A Nation of Taxpayers - PowerPoint Presentation

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A Nation of TaxpayersConsent, Coercion, and the Modern U.S. Tax State

Joseph J. ThorndikeTax AnalystsFalls Church, VASlide2

What Do We Know About the History of Taxpaying in the United States?Slide3

The taxpayer’s “lived experience”Slide4

“The United States has a system of taxation by confession. That a people so numerous, scattered and individualistic annually assesses itself with a tax liability, often in highly burdensome amounts, is a reassuring sign of the stability and vitality of our system of self-government

. --Justice Robert Jackson, United States v. Kahriger, 1953Slide5

The Conundrum

For a nation borne of a tax revolt, Americans are remarkably good about paying their taxesSlide6

But Why Do We Pay?

Jackson’s notion of “confession” is helpfulTax compliance—and by extension, tax consent—is a function of both voluntarism and coercionSometimes in tension, but usually complementarySlide7

The Project

Taxation in the crucible: critical periods of consent creation

Evaluates the durability of consentSlide8

Coercion and Voluntarism

Argues that consent was a function of both coercion and voluntarismFocuses on administration but does not ignore policyAccommodates blurred lines, interactions, and contradictionsConcludes that durable consent depended heavily on blending

coercion

with taxpayer

assistanceSlide9

Voluntarism: Civil War

Policy designIncome tax designed to bolster fairnessPerceptions of fairness considered a prerequisite for consent (and therefore compliance)DecentralizationNumerous collection districtsLocal face on a federal taxPatronage

Ways and Means Chair

Thaddeus Stevens, R-Pa

.Slide10

PatriotismChase: “The most sacred duty of the American people at this moment requires the consecration of all their energies and all their resources to the reestablishment of the Union on the permanent foundations of justice and freedom.”

Voluntarism: Civil WarSlide11

Voluntarism: Civil War

“Public anxiety in regard to the construction of the law induced a large amount of correspondence”At first, the commissioner answered all such letters personallyBoutwell’s first principle: “to levy a tax in those cases only which are clearly provided for by the statute, and, consequently, whenever a reasonable doubt exists, to rule against the government and in favor of the individual”

George Boutwell, first Commissioner of Internal RevenueSlide12

Coercion: Civil WarAn Army of Officials

Federal rather than stateSweeping powersdefault assessmentsarrest and imprisonmentbountiesprivate collectors

Taxpayers at the Assessor's OfficeSlide13

Public disclosureCommissioner: "The object of the law seems to have been to afford every tax

-payer an opportunity of ascertaining what returns his neighbors have made. He is interested in these returns, because the burden of the national duties is a common one, and every person should be required to pay his due proportion of it.WithholdingCoercion: Civil WarSlide14

Transience of Civil War ConsentCoercion cut two ways, both against the income tax

Too weak to prevent evasionToo strong to tolerate for law-abiding taxpayersVoluntarism largely successful but inadequate to maintain consentPatriotism was an effective rhetorical exhortationDecent administrative support for taxpayersPocketbook complaints merged with coercion complaints to undermine the tax; declining revenue needs created the opportunitySlide15

Voluntarism: World War II

Policy design: fairness as a tool of consentSoaking the rich justified taxing the middle classNo sales taxPatriotism: sacrificeMass media made propaganda more efficient. Familiar calls to sacrifice.Information, taxpayer supportSlide16

Voluntarism: World War IISlide17

Coercion: World War IICoercion requires either a small scale (Civil War tax) or impressive administrative capacity

Threats were extant but underdeveloped during the warAdministrative weakness made such talk dangerousTreas. Sec.: “Suppose we have to go out and try to arrest 5 million people?”Postwar, a different storyAbsent wartime exhortation, BIR turned to threatsSlide18

Coercion: World War II

Withholding changed the equationCoercion with a velvet gloveSlide19

Durability of Consent

WWII tax proved durableProgressivity and perceptions of fairness were keyMass tax, by virtue of its embeddedness, was tenaciousIncreasingly, elements of the postwar state were delivered through the tax systemWithholding was crucialSlide20

Complexity and ConsentComplexity: Everyone’s second highest priority for tax reform.

Really? Taxpayers?Withholding was obviously coerciveBut conceived as benefit to both government AND taxpayersFacilitating voluntarismLimiting possibilities of catastrophic error Policymakers worried that taxpayers would withdraw consent from a system they found confusing

Fear is the enemy of consent. Complexity breeds fear, especially when combined with coercive forms of enforcement.