The Tax System

In a sense, the entire system of taxation is a form of involuntary servitude. Take, in particular, the income tax. The high levels of income tax mean that all of us work a large part of the year — several months — for nothing for Uncle Sam before being allowed to enjoy our incomes on the market. Part of the essence of slavery, after all, is forced work for someone at little or no pay. But the income tax means that we sweat and earn income, only to see the government extract a large chunk of it by coercion for its own purposes. What is this but forced labor at no pay?

The withholding feature of the income tax is a still more clear-cut instance of involuntary servitude. For as the intrepid Connecticut industrialist Vivien Kellems argued years ago, the employer is forced to expend time, labor, and money in the business of deducting and transmitting his employees’ taxes to the federal and state governments — yet the employer is not recompensed for this expenditure. What moral principle justifies the government’s forcing employers to act as its unpaid tax collectors?

The withholding principle, of course, is the linchpin of the whole federal income tax system. Without the steady and relatively painless process of deducting the tax from the worker’s paycheck, the government could never hope to raise the high levels of tax from the workers in one lump sum. Few people remember that the withholding system was only instituted during World War II and was supposed to be a wartime expedient. Like so many other features of State despotism, however, the wartime emergency measure soon became a hallowed part of the American system.

It is perhaps significant that the federal government, challenged by Vivien Kellems to test the constitutionality of the withholding system, failed to take up the challenge. In February 1948 Miss Kellems, a small manufacturer in Westport, Connecticut, announced that she was defying [p. 86] the withholding law and was refusing to deduct the tax from her employees. She demanded that the federal government indict her, so that the courts would be able to rule on the constitutionality of the withholding system. The government refused to do so, but instead seized the amount due from her bank account. Miss Kellems then sued in federal court for the government to return her funds. When the suit finally came to trial in February 1951, the jury ordered the government to refund her money. But the test of constitutionality never came.5

To add insult to injury, the individual taxpayer, in filling out his tax form, is also forced by the government to work at no pay on the laborious and thankless task of reckoning how much he owes the government. Here again, he cannot charge the government for the cost and labor expended in making out his return. Furthermore, the law requiring everyone to fill out his tax form is a clear violation of the Fifth Amendment of the Constitution, prohibiting the government from forcing anyone to incriminate himself. Yet the courts, often zealous in protecting Fifth Amendment rights in less sensitive areas, have done nothing here, in a case where the entire existence of the swollen federal government structure is at stake. The repeal of either the income tax or the withholding or self-incriminating provisions would force the government back to the relatively minor levels of power that the country enjoyed before the twentieth century.

Retail sales, excise, and admission taxes also compel unpaid labor — in these cases, the unpaid labor of the retailer in collecting and forwarding the taxes to the government.

The high costs of tax collecting for the government have another unfortunate effect — perhaps not unintended by the powers-that-be. These costs, readily undertaken by large businesses, impose a disproportionately heavy and often crippling cost upon the small employer. The large employer can then cheerfully shoulder the cost knowing that his small competitor bears far more of the burden.

• 5On the Kellems case, see Vivien Kellems, Toil, Taxes and Trouble (New York: E. P. Dutton, 1952).