[Congressional Record (Bound Edition), Volume 145 (1999), Part 3]
[Senate]
[Pages 3827-3831]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       THE INCOME TAX ANNIVERSARY

  Mr. GRAMS. I wanted to take a few moments this morning to talk a 
little bit about birthdays and anniversaries. As we know, basically 
they are happy remembrances of events we should celebrate. Eighty-six 
years ago today, the Internal Revenue Service began to levy and collect 
a personal income tax on the American people.
  I believe this is nothing to celebrate. To borrow a phrase from 
Ronald Reagan, you will excuse the taxpayers if they don't celebrate 
the daily mugging that we call the Tax Code.
  As we note the sad occasion, I rise to call upon Congress to take 
immediate action to end the Federal Tax Code as we know it and replace 
it with a new system that is fairer, simpler, and friendlier to the 
taxpayers. I also call upon Congress to take immediate action to reduce 
the ever-increasing tax burden by providing meaningful tax relief for 
every working American. Now, that, Mr. President, would be something to 
celebrate.
  This great Nation was born out of a tax revolt. The revolt didn't 
come about because our Founding Fathers were selfish but because they 
didn't want to be shackled by Government regulations, intrusive 
bureaucracies, abusive taxing powers, and the unjust policies of their 
homeland. They didn't want to send their hard-earned money to an 
English Parliament that wasted every penny of it without any respect 
for those who earned it.
  The Boston Tea Party was the result of a one-half of 1 percent tax 
that was levied on the Colonies. Put that in terms of today's tax 
burden.
  This tax revolt was about freedom; it was about liberty; it was about 
a person being able to own more of the fruits of his labor rather than 
being strangled by the albatross of taxation.
  Our Founding Fathers understood well that low taxes and freedom were 
directly related. To protect individual liberty from future abuses, 
they crafted clause 4 of article I, section 9 of the U.S. Constitution, 
that is, rejecting all direct income taxes that were not appropriated 
by each State by its population.
  This clause, as originally adopted in the Constitution, reflected the 
genius, the wisdom, and the experience of our Founding Fathers--
protecting individual liberty by limiting the Government's power to 
tax.
  For more than 100 years following the founding of this Nation, the 
American people enjoyed tax freedom and did not pay any income taxes. 
The Supreme Court defended this freedom and held the income tax to be 
unconstitutional. Unfortunately, under the direct influence of the rise 
of socialism in Europe at that time, on February 3, 1913, the 16th 
amendment to the Constitution was ratified, giving the Government 
unlimited power to tax. And then on March 8, 1913, the IRS began 
collecting personal income tax. The ratification of the 16th amendment 
and the enactment of the first Tax Code fundamentally eroded our 
individual liberty. Initially, less than 1 percent of all Americans 
paid any kind of income tax. Only 5 percent of Americans paid any 
income tax as late as 1939 before the beginning of World War II.
  Times, as we know, have changed dramatically. Today, the Federal tax 
burden is at a historic high. Federal taxes now consume nearly 21 
percent of national income. A typical American family pays $9,000 a 
year in Federal tax. A median-income family can expect to give up 
nearly 40 percent of all of its income in Federal, State and local 
taxes. And that is more than it spends on food, clothing, 
transportation and housing combined.
  Mr. President, every year the tax system pushes more and more 
Americans into higher and higher tax brackets, and that is to meet the 
demands of ever-increasing Government spending. It is an old saying, 
but it has never been more true, that ``Government is in endless 
pursuit of new ways to tax.''
  The tax system has created a monstrous bureaucracy--the intrusive, 
abusive Internal Revenue Service. More than $7 billion in taxpayers' 
money annually goes to support the operations of the Internal Revenue 
Service. Those dollars have built a tax system that is extremely 
complicated and difficult for anyone to try to understand. The Tax Code 
originally was only 14 pages when it was first enacted, but today it 
has

[[Page 3828]]

grown to more than 10,000 pages. And it costs hundreds of billions of 
dollars for taxpayers to comply with its dizzying requirements.
  There is a growing national consensus that the current Tax Code is 
antifamily, it is antieconomic growth, it is unfair, it encourages 
abuse, waste and corruption, and it needs to be terminated.
  I thank my colleague from Arkansas, who plans on introducing 
legislation--he did introduce legislation last year--that would do just 
that, that is, eliminate the Tax Code as we know it. I was proud to 
join him as an original cosponsor, and I look forward to supporting his 
efforts once again this year.
  The next question to answer is, How will we replace the Tax Code 
since there is a need for Federal revenues to fund defense and foreign 
policy needs as well as some Federal programs?
  Mr. President, I have been exploring alternative tax systems for 
quite a while. After considerable study of the issue, I believe the 
national sales tax plan that has been developed by Americans for Fair 
Taxation is the best replacement for the Tax Code.
  Any new tax system must restore our fundamental principles of low 
taxes and limited taxing power. It must fairly and efficiently 
distribute the burden of funding our Government, promote economic 
growth, simplify compliance, and offer every American better economic 
opportunity.
  The Fair Tax system, which I intend to introduce soon, meets these 
important criteria. It is a fairer, simpler, friendlier tax system. It 
will increase economic growth, investment, capital formation, and the 
creation of jobs and savings.
  Under the Fair Tax system, working Americans keep 100 percent of 
their pay, pension, or Social Security check. They no longer need to 
file a tax return with the IRS. Their family's finances are not 
revealed to Government bureaucrats.
  They will not be penalized for getting or staying married--or dying, 
for that matter. Everyone pays the same tax rate without loopholes for 
special interest groups. There will not be any hidden taxes and 
everyone will easily understand the tax and how much tax they are 
paying. And finally--the good news--it will abolish the IRS.
  Mr. President, does this sound too good to be true? It may sound that 
way, but believe me, it is real. Let me briefly highlight how my Fair 
Tax legislation will achieve this.
  First, the legislation will call for the repeal of the Constitutional 
Amendment that created the tax nightmare we find ourselves in today. As 
I noted earlier, the 16th Amendment is the root of all tax evil.
  It abandons our Founding Fathers' core principle by giving the 
Government unlimited power to tax the private income of the American 
people. Without repeal of this Amendment, any tax system will 
eventually erode into the very system we have today.
  Second, the legislation will repeal the income tax, the payroll tax, 
the estate tax, the gift tax, the capital gains tax, the self-
employment tax, and the corporate tax.
  Third, the legislation will impose a single rate on all new goods and 
services at the point of final purchase for consumption, and it 
provides a universal rebate in an amount equal to the sales tax paid on 
essential goods and services, to help lower-income individuals.
  Every American will be better off under the Fair Tax system than they 
are under the system that today holds them captive. I believe it will 
create expanded economic opportunities for our Nation and for our 
people.
  I realize it will take some time to pass tax reform, so in the 
meantime, I strongly support reducing the tax burdens of overtaxed 
Americans.
  The American people have good reason to ask for a tax cut.
  Since 1993, Federal taxes have increased by 50 percent. They have 
grown twice as much as Government spending and as a result, Americans 
today have the largest tax burden since World War II, and it is still 
growing.
  What is most devastating is the ``middle-class tax squeeze.'' More 
and more middle-income workers are being thrown into higher tax 
brackets. There is no excuse to continue taxing middle-income Americans 
at such a high rate in an era of budget surpluses.
  More Americans are working harder and are earning more today. But a 
large share of the higher incomes of hard-working Americans are not 
being spent on their families' priorities, but are instead being 
siphoned off by Washington.
  This is not fair. People work hard and are then penalized for their 
work. With punitive taxes, Washington makes the American dream of 
working hard for a better life more difficult to achieve for many--and 
impossible for some.
  That is why Congress needs to take immediate action to provide 
meaningful tax relief for all working Americans.
  Our exceptionally strong economy will generate an enormous non-Social 
Security surplus over the next 10 years.
  This surplus enables us to provide a broad-based tax cut for 
overtaxed Americans--again, without new red ink, and without spending 
any of the Social Security surplus. The surplus will also allow 
Congress to retire some of the national debt every year.
  If we do not return the surplus to the taxpayers, Washington will 
spend every penny of it to expand the Government.
  In addition, broad-based tax relief is an insurance policy for the 
American economy, helping to keep it strong and healthy.
  Most economists, including Chairman Greenspan, agree that an across-
the-board tax cut is good for America. I will be addressing S. 3, my 10 
percent across-the-board tax cut legislation, later this week in more 
detail.
  Today, I want to remind my colleagues about the anniversary of the 
income tax and the hardship the Tax Code has placed on our people--
again, an anniversary I do not think worth celebrating.
  So, I urge my colleagues to join me in a pledge that we will not let 
another anniversary come and go before we dedicate ourselves to 
replacing the Tax Code with a better system, and at the same time do 
everything we can to reduce the existing tax burden on the overtaxed 
American people.
  Mr. President, I see my colleague from Arkansas is on the floor. I 
would like to yield to him, Senator Hutchinson.
  The PRESIDING OFFICER. The Senator from Arkansas.
  Mr. HUTCHINSON. Mr. President, I commend the Senator from Minnesota. 
I don't know of a Senator who has been more consistent, more 
persistent, more determined, more resolute in trying to reduce the tax 
burden under which the American people labor, trying to simplify this 
very onerous Tax Code under which we operate, than Senator Rod Grams of 
Minnesota. I am glad to associate myself with his comments today.
  I suppose it is inappropriate to say, ``Happy anniversary,'' because 
the anniversary we remember today is not one that is a source of 
happiness. Mr. President, 86 years ago today--March 8, 86 years ago 
today--the Federal Government implemented the 16th amendment, ratified 
in 1913, and began at that point eating away at the income of the 
American worker.
  Perhaps that date, March 8, is a day that ought to ``live in 
infamy.'' But, then, maybe we should not be too hard on those who 
enacted the income tax amendment. I believe they could never have 
envisioned, they never could have imagined, what would have happened 
under the guise of the income tax. In fact, I understand there was 
actually a proposal during the time that was being debated in Congress 
to cap what the income tax could ever reach--a ceiling--and it was 
dismissed because it was concluded that Congress would never raise the 
income tax to such an exorbitant level.
  During the 1930s, Federal income taxes never, never were more than 
1.4 percent of the Gross National Product--1.4 percent. In the 1990s 
the income tax now represents, as a percentage of the GNP, about 9 
percent. So it has just skyrocketed.
  The amendment originally passed said this:

       The Congress shall have power to lay and collect taxes on 
     incomes, from whatever

[[Page 3829]]

     source derived, without apportionment among the several 
     states, and without regard to any census of enumeration.

  That is the way it began--just a little sliver, just a small portion 
from Americans' wallets, at the turn of the century. That has turned 
into an enormous chunk of the pie, of the American family's reward for 
a hard day's work.
  According to the Office of Management and Budget, individual income 
taxes constituted only 14.6 percent of the total revenue of the Federal 
Government in 1935. Less than 15 percent of all revenues generated for 
the Federal Government came from the Federal income tax in 1935. Today, 
individual income taxes constitute a whopping, staggering 45 percent of 
the total Federal revenue, better than three times what it was in the 
1930s.
  The rate has grown so rapidly, the Tax Code has become so onerous, 
that Senator Grams and I are black-marking this day in American tax 
history. It is only a prelude to the dreaded date, April 15. It is only 
in May, on or about May 7, that hard-working Americans can breathe a 
sigh of relief, on what is called Tax Freedom Day. Only on that day, 
May 7, can Americans begin to keep their hard-earned money, after 
having spent 4 months working to pay Uncle Sam's tax bill. It is for no 
small reason that Alexander Hamilton, in Federalist Paper No. 36, 
stated:

       Many spectres have been raised out of this power of 
     internal taxation, to excite the apprehensions of the people.

  That was written 210 years ago. Today, we know exactly what Alexander 
Hamilton meant. The Federal Government has used the power of internal 
taxation to create broad distrust in the American people and create a 
Tax Code 7,500 pages in length containing over 800,000 words. We in the 
Senate have an opportunity to replace these dreadful anniversaries with 
a new one--the elimination of the present Tax Code on December 31, 
2003. The Tax Code Termination Act, which I will, as Senator Grams 
alluded, introduce in the near future, would eliminate, terminate, 
sunset the existing Tax Code by December 31, 2003.
  Congress, the President, and the American people would then replace 
the current Tax Code with a leaner, simpler, fairer, and more honest 
tax system by no later than Independence Day, July 4, 2003, the 
beginning of a new era of freedom in this country. Senator Grams will 
be introducing a simpler, fairer tax system; others have proposed other 
alternatives. I will make my decision. I say this: The Tax Code 
Termination Act, the sunsetting of the Tax Code, is not relying upon 
which kind of solution, it does not determine which direction we should 
go, but, I assert, we cannot do worse than the current inexplicable, 
incomprehensible Tax Code by which we are governed.
  I applaud and commend Senator Grams for being bold enough, creative 
enough and, I might add, courageous enough to introduce a very broad, 
comprehensive proposal to replace the current, clearly inequitable tax 
system. For too long the American people have suffered under the heavy 
chains of the oppressive regime we call our Tax Code. Each year, 
Americans spend over 5.4 billion hours slaving away to comply with tax 
provisions. That 5.4 billion hours is the equivalent amount of time it 
takes to produce all the cars, all the trucks, and all the airplanes in 
this country in 1 year. All of that energy, all of that productivity 
going to comply with the Tax Code.
  A humble family of four will spend the equivalent of 2 weeks for Tax 
Code compliance. Ironically, every year $13.7 billion of the money that 
taxpayers struggle to pay the Federal Government is expended in 
enforcing the code. They pay their taxes. They pay their tax bill, 
$13.7 billion of which goes to enforce that code. Yet the IRS, a 
bureaucracy of 110,000 people in over 650 offices around the country, 
provides misinformation one out of every four times a taxpayer calls to 
seek assistance.
  It is time that we act. We have made the Tax Code ever more complex. 
In 1997, Senator Grams was very much involved in this. I am sure if 
Senator Sessions had been in the U.S. Senate at the time, he would have 
been involved in it. We made a serious attempt to ease the tax burden 
on the American people. Senator Grams and I, on the House side, 
introduced the $500-per-child tax credit. We said working families 
deserved to have that; that the cost of rearing a child has increased 
and was never indexed for inflation. The per-child tax deduction 
nowhere near compensated for what it cost. We, in effect, said public 
policy did not really value families, and we didn't really value 
children. We pushed for that, not only the $500-per child tax credit, 
but this Senate and this Congress, for the first time in 16 years, 
reduced the tax burden on working Americans.
  Even after that successful effort, the tax burden remains so high 
that the average American family will spend more on taxes at the 
Federal, State, and local level than they will spend for food, for 
clothing, for housing, education and recreation all combined. That is 
how much we are taking.
  Even in 1997, when we sought to reduce the tax burden on the American 
people, we had an undesired consequence. We were unwitting contributors 
to the complexity of the Tax Code, and we created even new 
complications, new deductions, new credits at that time when we were 
trying to reduce taxes.
  Mr. President, in the Senate we have a number of options before us in 
1999. We can ignore the plight of the American taxpayer, continue to 
celebrate, so-called, these tax anniversaries. That is one option that 
we have. No one has suggested we should not meet a full commitment to 
Social Security. Sixty-two percent of the projected revenue surplus 
should be set aside for Social Security. There is no debate about that. 
Both parties agree about that.
  We need to do much more. We need to take the opportunity with the 
remainder not to create new spending programs, but to lessen the burden 
upon the American people. We cannot ignore the plight of the American 
taxpayer. We can continue with the status quo, or we can implement 
incremental reforms and try our best to make repairs to a house built 
on shifting sand, as we have almost every year for the last 12 years.
  Finally, we can lay a solid foundation for a new house by voting for 
real reform. We can sunset the existing Tax Code, and we can pass a 
fairer and simpler and more understandable tax system, one that the 
American people deserve.
  I thank my colleague for his leadership. I yield the floor.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. GRAMS. Mr. President, I thank my colleague from Arkansas for 
joining me this morning in talking about anniversary, as he mentioned, 
as not really a time to celebrate but to remember. As Senator 
Hutchinson noted, it was he and I who, back in 1993 when we were both 
in the House, worked to enact the $500-per-child tax credit. We first 
introduced it in 1993, and finally got it signed into law in 1997. 
Today it makes up about 75 or 80 percent of all tax relief this 
Congress has enacted in 4 years. It is just a small start, I think, of 
what we really need to do as far as reform and additional tax relief. I 
thank him for his help and all his support in getting it passed.
  Again, I will just remind people why we are here talking about this. 
It was in 1913, 86 years ago today, that the first income tax was 
levied in this country, despite provisions laid out in the Constitution 
against that. It was passed in 1913. At that time it was only, as 
Senator Hutchinson said, a minor tax. Only about 1 percent of the 
people in this country came under this income tax provision.
  The first Tax Code was only 14 pages long. Today, as we know, it is 
well over 10,000 pages, so complicated that even the most sophisticated 
tax lawyers cannot figure it out. As the Senator from Arkansas 
mentioned, if one calls the IRS for information or a question, they 
have about a 50/50 chance of getting a correct answer. What we have is 
a Tax Code, a tax system that is so complex, so abusive that it is no 
longer efficient. To try and make even some minor reforms or 
adjustments to it, I

[[Page 3830]]

always say, is like trying to put lipstick on a pig. We cannot make it 
pretty. The thing we need to do is change it completely. We have talked 
about pulling it out by the roots and replacing it. The Senator from 
Arkansas will be introducing the Tax Code Elimination Act which would 
sunset the current Tax Code as we know it and the IRS by January 1 of 
the year 2003. Some people may say that is a little irresponsible 
because we don't have a Tax Code system with which to replace it.
  We have many ideas. I will be introducing a fair tax plan that would 
be basically a national sales tax plan. It would eliminate all the 
payroll, the income tax, the estate tax, the corporate taxes, capital 
gains tax. It would basically eliminate all of those and replace them 
with one simple tax at the point of sale, a consumption tax. One would 
never have to file a tax return again. We wouldn't consume those 
billions of dollars worth of hours it takes just to comply with the IRS 
regulations.
  When people say we are irresponsible because we should have a Tax 
Code in place before we repeal the code, I always say that Congress 
loves to spend so much that it would not go 1 day without the ability 
to tax. If we can eliminate the Tax Code, Congress will work overtime 
to get a new Tax Code in place. I think it is something we need to 
start doing and working on today.
  Our income tax now has generated not the 1 percent of taxpayers, but 
over 21 percent of this Nation's income now goes to taxes. As I 
referred to earlier, the Boston Tea Party was over one-half of 1 
percent. Taxation without representation led to the tax revolt which 
built this country. Yet today, we are taxed at these high rates.
  I see my colleague from New Hampshire is here. I would like to 
recognize him for any time remaining.
  The PRESIDING OFFICER. The Senator from New Hampshire.
  Mr. SMITH of New Hampshire. How much time is remaining in morning 
business, Mr. President?
  The PRESIDING OFFICER. Under a previous order, the Senator from 
Minnesota has 1 minute remaining, after which the Senator from Ohio 
will have 30 minutes.
  Mr. SMITH of New Hampshire. Mr. President, I ask unanimous consent to 
have 5 minutes extending beyond the morning business time, no more than 
5 minutes.
  The PRESIDING OFFICER. Is there objection? Without objection, the 
Senator is recognized for 5 minutes.
  Mr. SMITH of New Hampshire. Thank you very much, Mr. President. I 
thank my colleague, Mr. Voinovich, for not objecting.
  I would like to compliment my colleague, the Senator from Minnesota, 
for his support on this issue. Mr. President, 1999 is the eighty-sixth 
anniversary of the Sixteenth Amendment and the collection of income 
taxes by the Federal government. It is not an anniversary that we 
really, in my view, ought to celebrate. As a matter of fact, I propose 
that we mark the occasion by throwing out our existing tax code and 
starting over from scratch.
  The Tax Code Termination Act, which I am pleased to join with my 
colleague, Senator Tim Hutchinson, and others to soon introduce, would 
accomplish just that goal. Our bill would sunset the Internal Revenue 
Code by December 31, 2003.
  This year provides a good opportunity for the Senate to reexamine the 
income tax and consider how the tax code has changed. As stated in the 
Salt Lake Tribune of Wednesday, January 27, 1999, the income tax is a 
relatively new development:

       France had an income tax in 1793 and Britain in 1799. With 
     a couple of short-lived exceptions, the United States 
     generally managed to get by without one until 1913. An income 
     tax was levied during the Civil War, but it was dropped after 
     a few years. Congress passed a 2 percent income tax on 
     individuals and business in 1894, but it was ruled 
     unconstitutional. The Constitution barred the federal 
     government from levying direct taxes except in proportion to 
     population. In 1913, the 16th Amendment to the Constitution 
     changed the rules, and an income tax was instituted.

  Shortly after the Sixteenth Amendment was ratified in 1913, Congress 
passed the first income tax law. The Internal Revenue Service, then an 
obscure government agency, enforced the new law and collected the 
income taxes.
  Back then, the taxpayers got to keep most of their earnings. In 1913, 
the income tax rate of 1 percent applied only to those making over 
$3,000 per year. Those making more than $20,000 paid a slightly higher 
surtax. The highest rate of seven percent was imposed on all income 
above $500,000. According to Peter Cleary of Americans for Tax Reform, 
in 1994 dollars, the one-percent income tax would apply on all income 
up to $250,000, while the seven percent rate would apply only to income 
above $6 million.
  Few people had to file returns in 1913. Only about 1 in 250 Americans 
did.
  Moreover, the original Form 1040 was brief and simple. As noted in 
yesterday's Washington Post Magazine, it consisted of just four pages, 
including one of instructions, and you would have finished calculating 
your income by Line 7.
  Since 1913, things have gotten more than a little out of hand. 
Consider these statistics:
  Close to half of all Americans file a tax return today. Instead of 
one form, there are many.
  According to economist J.T. Young, the average family pays about 25% 
of its income in Federal, state and local taxes, and ``30 percent of 
every additional dollar earned by a four-person median income household 
of $55,000 will go to pay taxes. Individuals and families earning 
$50,000 and above already pay 82 percent of total taxes and 91 percent 
of income taxes.''
  The average middle-income taxpayer now has to work until at least May 
of each year just to meet all the federal, state and local taxes due.
  The Tax Foundation has estimated that collectively, individuals 
devote close to 2 billion hours to preparing tax returns each year.
  It's no wonder that Americans dislike the current tax code. It is 
unnecessarily complex and overly burdensome.
  Some of my constituents are especially upset about the fact that tax 
revenues last year grew 9 percent, or twice as fast as the economy. 
Consider these comments from a man in Exeter, New Hampshire:

       I have been reading and hearing about the tremendous budget 
     surpluses we can expect over the next ten years. . . . Where 
     is this money coming from and who authorized collecting it? 
     It seems to me that if the government has a surplus it's 
     because they're collecting more than they're spending. If 
     that's the case, why are they collecting more than they're 
     spending? I hope you realize that things like this are what 
     disenfranchise American citizens from their government.

  How did we get to this point? Much of the blame lies with Congress. 
We have changed the Federal tax code many times since 1913, turning it 
into a tangled cobweb that few can understand. The changes have become 
more complex and the tax rates have increased over the years.
  What can we do about it? We can abolish the existing tax code and 
promptly adopt a new one that adheres to some basic rules:
  First, we should have a tax code that is simple and fair.
  Second, our tax code should encourage savings and investment. The 
current code distorts investment by creating incentives for Americans 
to use tax loopholes, rather than invest their money in more profitable 
ways.
  We should provide greater tax relief to the overburdened American 
taxpayers. Tax cuts would provide American workers with more incentives 
to produce, because workers would be able to keep more of their 
earnings.
  In closing, Mr. President, I want to urge my colleagues to support 
the Tax Code Termination Act.
  Mr. President, I yield the floor.
  Mr. GRAMS. I thank my colleague from New Hampshire for talking about 
the creative ways of taxing. This Congress has been so creative in 
figuring out new ways to tax; I hope we can be creative in figuring out 
ways to get rid of the tax.
  Mr. President, I know we are out of time. I thank you very much. I 
yield back the remainder of our time.
  The PRESIDING OFFICER. The Senator from Ohio.

[[Page 3831]]



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