American Tax Resisters AMERICAN TAX RESISTERS Romain D. Huret Cambridge, Massachusetts, and London, En gland 2014 Copyright © 2014 by the President and Fellows of Harvard College All rights reserved Printed in the United States of America Publication of this book has been supported through the generous provisions of the Maurice and Lula Bradley Smith Memorial Fund. Library of Congress Cataloging- in- Publication Data Huret, Romain. American tax resisters / Romain D. Huret. pages cm Includes bibliographical references and index. ISBN 978- 0- 674- 28137- 0 (alk. paper) 1. Taxation— United States— History. 2. Income tax— United States— History. 3. Tax evasion— United States— History. 4. Finance, Public— United States— History. 5. Equality— United States— History. I. Title. HJ2362.H87 2014 336.200973—dc23 2013032961 To Ariane, Emilien, Melvil, and Raphaël Contents Prologue 1 1. Unconstitutional War Taxes 13 2. Down with Internal Taxes 45 3. The Odious Income Tax 78 4. Not for Mothers, Not for Soldiers 110 5. The Bread- and- Circus Democracy 141 6. From the Kitchen to the Capital? 173 7. The Tyranny of the “Infernal Revenue Ser vice” 208 8. Tea Parties All Over Again? 241 Epilogue 274 List of Abbreviations 283 Notes 285 Ac know ledg ments 356 Index 359 American Tax Resisters Prologue In this world nothing can be said to be certain, except death and taxes. —Benjamin Franklin (1789) Benjamin Franklin’s witty remark is familiar today to most American citizens. Each year, on April 15, many share his fatalistic sentiment when they rush to fi ll in their tax return and send it to the Internal Revenue Ser vice. There is no doubt that Poor Richard was right about death. He forgot, however, that one could resist taxation. Citizens may refuse to sign the 1040 form, fail to send it to federal tax authorities, and or ganize po liti cal and social movements to protest against tax collection. By focusing on the uncertainty of taxes, this book offers an addendum to Franklin’s famous statement. It high- lights re sis tance to progressive taxation in the United States. As the country became one of the richest nations on earth, the idea of a re- distribution of income through federal taxation appeared and raised one straightforward question: should rich citizens and big corpora- tions pay more taxes than the poor man? In most demo cratic coun- tries, progressive taxation emerged in the shadow of capitalism in an attempt to stabilize a social order deeply affected by corporate expan- sion and the extraordinary enrichment of a few citizens at the expense 1 2 American Tax Resisters of many. Everywhere such redistribution provoked opposition and opened a debate about in e qual ity, solidarity, and social contracts. From the American Revolution to the present, the exceptional ac- cumulation of wealth in the United States lent greater intensity to the tax debates that had begun in the early days of the republic.1 In October 1785 a young Thomas Jefferson wrote to James Madi- son to describe his meeting with a poor woman in Fontainebleau, a small village a few miles from Paris. His main concern for her was the issue of equity and taxation in the French Ancien Régime. “An- other means of silently lessening the in e qual ity of property,” he con- tended, was “to exempt all from taxation below a certain point, and to tax the higher portions or property in geometrical progression as they rise.” Before bringing forward the idea of progressive taxation, how- ever, the nation, born of revolution, needed institutions. Two years later, during the passionate constitutional discussions in Philadelphia revolving around federal power, important decisions were made.2 The motto “No taxation without represen ta tion” epitomized the consensus reached by delegates and was an answer to the unfair taxes that had been levied by the British Crown. The found ers decided that federal taxes could be justifi ed in light of the military and fi scal crises facing the republic. Article 1, Section 8 of the Constitution listed the powers of Congress and started with the power of the purse. Congressmen could “lay and collect Taxes, Duties, Imposts and Ex- cises” in order “to pay the Debts and provide for the common De- fence and general Welfare of the United States.” These taxes had to be “uniform” throughout the country. Furthermore, direct taxation was strictly limited by the Constitution. Article 1, Section 9 contended that “no capitation, or other direct, tax shall be laid, unless in propor- tion to the Census or enumeration herein before directed to be taken.” The Constitution opened unlimited, though unclear, possi- bilities for tax. In his Notes on the Debates in the Federal Convention of 1787, James Madison contended that nobody attempted to answer when one delegate asked his colleagues for the precise meaning of Prologue 3 direct taxation. The blurred defi nition complicated the task of the ruling elite.3 During the 1790s, when the Federalists decided to use the new fi scal power, they only managed to weaken the young nation by spark- ing local revolts. Their taxes on alcohol and property were denounced in harsh terms by citizens and embittered opponents. The tax assess- ment on whisky barrels or the number of windows in a property ig- nited two major revolts: the Whiskey Rebellion in 1793, and the re- volt against the window tax led by American Revolutionary War veteran John Fries in the winter of 1798. Two years later, Congress decided to repeal the infamous window tax, and in 1802 it repealed all internal taxes in the country. Customs duties soon appeared as the most effi cient way to collect revenue for a small federal govern- ment. The tariff policy enabled Americans to avoid increasing sec- tional and social tensions by not taxing properties, especially the ones owned by slaveholders. With the exception of the War of 1812, this marked the end of internal taxation in the United States until the American Civil War.4 In his second inaugural address delivered on March 4, 1805, Thomas Jefferson was pleased to present his fellow Americans with an excep- tional and limited system of federal taxation. He promised that it would be “the plea sure and pride of an American to ask, what farmer, what mechanic, what laborer ever sees a tax-gatherer of the United States?” Once he arrived in the White House and far from the argu- ment he had made eigh teen years earlier in France, he championed a retrenchment policy that called for a reduction in public expendi- tures and taxation. Without federal tax gatherers, Jefferson believed, Americans would inhabit a republic without taxpayers, as no citizen would pay a federal tax. It was the price to pay to save the fragile union. The only exception was taxes on luxury products and cus- toms duties. Many Americans believed, however, that such taxes were voluntarily paid by customers, not taxpayers. In other words, citizens were free not to pay them by not buying taxed goods such as 4 American Tax Resisters alcohol and tobacco. As a consequence, federal taxation was strongly regressive as rich and poor paid the same hidden tax. Even in the individual states, uniformity clauses that required different forms of property to be assessed in the same way and taxed at the same rate were adopted to limit the progressivity of local taxes. As Thomas Jef- ferson had promised, until the American Civil War, neither income nor property was taxed at the federal level.5 This book starts with the fi rst gunshot at Fort Sumter in April 1861. With the coming of the war, the federal government increasingly expanded its powers and every corner of the nation was suddenly fi lled with visible taxation. Debates on the fairness of taxes grew, along with various forms of re sis tance against the intrusion of the new federal power. In the postbellum era, many Americans still be- lieved they paid taxes in exchange for benefi ts received from institu- tions. In his treatise on taxation, published in 1876, famous Michi- gan jurist and lawyer Thomas M. Cooley perfectly captured such reciprocity when he contended that citizens and property own ers re- ceived as “proper and full compensation” of their payments “the pro- tection which the government affords to his life, liberty and property, and in the increase to the value of his possessions by the use to which the money contributed was applied.” Yet, although federal taxes were accepted as a form of legitimate exchange in a time of war, they were still believed to be temporary and were soon to disappear once the benefi ts for citizens ceased.6 As a predominantly rural nation gave way to an industrial one, a new view of taxation appeared. Industrialization and the market revo- lution gave rise to vigorous debates on equality and poverty. The emergence of large corporations and the attacks against robber bar- ons reinforced the legitimacy of progressive taxation as both a way to regulate corporations and to promote equality in the new industrial nation. The problem was that the Constitution required Congress to levy direct taxes in proportion to each state’s population, not in pro- portion to each citizen’s income. In 1910, as the ratifi cation of the Prologue 5 Sixteenth Amendment that would legitimize the taxation of income was debated in the states, Edwin R. A. Seligman, a social reformer and probably the best tax expert in the country, staunchly supported progressive taxation and urged Americans to amend the Constitu- tion, contending that “the conditions which existed when the consti- tution was framed are no longer existent.” He added that “the devel- opment of the underlying economic and social forces had created a nation, and this development called for uniform national regulation of many matters which were not dreamed of by the founders.” For him, the idea of reciprocity was nothing but a “selfi sh and narrow” doctrine, and taxes should be levied upon each citizen’s ability to pay.