One hundred years ago today the Sixteenth Amendment to the U.S. Constitution was ratified, bringing Americans the joy of the income tax. You see some of them—perhaps your grandparents or great-grandparents among them—in this 1920 photo of people filling out tax forms at an IRS office.
Not many Americans complete their 1040s that way any more. Most use tax preparation software. I’ve been doing my taxes on the computer for years, and the process, though a bit tedious, is straightforward.
The act of preparing my tax return reminds me that I have a stake in how those taxes are spent. Like nearly everyone, I’d like to pay less in taxes, and I very much would like to see less and more prudent spending, at all levels of government. I pay attention to where the money goes, and, when appropriate, I make my preferences and annoyances known to those in authority.
I have to think that if I paid no taxes, while most other people did, I’d be tempted to fall into fiscal indifference. I might not worry about how much others had to pay, so long as the basic services I had been accustomed to were maintained. But if I had to pay at least some tax, I think I’d tend to pay attention to how tax revenues were used and how high tax rates were set.
This line of thought has led me to conclude that, on the whole, it’s bad public policy to exempt a large proportion of the citizens from paying taxes. We don’t do that when it comes to state or local sales taxes: Everybody pays—and at the same rate. This seems fair, since we all benefit from generalized services (police, fire department, public works, and the like).
I don’t see why the income tax shouldn’t be structured in a similar way: Everyone participates, whether tax rates are flat or progressive. I prefer a flat rate because it’s easier to understand, easier to calculate, and easier to figure out what one’s liability would be at a larger or smaller income level. But an everybody-participates system could be based on progressive rates too, so long as the lowest rates are high enough to be an inducement toward fiscal awareness on the part of the payers.
There is no “Catholic line” on what is the proper way to structure a tax code. To my mind, it’s good to have a tax code that doesn’t encourage irresponsibility yet does encourage civic participation. Imagine what vices would reign if 90 percent of the populace paid no taxes at all and expected to be subsidized by the 10 percent who did pay. What an unhealthy system! On the one side, greed and envy would grow unchecked; on the other, fear and resentment. That is not a recipe for a long-lived polity.