Taxes in American History

0:00What I've decided to try to talk about in under an hour is what I call three American tax revolutions, 1776, 1861, and 1913. And I'm going to talk a lot more tomorrow morning on the 1861 tax revolution, but I'll touch on it tonight. And so that's what I plan on doing. Beginning with the American Revolution, it was, after all, a tax revolution, a tax revolt, in my mind, first and foremost. If you just read the Declaration of Independence, when Jefferson denounced the King of England for what? For erecting a multitude of new offices and sent hither swarms of officers to harass our people and eat out their substance.

0:48Tax collectors. That's what he was complaining about. and for imposing taxes on us without our consent, everyone here probably is familiar with that, taxation without representation and what else, and for cutting off our trade with all parts of the world, protectionism, that's an implicit tax, it's a tax and so, in my mind, the slogan for the American Revolution that everyone is familiar with is, taxation without representation But I think taxation is theft, is also what they had in mind, and the gentleman who just spoke mentioned that briefly, that these people consider the King of England to be a robber. He was taking their money for no other reason than he wanted it, and they didn't see themselves benefiting in any significant degree from a lot of the money that he was taking from them.

1:41And so what I put together here is just a brief list of what some of the things were that they were complaining about. And the reason I think taxation is theft would be a good slogan for the American Revolution is when you look at the actual taxes that Jefferson and the rest were complaining about, they didn't seem that daunting, that oppressive. They weren't that big. It wasn't that horrible a burden. But it was the principle of the thing. It was the principle of, you know, tax after tax after tax after tax, small as they were, just picking the pockets of the colonists. And of course, anyone who's familiar with the revolutionary period knows that Jefferson, among others, were fans, fans, if you want to use that language, they were knowledgeable about John Locke and the philosophy of John Locke, his natural rights philosophy of how and they turned that into the notion that government to the role of government is to protect the life liberty and property

2:45of the people and what they saw going on with all these taxes was that the government the British government was not protecting the life liberty and property it was stealing the property was taking the property away from them and and that's that's what concerned them more than the actual tax burden per se And so, well, specifically what were they complaining about? Well, there was first the Molasses Act of 1733. It's hard to believe that a revolution was begun by something called the Molasses Act. What did that do? It put high tariffs on imports of molasses from the West Indies and this led to a great deal of smuggling. And John Hancock was one of the better smugglers in early America, for example. And so some of the wealthiest people in America were smugglers, who in my book are heroes. They're just finding a way to get around the king's edicts that deprived American citizens of cheaper goods than goods. And so these people were heroes. And there

3:49was so much smuggling that with a lot of these tax laws, the British government just gave up on them after a while. Then there were the Navigation Acts. What were these? Ships This built outside the British Empire, it could not trade with the colonies, crews must have had to be at least three-fourths of British subjects, there's a long list of enumerated goods from the colonies that could be shipped only to England, and this included things such as sugar, tobacco, furs, indigo, and these were the big products, big crops that were being produced by the colonists, and if these crops were destined elsewhere in Europe, outside of England, they had to go through England first and then be reshipped on British Ships. And so this was all one big impediment on trade. It took money out of the colonists' pockets and they just saw this as another act of theft on the part of King George. Good ship to the colonies from anywhere had to arrive on British ships. This

4:46was basically one big subsidy to the British shipping industry. And at the time, the economic system of England was mercantilism. The famous book, The Wealth of Nations, by Adam Smith, published in 1776 by the way was an attack on mercantilism in its many forms and mercantilism basically was one big system of governmental privilege to selected businesses okay and it was rationalized or justified with a big body of literature making excuses for it and so in this case it was the British shipping industry who which of course would share some of the and the loots that they made with the king one way or another by allowing the king to tax their profits, for example.

5:34And so the wealth of nations was one big attack on mercantilism in a defense of capitalism and free trade. And what the king of England was trying to do was to just make the American colonists the victims of mercantilism, just as his own British citizens in England were the victims of mercantilism. William Smith saw through all this, and so did such people as Thomas Jefferson, see through all of this. The colonies were even prohibited from trading certain enumerated goods with each other. An example might be a man in Virginia couldn't sell a fur hat to a man in North Carolina. And so you can imagine how this would get on your nerves after a while, meddling.

6:20Now, after the Seven Years' War with France, England decided they needed to raise a lot more money to pay for the war debt, and so they stepped up the taxation of the colonies. There was the 1764 Sugar Act, which put higher tariffs on sugar imports, and with it came the swarms of enforcers that Jefferson complained about in the Declaration of Independence. And so kangaroo courts were established essentially to prosecute people for not paying the proper tariff on sugar. And informers could keep a third of the cargo of any ship that was suspected of not paying the sugar import tax.

7:07And so there was sort of a war on drugs style law there where informers were sought out, and maybe competitors of a particular shipping company who could inform on that company even if they were doing the same thing themselves and if they were found guilty they could keep one third of the cargo. Then came, I wrote these down on the blackboard here, then came the Stamp Act of 1765 which required a government stamp on every paper transaction. What a pain in the neck that must have been. Birth certificates, marriage licenses, legal documents of all kinds. In 2009, you had to buy a stamp, pay the government, pay the British government, put a stamp on every single document, and again, it doesn't seem like the kind of thing that would cause a revolution, but as I said, my interpretation of all this is that they believe deeply in the natural rights to life, liberty and property, and every one of these little things established a trend, a trend of depriving them of their God-given natural rights to their property,

8:09The Continental Congress was formed in response to the Stamp Act, and it was effective enough to have the King of England repeal the Stamp Act of 1765, but then after that came another act, the Townshend Acts, two years later, which created new import tariffs. And these acts had a quartering provision that required the colonists to allow British tax collectors, essentially British troops, to stay in their homes. And so you can imagine how many of you would like a law that required you to have an extra bedroom for an IRS agent while he audited your taxes.

9:03That would not be a very pleasant outcome. Then in 1773 came the Tea Act, higher tariffs on tea. The East India Company was exempted from it, and there were grants of monopoly distributorship to distribute East India tea only. And so all of this culminated in all of these complaints about taxation without representation and actually just outright theft. So I think it's not a stretch to say that America was founded on a tax revolt as much as anything else. And of course, you know, how was the new government financed once the revolution was over? Well, our first constitution, the Articles of Confederation, made it so that most of government, of course, was state and local.

9:55There was hardly, the federal government hardly did anything, so if there were taxes to be were to be raised to fund the functions of government. These taxes were to be raised locally for the most part. Even at the outbreak of what most of you refer to as the Civil War, but what I call the War to Prevent Southern Independence, one statistic that the economic historians throw out is that the average American paid about the equivalent of $45 a year in taxes, in federal taxes. And the only contact he ever had with the federal government in 1860 was through the Postal Service. That was about it. And so we're not talking, there essentially was not much of a federal government prior to that.

10:40And so most government was local. But how was the central government financed? Even once we had the Constitution put into place, which Albert J. Knox, by the way, called a coup d'etat. It was a sort of a revolution that led to a much more highly centralized system of government. And it occurred, it was a bloodless coup of course, but not called a coup d'etat. Well, tariffs and excise taxes, that's how the federal government was originally financed for the most part. And occasional land sales. I think we're losing our sign here. And of course, the founders were dead opposed to an income tax because that was a direct tax.

11:33The Constitution outlawed direct taxes that were not apportioned by the states according to population. and when we finally did get the first income tax during the war to prevent southern independence, the government just ignored that provision of the Constitution and just put it in income tax anyway. They called it an exilized tax. That's how they got away with it at that point. And so they were dead set against this and I think this is a manifestation of their belief in natural rights once Let me quote Jefferson. In Jefferson's first inaugural address, this might be my favorite sentence in all of the political rhetoric in the history of America. I have a marble bust of Jefferson in my library at home, and I've been wanting to get a calligrapher to put this in a nice framed thing right next to the bust.

12:30A wise and frugal government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned, shall not take from the mouth of labor the bread that it has earned, You know, probably the first real tax rebellion, which some of you may have heard of or read about was the Whiskey Rebellion in Western Pennsylvania. And after this rebellion occurred, Jefferson commented on that too, in a letter, and he said this, this was an excise tax on whiskey.

13:20He said the excise law is an infernal one. The first error was to admit it by the Constitution. And, of course, when he became president, he eliminated the federal excise taxes that were there. And the Whiskey Rebellion, for those of you who are not experts on the Whiskey Rebellion, is whiskey was used as barter in western Pennsylvania a great deal. It was used as a substitute for money. And there was a tax on whiskey, and the Pennsylvanians thought this was grossly unfair Fair, because there was no similar tax on tobacco or indigo or other things that were traded in other states, why were they being picked on, and so they didn't pay it, and they just didn't pay it, and no whiskey tax was ever collected, and of course George Washington himself rode up to Pennsylvania with a part of his army to supposedly enforce the whiskey Tax. And in some of the history books, this has gone down in history as the first example

14:30of the Federal Government showing it was willing to use force to collect its taxes. And it was a heroic moment, George Washington himself writing up there. But Murray Rothbard wrote an article about this in the free market newsletter by the Mises Institute some years ago. And you can find it on the website, Mises.org, if you search around in Rothbard's articles. and he dug up a couple of more recently published books that cover the Whiskey Rebellion and what actually happened was no taxes were raised, nobody was prosecuted, George Washington went home and apparently threw his hands up the whole thing and nothing came of it. Nobody was prosecuted, no one went to jail and no money was raised and yet until recently, until maybe 15 years ago, just about any book that ever mentions this said it was a grand and show of force by the central government proving that the government had the right to impose taxes such as this.

15:28Just the opposite. They didn't show it because they didn't raise the money. But the whole dispute between Jefferson and Hamilton and the Jeffersonians and the Hamiltonians is based partly on disputes over taxes. I just read to you Jefferson's very strong statement against, he didn't use the word Income Taxation, but direct taxation in general was the idea, and he thought it was a mistake to put excise taxes in there. But his adversary, Hamilton, was a champion of taxes of all kinds. And let me read you one description. There's a historian named Larry Schweickart, who's a pretty good business historian. He wrote a good book on the history of American entrepreneurship a couple years ago, and he And he says this, historians have long thought of Hamilton as among the most eloquent defenders of state activism in the economy.

16:22Very true. Why? Well, Hamilton championed protectionist tariffs, for one thing, and from the time of the founding for many decades later, until the Civil War, so-called, there was a debate over what level the tariffs should be. Should a tariff be just high enough to collect enough revenue to finance the government, but not so high as to deter foreign trade, or should it be used to deter foreign trade? And Hamilton, of course, authored the famous infant industry argument, and at the time, just about every industry was an infant industry, the country had just been founded. And so if you need to be protected from competition, and you have this infant industry argument, just about any industry could apply for that and of course so he championed this and this argument to this day is used to raise taxes in the form of tariffs or to attempt to anyway and I'm struck by the fact that with my reading of 19th century history that among the two of the most famous proponents of the big tariff increase that occurred in 1861 it was called the moral tariff

17:39M-O-R-R-I-L-L, named after Justin Morrill, a member of Congress from Vermont. He was a steelmaker, and Thaddeus Stevens was from Pennsylvania, was also a steelmaker, and they of course made the infant industry argument that steel, the American steel industry was infantile, needed to be protected, and it just struck me that one of the first things One of the things George W. Bush did in his first year in office was to impose 50% tariffs on steel, which apparently has still not grown up. It's still 2001. It's still infantile. And so the infant industries never grow up. And that was Hamilton's baby. That was Hamilton's idea.

18:26Hamilton was behind the whiskey tax. He was very influential in giving arguments that Congress could use to impose the whiskey tax. He also was a main instigator of another tax rebellion. He also championed a national property tax, and this led to the Fries Rebellion in Massachusetts, named after a man named John Fries, F-R-I-E-S, it's spelled. And Fries was imprisoned and sentenced to be hanged for treason, and Hamilton made a vigorous case that he should have been hanged for treason, But President John Adams pardoned him instead. And so basically, if you look at Hamilton's record with regard to taxation, he was on the opposite end of Jefferson and the Jeffersonians.

19:17And he did a great deal to destroy his own party, the Federalist Party, because these tax rebellions were really going back to the roots of the American Revolution itself. It proved that the tax rebellion mentality of the revolutionaries was still alive in Massachusetts and Pennsylvania, and probably everywhere else at the same time. And so, that's an interesting part of the history there to me anyway. And so, on the handouts, I have some charts. There's a table and a chart that I put on all the seats here. And the chart on the top is taken from a book written by Mark Thornton and Bob Eaklin that I recommend everyone here purchase.

20:04It's called Tariffs, Blockades and Inflation, and an excellent book. And it's a neat chart that shows the source of federal government revenues by category during this early period from 1820 to 1860. And you can see that by the time the war broke out in 1861, Tariffs accounted for 95 percent of all federal tax revenue. Land sales had dwindled, excised taxes but tariff was pretty much how the federal government was financed. In one of my writings on Lincoln I quoted him in a speech he gave in Pittsburgh, Pennsylvania two weeks before he was inaugurated saying, I don't want, I can paraphrase it, I don't remember, I don't have the exact quote in front of me, but he said something like, the tariff is the mother's is Milk of Government, and it was certainly true, 95% of the revenue was taken from the tariff.

20:59So I just thought you'd be interested in seeing that, most people don't know this sort of thing. The next tax revolution, that I'm going to talk mostly about the revolutionary aspects of this tomorrow morning, But the very first income tax to ever appear, to ever come out of Washington D.C. was during the Lincoln administration. The Confederate government also during the war imposed an income tax, but they lost and they're no longer around, so I'm going to talk about the U.S. income tax. And the Lincoln administration brought back the stamp tax, the hated stamp tax, instituted the first inheritance tax, which the founders would have thought as theft, instituted the first ever income tax, federal income tax, it created the internal revenue bureaucracy that we still have with us today and it created 185 tax districts for tax collection And the withholding tax was brought about during the Lincoln administration. Milton Friedman gets a raw deal on this.

22:13Economists like myself, most of them are under the belief that Milton Friedman is responsible for the withholding tax because he worked for the U.S. Treasury during World War II and withholding was his idea at the Treasury. Well, that was the first modern introduction of withholding, but it came into play during the Lincoln administration first, and this tax was abandoned in 1872, so it was in place for about 10 years, and it was used to raise money for the war, but an interesting twist, it was ended in 1872, and the primary political reason for it was New Englanders and especially New York City in that area, the wealthier people in New England and the New York City area, they were paying the lion's share of the tax, because they made all the money, that's where all the income was, and they didn't like that, and so let's go back to tariffs, they said, so that was ended, and we went back to tariffs, land sales, excise taxes, there were a lot of excise taxes, the Lincoln administration imposed an excise tax on just about everything that wouldn't blow away, and they did not

23:27to help eliminate all the excise taxes after the war, which is usually what happens during any war. And so there were a lot more excise taxes that were used to raise money after that. And so the first income tax during the Lincoln administration applied to all incomes over $600 a year, which is probably around the equivalent of $10,000 today. And there was originally one rate, 3%, but that didn't raise much money. And so they instituted the first progressive income tax, 3 and 5 percent. And also the ability to pay principle was invented during the Lincoln administration to justify the progressive income tax that they put into place.

24:14The ability to pay principle, people with a bigger ability to pay should pay proportionally more. That's the basic definition of a progressive income tax. And I think of it, I think the best way to think of the ability to pay principal with regard to taxes is thinking of it as the Willie Sutton principle. Those of you who laugh know who Willie Sutton, the story of Willie Sutton, he was a famous bank robber who was once asked, why did you rob all those banks? And he said, well, that's where the money is. And so, and that's the ability to pay principal. Why do they impose higher proportional rates on more affluent people, well that's where the money is. And so if you're in the bank robbing business, even if it's legalized, that's why you have that.

25:01And so there are all sorts of ethical arguments that have been made for 140 years now by economists and others for ability to pay and progressive taxation, but I think it all comes down to the Willie Sutton principle. Why did they do it? Because that's where the money is. Okay, so that was invented to justify progressivity.

25:26So that was the first income tax. And the way I look at this is the seeds of class warfare were planted. The seeds of class warfare were planted and it was ended in 1872, but between 1874 and 1894, 68 bills were introduced in Congress to attempt to re-institute the income tax, 68 bills, several bills every single year, and so they created a monster with this precedent of having an income tax, even if it was a war tax, which lasted seven years after the war, the seeds of class warfare had been planted, and the major supporters during this period, the late 19th century, of having an income And the reason for this was that farmers, mostly in the South and the West, and the West included what today we call the Midwest, always are harmed disproportionately from tariffs, so they wanted relief from the tariff, the tariff was still the predominant way of raising money for the federal government, and farmers always wanted relief from the tariffs, so they wanted relief from the tariffs, so they wanted relief from the tariffs, so they wanted relief from the tariffs,

26:41thought they bore a particularly hard brunt of the tariff and I'm going to talk about this a lot more in the morning but the basic reason they believe this, and it's true, they were right, is that the tariff is on all these manufactured goods including farm tools, farm machineries, woolen blankets, clothing, farm clothing, boots, shoes, things, so they paid higher prices like everybody for all these things. But American farmers sold a great deal of what they produced on foreign markets. And so if a tariff goes up, it makes your clothing more expensive, your farm tools more expensive and so forth, they found that they could never pass it on to their customers because they were selling a big proportion of what they sold on foreign markets where there was fierce competition.

27:33For example, at the outbreak of the war to prevent southern independence in 1861, the The southern economy was exporting about 75% of everything it produced. And so the south was extremely export dependent. And the same thing, they found the same thing with high tariffs. They saw it as benefiting almost exclusively the New England and the northern manufacturers whose goods were protected from competition by these tariffs, but they didn't have hardly any manufacturing themselves. So nothing was being protected in the South, and it was all cost to them, they had to pay more for everything, and they couldn't pass it on in the form of higher prices. And the farmers of the upper Midwest were of the same opinion.

28:21So by the late 1880s, the South was still a heavily agricultural region, and the Midwest in the West was heavily agricultural, and they saw the tariff, which was the primary means at the time of financing the government, federal government, as discriminatory and unconstitutional because it was so discriminatory. So they were in favor of an income tax, which they thought would take some of the heat off of tariff, protectionist tariffs. They could live with what was called in those days a revenue tariff, 10 or 15 percent, but not There was an income tax that was included as part of the Revenue Act of 1894, and Grover Cleveland, who I wrote an article on lewrockwell.com, called The Last Good Democrat, about Grover Cleveland, he was the last Jeffersonian.

29:26There was a man who ran in 1912, but didn't win, who was also a good, Albert Parker, who was also a good Jeffersonian, but he was truly the last, but Cleveland was, I consider him to be the last Jeffersonian Democrat in American history, and he pocket vetoed the income tax, but it did pass, but then the Supreme Court ruled it unconstitutional on May 20th, 1895, so there was an attempt to do it, And I've dug up a quotation from Grover Cleveland to illustrate why I call him the last good Democrat. He may well have been the best American president ever. And I know Lew Rockwell thinks William Henry Harrison was because he only lasted one month in office. And Martin Van Buren was a pretty good guy too.

30:15And Grover was excellent. This is Grover Cleveland's third annual message to Congress, and this was in 1887, and you never hear a politician, apart from Howard Phillips, say something like this today. Listen to what President Grover Cleveland said. When we consider that the theory of our institutions guarantees to every citizen the full benefits of all the fruits of his industry and enterprise with only such deduction for taxes as may be his share for the careful and economical maintenance of the government which protects him, it is plain to me that exaction of more than this is talking about budget surpluses, is indefensible extortion and a culpable betrayal of American Justice. This wrong inflicted upon those who bear the burden of national taxation multiplies a brood of evil consequences. The public treasury becomes a hoard of money needlessly withdrawn from trade and the people's use, thus crippling our nation and suspending our country's development, preventing investment in productive enterprise, creating financial Federal Disturbance in Inviting Schemes of Public Plunder."

31:37He was talking about budget surpluses, why it's an evil thing. And there were budget surpluses, federal budget surpluses for long periods of time during the late 19th century. And so Grover Cleveland was condemning this in pretty harsh terms. And it's been a long, long time since you heard an American president say that. And Ron Paul is the only member of Congress who talks like this anymore, the lone member of Congress. And so the revolution of 1913 did come, my last revolution here that I'm going to mention, it did come for a lot of reasons. William Howard Taft, when he was president, signed the income tax bill in 1909.

32:23Teddy Roosevelt was all in favor of an income tax too, he was in favor of that. Republicans, Teddy Roosevelt, the Republican, William Howard Taft, the Republican Party gave us the income tax. And the deal that was struck was being a Republican, you have to understand that during the Lincoln administration, The average tariff rate, average rate was 15% in the late 1850s. The day Lincoln took office, it had just been raised to 32% and then it was raised to 49% a year later and it remained in around the 50% range until 1913. So it wasn't a war tariff, it was an important plank of the Republican Party.

33:15And so the Republican Party protectionist tariffs was always a top priority, not the top priority. And so Taft, in order to get a higher tariff, told the Democrats, I will support an income tax if you support a higher tariff. What a deal that was for the taxpayers, huh? And at the time, the argument, the Republicans understood the Laffer curve at the time. The phenomenon of the so-called Laffer Curve has been known for hundreds of years. John C. Calhoun wrote very eloquently about it, among others. But the argument the Republicans made is that we've got these surpluses, and you know Grover Cleveland is right, this is a bad thing to have all this surplus money slushing around.

34:01No good will come of it. We have an idea. Here's how to get rid of the surpluses. Raise tariffs to such a high level that it will choke off foreign trade altogether. And, you know, if the foreign goods are not coming in, you can't tax them. And so, you know, so therefore revenues will be reduced and we'll get rid of this surplus. How's that? And so that was their argument. And, of course, Taft must have agreed with it. So he signed the income tax bill and then it went through the whole process of the states ratifying this constitutional amendment. Oh, by the way, I forgot to mention on Lincoln's income tax, or did I forget that they just ignored the Constitution that outlawed direct taxes. They just ignored it. They called it an excise tax and said, well, it's an excise tax.

34:50It's like, that's a horse sitting there. You might think it's a man, but that's a horse. And so that's, it's an excise tax, very Clintonian use of language. So with the income tax, there was a classic bait-and-switch, bait is in fish bait. Promises were made in 1913 is when the tax was finally ratified. Promises were made to reduce the tariff, to ease the burden of the income tax coming online. And it was. Woodrow Wilson signed a tariff-reducing bill in 1913. But by 1922, the Fordney-McCumber Tariff Act increased the average tariff rate back up to 33 percent.

35:37And then in 1930, the Smoot-Hawley tariff raised it to 60 percent, 59.6, about 60 percent. And so there was a bait-and-switch. We'll give you lower tariffs if you allow us to have an income tax. We got the income tax, then we ended up with higher tariffs, too, by 1922. and then the other second type of bait and switch with the income tax is in the table in the handout that I put on the chairs there's a chart there of the income tax rates in the early years 1913 and 1928 originally the top bracket was only for people who made $500,000 and up and it was 7% that was in 1913 but as you see by 1918 the top rate was up to World War I was long over with by 1928 the top rate was still 25% and so of course the argument was made that you know only the extremely wealthy are going to pay and they're going to pay only a tiny rate 7% but that rate quickly was raised for the war and one of the books

36:51Also on the history of taxation that I looked at in preparation of this talk, the author said thank goodness we had the income tax in 1913, otherwise we may not have been able to enter World War I. What a terrible thing that would have been. And there's a great new book coming out, by the way, by Jim Powell called Wilson's War. It's going to be published in April. I've written a blurb for the back cover of it, and it takes a very different view of Woodrow Wilson than most of you probably have read about so far. So that was another bait and switch that happened. So finally, what are some of the consequences of this revolution?

37:36The way I see it is that, if you remember that Jefferson quotation, Jefferson was devoted To the Lockean natural rights principle, government's role is the protection of life, liberty and property, as were the other founders. The institution of the income tax is revolutionary because it is diametrically opposed to that. It turns the American Revolution on its head. It makes government an instrument for the plundering of the natural rights of the people, the natural rights to their property. It makes the government become an instrument of plunder rather than an instrument of protection against plunder. So the institution income tax was truly a final overturning of the principles, the philosophy of the American Revolution in my book.

38:32How many of you believe debtor's prison no longer exists? Supposedly debtor's prisons were abolished hundreds of years ago. I think President John Adams actually signed a law making it illegal, a federal law against debtor's prison. But of course you don't pay your income tax because you're going to prison. So one of the consequences of an income tax is debtor's prison was reinstituted. And another consequence that people don't think about much is, it was really the final nail in the coffin of the Jeffersonian state's rights tradition, really the final nail. Of course, the war of 1861, 1865 pretty much destroyed the rights of nullification and secession, which were big parts of the state's rights tradition.

39:23But with an income tax, the states really became mere appendages or franchisees of the from the Federal Government. And we're all familiar with how the Federal Government can intimidate any governor by just threatening regulation or threatening withdrawal of federal subsidies. And so the states became pretty much a group of beggars begging to get some of their citizens' money back from the Federal Government after that. Government became totally consolidated because of the income tax, more than anything. And also, this year, 1913, really was a revolutionary year because in the same year, we got the Fed at the same time, which created, you know, the inflation tax, the government-generated inflation tax.

40:08And we also got the 17th Amendment, which allowed for the direct election of senators. Senators used to be appointed by state legislatures. So the idea behind the original design was that if a senator from Virginia voted on a bill that would give subsidies to Pennsylvania steelmakers. He would have to answer to his state legislature as to why he was giving away the money of the people of Virginia to some people in Pennsylvania. What is that about? But with the direct election, that control over what went on in Washington in the Senate was severed to a very large degree. And so the states, again, no longer had control, as much control over their government.

40:59And of course, this all happened in one year. So the Institute of Income Tax, it creates a huge bucket of money that can be used to buy votes, to keep you in office forever, and make sure that you can go anywhere to raise campaign funds. You can go to California. That's why I was speaking at an event a couple of years ago, I remember, where the governor of Massachusetts was there and a fundraising pitch, raising funds for his re-election and I knew why he was doing it because that's where the money is, Silicon Valley, but I asked the sponsor of this event, why is the governor of Massachusetts here? And he gave the Willie Sutton answer because that's where the money is. And so that sort of phenomenon, you had to stay within your own state prior to 1913 if you wanted a political career, you had to focus on the people of your own state, but no longer.

41:52Another consequence, the Constitution was no longer capable of keeping the federal government off balance and weak. That was the whole idea behind the Constitution. But now, with the federal government's long arm in everyone's pocket, it was the people who were off balance and weak, not the federal government. Rather than protecting natural rights, as I said, the government became a major infringer upon those rights. and another thing this this started the ball rolling of the destruction of the civil society because with all this income tax revenue the government would eventually of course do more and more and more so that it became apparent before too long that people had the idea that well why should I take care of my parents and grandparents in their old age the state is doing it why should I help out the the poor people in my neighborhood the government is taking Why should I worry about educating the children of my family and my neighborhood?

42:52The state is taking care of them. So once the government had its hand in our pockets with the income tax and all the enormous revenue it can generate from that, it was used to diminish the civil society every step along the way. You could all probably name a hundred more examples of this if you sat there and thought about it long enough. Aggressive war becomes much more likely. The book I mentioned that said, thank goodness for the income tax or we would not have been able to enter World War I, of course, that was the idea. In fact, this new Powell book that I mentioned, he makes a very persuasive case that had Woodrow Wilson knocked down America in World War I, World War II probably would not have happened, and Hitler and Stalin would never have come to power.

43:42And I have no financial interest in this book, but I just think it's a very well done book, it's going to be a real bombshell when it comes out. Another thing that happens is the capital structure of the economy is impaired because a lot of the income that is sent to Washington would have been saved and would have been used for saving an investment. But instead of being used for saving an investment, as in the Grover Cleveland quotation I read to you, it's used for income transfer programs administered by the state. And so we are all poorer. We have less capital investment. Productivity is slower in the economy. Productivity is slower. Wage growth is slower. And everybody is poorer in the long run because of that. One of my favorite old right economists or economic writers is Frank Chodorow. And he wrote a book I recommend to everybody called The Income Tax, The Root of All Evil. One of my favorites. A little thin book like this. It's a great old book.

44:38book. And he really put the income tax in perspective. Here's what he said. What the income tax mean is this, quote, your earnings are not exclusively your own, we have a claim on them, we the government, and our claim precedes yours. We will allow you to keep some of it because we recognize your need but not your right, but whatever we grant you for yourself is for us to decide. And that is This is certainly true, isn't it? The government lays claim to all of our income and it tells us how much of it we can keep by adjusting the tax rates. And the final thing I'm going to say is I'm going to quote the famous American philosopher, Will Rogers, who said about the income tax, The Income Tax has made liars of more Americans than golf hats.

45:27And that's the final conclusion. And thank you for, that's all I have time for tonight. Thank you for coming.