both the manufacturers and consumers) some amount of money in the long run because it artificially raises the agreed upon market cost of the said item.
Before the tax, the consumer and the bookstore had agreed on a price of $15.99. After the tax, however, they must now compromise and agree on a higher price, because there is now a third party that needs to be given goods. Before, the consumer got the book and the bookstore got the money. However, now the government wants money as well. Therefore, the consumer, having to give money to both the bookstore and the government, must contribute more money. As said before, because of the raised price, fewer consumers will buy the book, therefore the bookstore must either lower his price or stand to lose customers.
In my opinion, this is virtually the exact same thing as an income tax. The only difference is that with a sales tax, the government takes the money during the transaction, while it will take the money after the transaction with the income tax. With the sales tax, the government artificially raises the price of a said good (the book) that the consumer must pay (the additional 10%). The cause of this, as said before, is that the consumer and manufacturer work out a new, higher price for the good. Both of them lose money, which goes to the government. So, how does this relate to the income tax? We must seek to have an understanding of the income tax first.
In the income tax, the government intervenes into the relationship between an employee and an employer. An employee offers his work (his goods) for a price that is paid by the employer (the consumer). Just as with the sales tax, the employee and employer must negotiate to find a suitable price for the work of the employee. To keep with the bookstore example, say that the manager of the bookstore agrees to pay a college student $20 an hour to work at the bookstore. The government then steps in and wants 10% of the salary of the employee. The employee now is only making $18 an hour, while the government is taking $2 an hour. Therefore, because of this tax, the employee (in this case, the supplier of the goods) stands to lose money for the same amount of work unless he asks for more. Because of the tax, the employer must give his employee a higher salary or stand to lose work (by losing employees and/or by reducing their hours). Therefore, the employer and his employee will again find an agreeable salary. The employer will lose money because of the higher priced employee, and the employee will lose money because of the 10% income tax.
The end result, thus, is the same as with the sales tax. In both cases, the consumer (the employer with the income tax and the purchaser of the books with the sales tax) must pay a higher price for the desired goods (the work with the income tax and the books with the sales tax) and the manufacturer (the employee in the case of the income tax and the bookstore in the case of the sales tax) receives less money for the goods. The consumer and the manufacturer must agree upon a new, higher price, out of which the government takes a certain portion.
After establishing that both the income tax and the sales tax work out the same way, what about Hamilton’s argument that the income tax is more open to oppression and tyrannical taxation than the sales tax? The problem with such an argument is that it ignores the fundamental similarity between the two taxes. While it is true that the sales tax adds to the price of the good before the transaction (therefore, appears to be immediately taxing the consumer) and the income tax takes away from the profits of the good (therefore, appears to be immediately taxing the manufacturer), anyone can refuse (and thus “control” the amount of taxes he pays) to pay the tax be refusing to involve himself in the transaction. The purchaser of the books may choose simply to buy fewer books, thus reducing his expenditures, but also reducing the profit of the bookstore. However, it works the same way with the income tax (a “direct” tax). The employer could simply choose to buy fewer hours from employees, thus reducing his expenditures, but also reducing the profit of the employees. In short, both the income tax and sales tax artificially increase the cost of goods, therefore taking money away from both the consumer and the manufacturer to pay for government programs.
This leaves two subjects not yet addressed. First, what of the limits on taxation that Hamilton mentioned? Is there truly no limit on civil taxation? Second, how does this conclusion about income and sales tax relate to our earlier conclusion about civil regulation of commerce?
The first subject is rather easy to answer, though it was missed by Hamilton because he did not use the Bible as his guidebook for his theories on taxation.

And he will take the tenth of your seed, and of your vineyards, and give to his officers, and to his servants. (1 Samuel 8:15 ASV)

In this chapter, Samuel lists the many tyrannical things that would happen to Israel if a King had power over them. One of these actions was to take a tithe away from Israel in taxation. Therefore, a very simple and biblical cap on taxation is 10%. Gary North makes the following comment about this verse (emphasis his): “The modern state is a thief. When Samuel warned the nation of Israel against selecting a king to rule over them, he tried to scare them by telling them that the king would extract a tithe of 10% (1 Samuel 8:15-17). The Greatest bureaucratic dynasty of the ancient world, Egypt, took 20% as its tithe (Genesis 47:26). There is not a Western industrial state that extracts as little as Egypt took. In fact, in most instances, a tax rate of one-fifth of a nation’s productivity would constitute a tax reduction or at least 50%.” If Hamilton had looked to the Bible for perfect taxation, he would not have been worried about high taxes, he merely would have been able to point to 1 Samuel 8:15.
But why is just a seemingly low tax rate seen as oppressive? It seems that it is because it usurps the church’s tithe. The state collecting above 10% from citizens is equivalent to the state asserting its superiority and sovereignty over the church. This is a mark of a pagan, statist philosophy. It leads to dependence on the state for all our needs, rather than a limited, biblical state that takes very little money from its citizens. The enormous tax rates testify to the growing pagan political philosophy of America today and the lack of foresight and biblical dependence in the area of taxation of its founders.
Finally, we can now see a final argument against government intervention into commerce with foreign nations. As I have clarified, a sales tax taxes both the consumer and the manufacturer because of the altered price. Furthermore, an attempt to aid domestic companies has been shown to be a terrible reason to tax imports. Therefore, the only reason left to tax imports (or exports) is for revenues. This normally is a legitimate reason, since the government does need tax money to support its programs. However, the act of taxing any import or export is actually taxing both domestic and foreign citizens.
Going back to the example of TV’s we can see why this is true. Say that a foreign Japanese company normally charges $200 for a specific TV. However, the American government taxes all imported Japanese TV’s 10%. If this were true, then the price would rise to $220 for any American consumers. As was shown earlier in the example of the bookstore, this would force the Japanese company to either keep the price the same, resulting in fewer sales, or to lower the price, resulting in lower profit per sale. Because of the tax, the consumer must pay more and the Japanese company must profits less. Therefore, the tax actually serves to harm foreign manufacturers. Say that in the same example, the Japanese government is instead charging 10% on any exported TV’s. In this case, the Japanese government would be raising the price of the TV, and thus harming a foreign consumer.

[+Donny]

Conclusion

It is true that the Bible never specifically lays out how the government should tax its citizens. Though both taxes are ecclesiastical in nature, one could feasibly look at the tithe as support for a low percentage income tax or the atonement money of Exodus 30:11-16 to support a low head tax. However, the only definite command we can draw out of the Bible for taxation is that the total sum of civil taxes should be below 10%. Any tax rate above this is tyrannical and should be rejected (1 Samuel 8:15). However, the founders missed it because they did not model their civil government after God’s. They failed to recognize the significance of God’s establishment of a perfect civil order in Israel, and therefore failed to establish one based on His example. Because of this failure, we not suffer with a tax rate that is above 50%. The failure of the founders to write a limit on taxation in the Constitution, we must live under the tyrannical, ever-growing American government. With no established limit in the Constitution, the government has not felt obliged to limit itself.
The civil government should also not intervene into international commerce. This is seen in the purpose and results of such an action. However, this is precisely the sort of taxation that is allowed by the Constitution. Protective tariffs, as unbiblical and illogical as they are, are encouraged by our founding document. This also testifies to the lack of biblical foundation for the structure and procedures of our government. Just as with the philosophy of natural law, the founders virtually assumed that the government should be able to tax commerce, and thus allowed it to do so. They were even able to take such a harmful ability from the states and put it in the hands of the federal government, making it all the more dangerous.
Furthermore, the Constitution restricts the federal government from establishing direct taxes. However, direct taxes are the only type of taxes we can support through biblical example. The Lord’s tithe is an income tax and the atonement money of Exodus 30:11-16 is certainly a direct tax. It is certainly true that direct taxes can become oppressive and tyrannical; that is why God has put a limit on taxation. Therefore, the main objection to direct taxes is removed. The Constitution’s restriction of direct taxation (which was repealed in the 16th amendment) is thus unbiblical.
The Constitutional system of taxation is a terrible system. It has no specific limitation, though the Bible gives a limit of 10%, supports the taxing of international commerce, though the Bible does not, and restricts the government from using direct taxation, though the Lord’s tithe and His atonement money are both direct taxes. In short, the founder’s gave us exactly the system of taxation that God opposes.

[Ridley's Own]

Assuming a classical liberal system at work here, how do you plan on raising revenue to provide for the things that the market cannot provide?

[+Donny]

I think income taxes, head taxes, and sales taxes are perfectly fine.

[Ridley's Own]

All three of which your article decries. Income taxes are direct taxes, sales taxes increase the cost of goods. In anycase, the entire discussion is moot, because the U.S. is a secular state. It isn't bound by Biblical anything.

Incidentally, the current ceiling on U.S. federal income tax is 30%.

[+Donny]

you misread my article. I support direct taxes. Where did you get the idea that I didnt?

And yes, sales taxes raise the price of the goods they tax. Likewise, income taxes raise the price of the goods that employees offer (their work).

[Ridley's Own]

Originally posted by Donny
you misread my article. I support direct taxes. Where did you get the idea that I didnt?

Then the article wasn't critiquing taxes, it was critiqueing high taxes. And since current U.S. tax code places the ceiling well below the 50% cited, I hardly think the article is warranted or relevent.

In any case, there are better ways of arguing for low taxes than citing irrelevent and noncontextual Bible verses.

I am, however saving this:

This also testifies to the lack of biblical foundation for the structure and procedures of our government.

for the next time you tell me the U.S. is founded on Biblical principles.

And yes, sales taxes raise the price of the goods they tax. Likewise, income taxes raise the price of the goods that employees offer (their work).

Which, again, is hardly relevent, as no sales tax even comes close to reaching your arbitrary 50% ceiling...

[+Donny]

Then the article wasn't critiquing taxes, it was critiqueing high taxes. And since current U.S. tax code places the ceiling well below the 50% cited, I hardly think the article is warranted or relevent.

its 10%, and it is critiquing the regulation of international commerce.

for the next time you tell me the U.S. is founded on Biblical principles.

I still think they were Christians, just not theonomists.

Which, again, is hardly relevent, as no sales tax even comes close to reaching your arbitrary 50% ceiling...

You didnt read the article. it is a 10% ceiling.

[Ridley's Own]

Originally posted by Donny
its 10%, and it is critiquing the regulation of international commerce.

Again, which is moot because no tariff I'm a ware of is above 10%.

You didnt read the article. it is a 10% ceiling.

You still haven't explained how 10% is going to pay for non-market goods.

[+Donny]

Okay, the limit on 10% is on all taxation. The total of all civil government taxation should not rise above 10%.

What is the problem?

[Ridley's Own]

Originally posted by Donny
What is the problem?

The problem is that your ceiling won't provide the funds to properly provide for the goods and services the government is supposed to be providing; things that the market won't or cannot provide.

And if you're ruling out tariffs (which is a good idea in any case, I think), then you've effectively ended the way most revenue was raised in the U.S. for the first 140 years of its existence.

[+Donny]

The problem is that your ceiling won't provide the funds to properly provide for the goods and services the government is supposed to be providing; things that the market won't or cannot provide.

Then they need to stop spending so much

And if you're ruling out tariffs (which is a good idea in any case, I think), then you've effectively ended the way most revenue was raised in the U.S. for the first 140 years of its existence.

I know

[Ridley's Own]

Originally posted by Donny
Then they need to stop spending so much

Which of the following would like to see spending cut?

1. Nat'l Defense
2. Public Works (roads, utility infrastructure, etc.)
3. Enforcing contracts (justice system)

I know

Then will you concede that under your plan, the U.S. government would not have been able to raise enough revenue to exist?

[Travis]

Originally posted by Ridley's Own
Which of the following would like to see spending cut?

1. Nat'l Defense
2. Public Works (roads, utility infrastructure, etc.)
3. Enforcing contracts (justice system)

That's a bit deceptive on your part. It isn't as though those are the only areas of spending in the government.

[+Donny]

Which of the following would like to see spending cut?

1. Nat'l Defense
2. Public Works (roads, utility infrastructure, etc.)
3. Enforcing contracts (justice system)

1)cut down on offensive weapons a lot, and stop acting as a worldwide police force. Use more militia.
2)There are some things it can biblically do in here, but there isnt much.
3)The justice system should be the main part of the civil government.

Things it should not be: welfare, public school system, Social security, immigration laws, amazingly high amount of government employees.

Then will you concede that under your plan, the U.S. government would not have been able to raise enough revenue to exist?

No, but even if that is true, who cares?

It should have used direct taxation or domestic sales tax.