CHAPTER SEVENTaxes and Spending
We all have heard much throughout our lifetimes, and seen little happen, on the subject of high taxes. Where is the politician who has not promised his constituents a fight to the death for lower taxes—and who has not proceeded to vote for the very spending projects that make tax cuts impossible? There are some the shoe does not fit, but I am afraid not many. Talk of tax reduction has thus come to have a hollow ring. The people listen, but do not believe. And worse: as the public grows more and more cynical, the politician feels less and less compelled to take his promises seriously.
I suspect that this vicious circle of cynicism and failure to perform is primarily the result of the Liberals’ success in reading out of the discussion the moral principles with which the subject of taxation is so intimately connected. We have been led to look upon taxation as merely a problem of public financing: How much money does the government need? We have been led to discount, and often to forget altogether, thebearing of taxation on the problem of individual freedom. We have been persuaded that the government has an unlimited claim on the wealth of the people, and that the only pertinent question is what portion of its claim the government should exercise. The American taxpayer, I think, has lost confidence inhisclaim to his money. He has been handicapped in resisting high taxes by the feeling that he is, in the nature of things, obliged to accommodate whatever need for his wealth government chooses to assert.
The “nature of things,” I submit, is quite different. Government doesnothave an unlimited claim on the earnings of individuals. One of the foremost precepts of the natural law is man’s right to the possession and the use of his property. And a man’s earnings are his property as much as his land and the house in which he lives. Indeed, in the industrial age, earnings are probably the most prevalent form of property. It has been the fashion in recent years to disparage “property rights”—to associate them with greed and materialism. This attack on property rights is actually an attack on freedom. It is another instance of the modern failure to take into account thewholeman. How can a man be truly free if he is denied the means to exercise freedom? How can he be free if the fruits of his labor are not his to dispose of, but are treated, instead, as part of a common pool of public wealth? Property and freedom are inseparable: to the extent government takes the one in the form of taxes, it intrudes on the other.
Here is an indication of how taxation currently infringes on our freedom. A family man earning $4,500 a year works, on the average, twenty-two days a month. Taxes, visible and invisible, take approximately 32% of his earnings. This means that one-third, or seven whole days, of his monthly labor goes for taxes. The average American is therefore working one-third of the time for government: a third of what he produces is not available for his own use but is confiscated and used by others who have not earned it. Let us note that by this measure the United States is already one-third “socialized.” The late Senator Taft made the point often. “You can socialize,” he said “just as well by a steady increase in the burden of taxation beyond the 30% we have already reached as you can by government seizure. The very imposition of heavy taxes is a limit on a man’s freedom.”
But having said that each man has an inalienable right to his property, it also must be said that every citizen has an obligation to contribute his fair share to the legitimate functions of government. Government, in other words, hassomeclaim on our wealth, and the problem is to define that claim in a way that gives due consideration to the property rights of the individual.
The size of the government’s rightful claim—that is, the total amount it may take in taxes—will be determined by how we define the “legitimate functions of government.” With regard to the federal government, theConstitutionis the proper standard of legitimacy:its “legitimate” powers, as we have seen are those the Constitution has delegated to it. Therefore, if we adhere to the Constitution, the federal government’s total tax bill will be the cost of exercising such of itsdelegatedpowers as our representatives deem necessary in the national interest. But conversely, when the federal government enacts programs that arenotauthorized by its delegated powers, the taxes needed to pay for such programsexceedthe government’s rightful claim on our wealth.
The distribution of the government’s claim is the next part of the definition. What is a “fair share?” I believe that the requirements of justice here are perfectly clear:government has a right to claim an equal percentage of each man’s wealth, and no more. Property taxes are typically levied on this basis. Excise and sales taxes are based on the same principle—though the tax is levied on a transaction rather than on property.The principle is equally valid with regard to incomes, inheritances and gifts.The idea that a man who makes $100,000 a year should be forced to contribute ninety per cent of his income to the cost of government, while the man who makes $10,000 is made to pay twenty per cent is repugnant to my notions of justice. I do not believe in punishing success. To put it more broadly, I believe it is contrary to the natural right to property to which we have just alluded—and is therefore immoral—to deny to the man whose labor has produced more abundant fruit than that of his neighbor the opportunity of enjoying the abundancehe has created. As for the claim that the governmentneedsthe graduated tax for revenue purposes, the facts are to the contrary. The total revenue collected from income taxes beyond the twenty per cent level amounts to less than $5 billion—less than the federal government now spends on the one item of agriculture.
The graduated tax is aconfiscatorytax. Its effect, and to a large extent its aim, is to bring down all men to a common level. Many of the leading proponents of the graduated tax frankly admit that their purpose is to redistribute the nation’s wealth. Their aim is an egalitarian society—an objective that does violence both to the charter of the Republic and the laws of Nature. We are all equal in the eyes of God but we are equalin no other respect. Artificial devices for enforcing equality among unequal men must be rejected if we would restore that charter and honor those laws.
One problem with regard to taxes, then, is to enforce justice—to abolish the graduated features of our tax laws; and the sooner we get at the job, the better.
The other, and the one that has the greatest impact on our daily lives, is to reduce the volume of taxes. And this takes us to the question of government spending. While there is something to be said for the proposition that spending will never be reduced so long as there is money in the federal treasury, I believe that as a practical matter spending cuts must come before taxcuts. If we reduce taxes before firm, principled decisions are made about expenditures, we will court deficit spending and the inflationary effects that invariably follow.
It is in the area of spending that the Republican Party’s performance, in its seven years of power, has been most disappointing.
In the Summer of 1952, shortly after the Republican Convention, the two men who had battled for the Presidential nomination met at Morningside Heights, New York, to discuss the problem of taxes and spending. After the conference, Senator Taft announced: “General Eisenhower emphatically agrees with me in the proposal to reduce drastically overall expenses. Our goal is about $70 billion in fiscal 1954 (President Truman had proposed $81 billion) and $60 billion in fiscal 1955.... Of course, I hope we may do better than that and that the reduction can steadily continue.” Thereafter, the idea of a $60 billion budget in 1955, plus the promise of further reductions later on, became an integral part of the Republican campaign.
Now it would be bad enough if we had simply failed to redeem our promise to reduce spending; the fact, however, is that federal spending has greatlyincreasedduring the Republican years. Instead of a $60 billion budget, we are confronted, in fiscal 1961, with a budget of approximately $80 billion. If we add to the formal budget figure disbursements from the so-calledtrust funds for Social Security and the Federal Highway Program—as we must if we are to obtain a realistic picture of federal expenditures—total federal spending will be in the neighborhood of$95 billion.
We are often told that increased federal spending is simply a reflection of the increased cost of national defense. This is untrue. In the last ten years purelydomesticexpenditures have increased from $15.2 billion, in fiscal 1951, to a proposed $37.0 billion in fiscal 1961[2]—an increaseof 143%! Here are the figures measured by a slightly different yardstick: during the last five years of the Truman Administration the average annual federal expenditure for domestic purposes was $17.7 billion; during the last five years of the Eisenhower Administration it was $33.6 billion, an increase of 89%.
Some allowance must be made, of course, for the increase in population; obviously the same welfare program will cost more if there are more people to be cared for. But the increase in population does not begin to account for the increase in spending. During the ten-year period in which federal spending will have increased by 143%, our population will have increased by roughly 18%. Nor does inflation account for the difference. In the past ten years the value of the dollar has decreased less than 20%. Finally, we are often told that the government’sshareof total spending in the country is what is important and consequently wemust take into account the increase in gross national product. Again, however, the increase in GNP, which was roughly 40% over the past ten years, is not comparable to a 143% increase in federal spending. The conclusion here is inescapable—that far from arresting federal spending and the trend toward Statism we Republicans have kept the trend moving forward.
I do not mean to suggest, of course, that things would have been different under a Democratic Administration. Every year the Democratic national leadership demands that the federal government spendmorethan it is spending, and that Republicans propose to spend.And this year, several weeks before President Eisenhower submitted his 1961 budget, The Democratic National Advisory Council issued a manifesto calling for profligate spending increases in nearly every department of the federal government; the demands for increases in domestic spending alone could hardly cost less than $20 billion a year.
I do mean to say, however, thatneitherof our political parties has seriously faced up to the problem of government spending. The recommendations of the Hoover Commission which could save the taxpayer in the neighborhood of $7 billion a year have been largely ignored. Yet even these recommendations, dealing as they do for the most part with extravagance and waste, do not go to the heart of the problem. The root evil is that the government is engaged in activities in which it has no legitimate business. As long as the federalgovernment acknowledges responsibility in a given social or economic field, its spending in that field cannot be substantially reduced. As long as the federal government acknowledges responsibility for education, for example, the amount of federal aid is bound to increase, at the very least, in direct proportion to the cost of supporting the nation’s schools.The only way to curtail spending substantially, is to eliminate the programs on which excess spending is consumed.
The government must begin towithdrawfrom a whole series of programs that are outside its constitutional mandate—from social welfare programs, education, public power, agriculture, public housing, urban renewal and all the other activities that can be better performed by lower levels of government or by private institutions or by individuals. I do not suggest that the federal government drop all of these programs overnight. But I do suggest that we establish, by law, a rigid timetable for a staged withdrawal. We might provide, for example, for a 10% spending reduction each year in all of the fields in which federal participation is undesirable. It is only through this kind of determined assault on the principle of unlimited government that American people will obtain relief from high taxes, and will start making progress toward regaining their freedom.
And let us, by all means, remember thenation’sinterest in reducing taxes and spending. The need for “economic growth” that we hear so much about thesedays will be achieved, not by the government harnessing the nation’s economic forces, but by emancipating them. By reducing taxes and spending we will not only return to the individual the means with which he can assert his freedom and dignity, but also guarantee to the nation the economic strength that will always be its ultimate defense against foreign foes.