Did you all know that the United States never had an income tax until the Civil War? But what you probably don’t know is that England had also been working with income tax hundreds of years earlier. This was no coincidence. Western nations in the 19th century started keeping track of money by recording transactions in books and records. Having access to subjects accounting records gave Governments the ability to visualize a new type of revenue flowing into their coffers; the income tax. So why is Income Tax not working in the 21st century?
Now heads up because here is answer: In order for Income Tax to be an effective revenue raiser for a 21st century nation state, the Revenue Agency of a nation must be able to easily document and verify the income earned from its citizens. Let’s unpack this in a hard core image of government forms, the ultimate of verification: the 20th century American created W2 tax form. See my blog on the W2. But most high net worth individuals have figured out how to circumvent the W2. Income tax collections have dramatically declined to the point where the US Government cannot pay its bills. Furthermore, the National Debt keeps rising each year to astronomical levels unseen in our 200 year history as a nation.
So let’s dig out a solution to the income tax problem from some ancient times and civilizations, just like alternative medicine physicians have done with natural supplements form Brazilian rain forests. Sit back and enjoy the ride as we rewind a few thousand years to harvest some simple ancient solutions to cure 21st century tax complications. Back in ancient times, subjects to the King did not have financial records to measure their income. So how did the ancient Kings tax their Subjects? Back in those ancient days wealth was measured in produce like wheat, olives or grain, or animals like sheep, cows, goats, or in real estate like lands, or castles or perhaps in minerals like gold or silver and sadly in human servants and slaves. Can you imagine taking a slice off the top of all these things say 10% worth? The ancient collection of Tithing taking or taxing 1/10 of your wealth was a perfect way for Emperors, Kingdoms and Churches to tax their Subjects wealth. For example if you wake up one morning and had 100 sheep, you owed 10 sheep to the King. Then you do it all over again a year later. Sounds pretty easy to me but hard for us moderns to visualize.
Fast forward 2000 years. Folks around the world are not “subjects to the King” anymore, at least not here in the United States. As US taxpayers we all measure our income on an annual profit and loss statement sent to the government, aka, Form 1040 US annual income tax return. Tithing is out, Income Tax is in. Flat rates are out Graduated rates are in. Oh just so you know in my view Governments are not really collecting income tax. The Tax Code is so riddled with deductions, credits and exemptions that the IRS is not collecting an income tax anymore, the IRS is collecting a behavior tax. Behave like the Government says to behave and you pay no tax. Play a different game and pay more tax. Don’t play the game at all and pay the most tax. Who decides how we are to behave are the special interest lobby groups who have methodically changed the income tax code into the most complex behavior code since Moses wrote Leviticus for the Jews of the Old Testament.
Where did these lobbyist come from? It is not clear how lobbyists became such a big business in the United States. I am just guessing that lobbyists are the same type of folks that used to hang out at the King’s Court in England. Their ancestors probably turned into the first lobbyists in America. Lobbyists started to advise politicians in the 20th century to carve out exemptions for special industries groups and wealthy individuals. Hundreds if not thousands of tax laws were enacted based on a multitude of graduated tax rates with a series of exemptions, deductions and credits to benefit special interest groups. These “loopholes’ were so mind boggling that in the last 20th century even CPAs could not prepare tax returns without computers.
Now in the 21st century the US cannot collect enough income tax to even pay the basic bills like the armed forces, education, and maintenance of roads and bridges. That’s because most of us have figured out how to behave to pay as little tax as legally possible. “Cut Expenses” the Republicans say. “Raise Taxes” the Democrats say. But Congress should not cut essential services and certainly should not encourage more income tax legislation. The answer is to raise tax receipts by scrapping the non-workable income tax and replace that dying tax with a 10% flat tax. Indeed a flat tax is nothing more than a disguised 10% tithe! Can you see it? Thousands of pages of incomprehensible regulations rules and laws all gone! Replaced with a simple ancient but very effective 10% tithe.
Here’s how it would work as I see it. All Americans each January would donate 10% of their wealth to the IRS in 12 monthly installment payments which would be auto debited out of everyone’s federal checking account. This would be exclusive to the US Government and the account could not be used for anything else except tax payments. All Americans would need to have a Personal Financial Statement (PFS) updated each year and signed under penalty of perjury. Just so you know, this Tithe is not be confused with the simple income tax floating around that could filed on post card based on gross receipts. A Tithe would simply be a slice off the top 10% of what you are worth. So all folks would have to have at least 10% of the worth liquid to pay the tax. I see that as a small price to pay for having no income tax. Can you see it? Taxpayers become Tithers as they pay monthly Tithes to the US Government. No more withholding from paychecks and no more W2s; your gross paycheck is yours to keep and save, yes the entire amount.
There is no question in my mind, in fact I am absolutely certain that if the United States was to change from an income tax to an asset based tax, the budget would have a surplus every year—at least until Congress figured out how to spend it—and within a few years the entire National Debt would be wiped clean. Not only that, but all that offshore money would come flowing quickly back to US soil creating jobs for Americans currently unemployed. The underground economy would disappear and so would all those secret Swiss bank accounts. You all think about this but think “out of the box” like I’m doing. A net worth ancient 10% Tithe: An ancient remedy for the 21st century that works. Thanks for joining Chris Moss CPA on TaxView
Chris Moss CPA