Wednesday, November 7, 2012

On Federalism and Taxation

I haven't posted much "Tenther" stuff in a while.  Rather than swelling on last night's debacle or the coming DOOM, maybe it's time to start talking Conservative Philosophy again.

Today's installment: Federalism and Taxation.

When United States Constitution was being written, this was a highly contested issue.  Three of the Federalist Papers (30, 31, and 32) are devoted precisely to this subject: specifically why that power must be granted to the Federal Government.

Cast through this lens, it behooves us to ask what Federalism says about taxation.  Specifically, where should that power lie, and to way extent?

The argument of the Federalists was that the scope of a power must be equal to the scope of the object of that power, and that if the object of a power was unlimited in scope, then the power must be unlimited (but not infinite- I'll come back to this).  Put more concretely, the "object" in this case is the functioning of the government in times of war as well as times of peace.  Since there can be no knowable limit on the scope of a war, then the power to Tax must also be unlimited.

Now, this does not mean, as I said, that the power should infinite.  The limit to which they were primarily referring was the idea that the Federal Government would not be able to  issue taxes at all, or would only be able to tax foreign trade (imports and exports).  Their argument was that the Federal Government must be able to levy taxes within the Union itself.

The Papers list a variety of reasons for this, but ultimately they come down to a question of trust and practicality.  If a war were to occur, loans would be necessary to pay for it.  However, the nation would probably already be in debt.  If the Federal Government could not levy taxes, then it would be dependent upon the States for that tax revenue.  Now, ask any banker, but I'm pretty sure giving a loan to someone who says, "Oh, yeah, and that other guy will pay you back" is not going to happen.

That's an ultra-simplified version of the problem, but it should suffice.

On the other end, though, were those who were afraid that the Federal Government would so tax the people that the opposite would be true- instead of the Federal Government being dependent upon the States for funds to operate, the States would depend on the Federal Government.

The Federalists' answer to that objection was to point to the separation of powers- specifically that the State Governments were supposed to be sovereign in their own territories, and that the Senate would exist specifically as the States' voice in the Federal Government.  They believed, as do modern Tenthers, that the States would act in their own best (even selfish) interests and thus limit the taxation levied by the Federal Government.

What they did not foresee were the 16th and 17th Amendments.  The 16th basically voids part of the original constitution by allowing the Congress to lay a direct tax (in this case, on income) without regards to any apportionment or census (that is, it expressly gave Congress the ability to rob Peter to pay Paul).

That would be bad enough, but might have been limited if the States had been allowed to keep their seat at the negotiating table.  Instead, the 17th Amendment robbed them of that place.  The 17th Amendment turned Senators from representatives of the States into additional representatives of the People.  But the People already had a seat at the negotiating table- the House of Representatives.

If you want to think of them this way, the 16th and 17th Amendments are diametrically opposed to the 9th and 10th Amendments.  Where the 9th and 10th Amendments are the Federalism Amendments, the 16th and 17th are the Tyranny Amendments.

If Taxation must lie with the Federal Government, then it cannot be a direct tax.  If taxation must be a direct tax, then it cannot lie with the Federal Government.  To have a direct tax that is administered by the Federal Government is a poison pill which will eventually destroy the Federalist nature of the Union.

It already is.  Maybe it already has.

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