Monday, February 05, 2018

Will Even Crazier Anti-Tax Arguments Go Mainstream?

by Neil H. Buchanan

One of the remarkable aspects of the Fall 2017 tax debate was Republicans' willingness to say with straight faces that "tax cuts pay for themselves."  It is true that some Republicans vacillated between saying that their tax cuts would completely pay for themselves (sometimes even claiming that cuts would more than pay for themselves) and saying that the offset would only be partial, but even the latter claim is also almost entirely wishful thinking (although it at least it concedes something to reality).

But some readers might be thinking, "Wait a minute, didn't the Joint Committee on Taxation (JCT) say that the $1.5 trillion cost of the bill would only be one trillion dollars after 'dynamic' effects were taken into account?"

Yes, but JCT reached that conclusion only by averaging three estimates, two of which were from respectable forecasters that showed (making generous assumptions) at best very small revenue effects while a third was produced by a famously partisan anti-tax shop.  There was no "liberal" offset to the ridiculously pro-conservative forecast that skewed the JCT's average estimate.

In any case, there are plenty of people drawing congressional salaries who are fully on board with the assertion that tax cuts entirely pay for themselves, an idea that not too long ago was rejected by even conservative economists as the ravings of "charlatans and cranks."  Now that the Republicans have gone "full charlatan," what other fully discredited ideas might they be willing to repeat endlessly?

There is a surprisingly large inventory of frivolous anti-tax arguments that have been floating around the fringes of the conservative movement for the past few decades.  At the beginning of each semester of my Federal Income Taxation course, I take a few minutes to run the students through a list of those fallacious arguments.

These arguments are in fact so shopworn that they have long been summarized on a web page under the title "The Truth About Frivolous Tax Arguments," which the IRS occasionally updates.  None of those arguments has ever succeeded in court (which is what makes them frivolous), and even the most minimally respectable Republicans have stayed away from them.  That might change.

The people who advance such baseless arguments are commonly known as "tax protesters" or "tax deniers."  Again, they always lose when they advance these arguments in court.  Some are so adamant about their quixotic arguments, however, that they all but volunteer to go to prison rather than admit that they do not have a leg to stand on.

Even so, because this group (which is thought to number about one million people, or about one-half of one percent of the adult population, making it still very much a fringe element) is opposed to taxes, mainstream Republicans have not fully rejected the tax protesters.  Indeed, the Gingrich-led Congress in the late 1980's even decided to legally prohibit IRS employees from using the terms "tax protester" or "tax denier" -- or, my favorite, "constitutionally challenged."

Now that Donald Trump has unleashed the insanity that lurked beneath the surface of the post-1980 Republican Party -- with clear financial conflicts of interest no longer viewed as a problem, the FBI deemed a liberal hive, a president not expected to release his tax returns, and clearly unqualified cabinet nominees and judges receiving rubber-stamped confirmations, to name just a few norm-busting developments in the past year or so -- nothing can be taken for granted.

It thus seems almost inevitable that Republicans will soon be plumbing the depths of frivolous tax arguments.  We would do well to recall that Republicans succeeded in turning the so-called individual rights view of the Second Amendment from a "fraud on the American public" to Supreme Court precedent, and they also found five votes to endorse the action/inaction distinction (the "broccoli argument") to win an important, precedent-setting battle in their lost war against the Affordable Care Act.  Nothing is out of bounds, apparently.

With that in mind, I will offer here what should be an unnecessary additional argument against one of the frivolous arguments that Republicans might decide to take into the mainstream.  To be clear, I am not predicting that Republicans will do this.  I am saying, however, that they have expanded the range of formerly crazy possibilities so much that it would now be crazy to think that anything is beneath them.

One of the most extreme frivolous tax arguments holds that the income tax violates the Thirteenth Amendment's ban on slavery or involuntary servitude.  Say what?  How could paying the income tax possibly be the constitutional equivalent of chattel slavery?  Supposedly, by forcing people to turn some of the fruits of their labor over to the government, the government has forced them to "work for the government" and thus pushed them into involuntary servitude.  Just like slaves!

In a Verdict column back in 2014, I explained just how crazy this argument is, even though no sentient being should need to have it explained.  It is clear that the framers of the Reconstruction Amendments did not intend to ban taxation or to use the terms slavery and involuntary servitude in the way that tax protesters try to use them.

Even so, that argument has a surprisingly respectable academic source of support.  The philosopher Robert Nozick once wrote that income taxes are akin to "forced labor."  Although Nozick later retracted (or at least no longer advanced) that view, having his name on the argument would give conservatives cover to advance their agenda.  (Even on its own terms, Nozick's argument was wrong.  But that is a separate matter.)

Suppose that Republicans manage to fund a major campaign to take the frivolous Thirteenth Amendment argument out of the shadows.  How to respond?

In addition to the usual historical and textual arguments that would make their way into Supreme Court briefs, the defenders of the government's authority to collect revenues could invoke an argument that can be short-handed as "16 is greater than 13."  To explain what I mean, consider an argument that bubbled up through the Supreme Court in the late 1990's regarding sovereign immunity.

There, the conservative wing of the Court had been issuing a new line of cases designed to prevent people from suing state governments (the "sovereigns" who would be immune from suit).  One problem was that a prior opinion had allowed Congress to abrogate a state's purported immunity because the Fourteenth Amendment authorizes Congress to do so.

Why did the Fourteenth Amendment matter?  Because the Court's conservatives had based their theory of sovereign immunity on the Eleventh Amendment (a connection that they later abandoned, because that amendment's text does not actually support their theory), and they said that a later-in-time amendment would supersede an earlier amendment.

In short, 14 is greater than 11.  And in the case of the anti-slavery amendment's purported relevance to taxation, the Sixteenth Amendment explicitly allowed Congress to impose an income tax (without having to apportion the revenues by state population).  Even if the Thirteenth Amendment were meant to apply to taxes, the Sixteenth Amendment would override that implication.  16 > 13.

This, in fact, is stronger than the 14 > 11 argument, because there the conservatives on the Court had to make the unusual argument that the Fourteenth Amendment partially repealed state sovereign immunity only by implication, because the text of the amendment says nothing about that topic.  (To be slightly more precise, the 14th gave Congress a power of abrogation that it didn't previously possess, thus repealing so much of state sovereign immunity as would have been previously deemed non-abrogable by Congress.) By contrast, the Sixteenth Amendment directly says that "Congress shall have power to lay and collect taxes on incomes, from whatever source derived."  This would be an explicit override of any relevant implication of prior constitutional enactments.

Finally, consider the possible irony of conservatives' pursuit of this argument.  If the frivolous Thirteenth Amendment were somehow accepted as legitimate, its impact would not be limited to the federal income tax.  It would, in fact, be applicable to all forms of taxation, because paying excise taxes or sales taxes or wealth taxes or any other kind of tax involves turning the fruits of someone's labor to the government by force.  How do I pay my county's tax to fund public schools?  By working and then using some of the money I earn to pay my property tax bill.

Imagine, therefore, that the Supreme Court ends up concluding that the Thirteenth Amendment implicitly bans taxation, but it then concludes that the framers of the Sixteenth Amendment said, in essence: "We'll allow the government to enslave people, but only through an income tax."  What would that mean?

The Sixteenth Amendment only applies to the federal government, so it does not similarly empower the states.  But because the Thirteenth Amendment (which even applies to private actors) obviously applies to all levels of government (an individual state cannot permit slavery within its borders, which was the point of the Civil War), that means that state governments would have no way to collect money to fund their activities.  They would have to depend on revenue sharing from the federal government.

Meanwhile, because the Court has held that Congress can make the provision of funds to states conditional on the states following federal mandates, Congress would have much more leverage than currently exists to affect state-level policy.  Federalists should love that!

Finally, because the Sixteenth Amendment only empowers the federal government to collect an income tax, all levels of government would have to be financed by exactly one source of revenue, the federal income tax.  All of the regressive state taxes would be gone.  True, the estate tax would be gone, too, but conservatives hate the income tax almost as much as they hate taxes on wealth.

There is no guarantee, of course, that a future Congress would not radically rewrite the income tax law so that it becomes regressive.  But that would be a rather heavy political lift, because Americans are strongly committed to the idea that the tax system should be progressive.  Our current combined system (combining all levels of taxes) turns out not to be progressive, but people are not aware of that.  If there were only one tax, it would be much more difficult to hide the regressivity that conservatives desire.

Again, I have every reason to believe that the Thirteenth Amendment-based anti-tax argument will continue to be viewed with amusement and disdain, as it should.  But two years ago, we all had every reason to think that about Donald Trump.  We should be prepared for additional unpleasant surprises.

6 comments:

Shag from Brookline said...

Is there a correlation between the super-rich 0.1%ers and "The people who advance such baseless arguments ... commonly known as 'tax protesters' or 'tax deniers.'"?

Can we expect Trump's "populist" voter base to buy into the "simplicity" of the 13th A anti-tax argument even though the beneficiaries of the argument are the super-rich 0.1%ers? It's difficult picturing the super-rick 0.1%ers as either slaves or in involuntary servitude.

Joe said...

Me and Shag engage with someone who thinks requiring people in public accommodations to serve blacks is a form of involuntary servitude, so this isn't the only crazy 13A argument affect current controversies. There, it is rather clear the original understanding did not cover such laws, but these people are selective on that front.

I personally don't think the 16A was strictly necessary, income taxes not violating any constitutional provisions, including bars on direct taxes. To me, they seem inherently indirect; at least, it's rather easy to classify income taxes as excise taxes or whatever (e.g. a tax on employment or the license to do various things).

There was a 5-4 ruling that barred certain types of income taxes (Pollock v. Farmers' Loan & Trust Co) and the conservative approach was to pass an amendment to make it clear that broadly speaking income taxes are allowed. OTOH, as seen during the debate over PPACA, some try to narrowly interpret the 16A.

Anyway, the 13A argument does seem to broad -- it makes all taxation problematic, as noted, and there is a basic consent to taxation by living in the country and it is a responsibility of citizenship like jury duty and such. Plus, we aren't being forced to work to be able to provide money to the government. So, it is reasonable to be worried about crazy constitutional arguments, but to the degree they involve taxation, probably it will be somewhat narrower.

Joe said...

Oh. Hey, Don? Where's your tax returns?

Shag from Brookline said...

Anticipated Trump tweet on market: "It's all Janet Yellen's fault!"

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There was a 5-4 ruling that barred certain types of income taxes (Pollock v. Farmers' Loan & Trust Co) and the conservative approach was to pass an amendment to make it clear that broadly speaking income taxes are allowed. OTOH, as seen during the debate over PPACA, some try to narrowly interpret the 16A.

Anyway, the 13A argument does seem to broad -- it makes all taxation problematic, as noted, and there is a basic consent to taxation by living in the country and it is a responsibility of citizenship like jury duty and such. Plus, we aren't being forced to work to be able to provide money to the government. So, it is reasonable to be worried about crazy constitutional arguments, but to the degree they involve taxation, probably it will be somewhat narrower.

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