After my latest articles, Trickle-up-Taxation vs. Neutral Tax – What’s the differences?, I have been accused, by the author Tom Ryan of the Neutral Tax, of plagiarizing his idea and trying to rebrand it and claim it as my own. This couldn’t be further from the truth. Tom and I came up with a very similar idea, and I focused mine on local reform because on my worldview and constitutional issues that I found on the federal side of reform and sought to avoid those until later as we progressed with Trickle-up-Taxation.
I had never heard of the Neutral Tax before November 3, 2017, when Daniel Horowitz first spoke of it. It was on a Twitter post when I first found out about the Neutral Tax. If I did hear about it before, it was not much before Daniel’s Tweet, and long before my abbreviated version of Trickle-up-Taxation, initially titled State Federalism and Trickle-up-Taxation, was published with TaxNotes in June 2017.
I had considered a federal component of Trickle-up-Taxation but I refrained and solely focused on my original intent of keeping it at the state level because of constitutional issues. As well as the fact that I believe change can only happen through people uprising in the state to take power from their state and then leaving states powerless to take power from the people and thus stripping power from the federal government. Since we are not a direct democracy but a constitutional republic. The closest thing we have to a direct democracy is the ability of the citizenry to enact state constitutional amendments via a ballot initiative. Hence, our ability to pass Trickle-up-Taxation by bypassing the legislature and the corrupt political machine. Thus, opening the possibility of states to enact Article V Convention of States and taking power back from the federal government.
Constitutional issues I found
In a post by the Constitutional Center they state:
The Taxing Clause in Article I, Section 8, grants Congress the broad “Power To lay and collect Taxes, Duties, Imposts and Excises,” but Article I also provides (twice) that a “direct” tax must be apportioned among the states on the basis of population. This means that if a tax is a “direct” tax, a state with one-tenth of the national population must bear one-tenth of the total liability. It doesn’t matter whether one state has lots of whatever is being taxed (such as valuable land) and another state has very little—the states have to bear the burden according to population. That requirement makes direct taxation cumbersome, and often impossible.
For other taxes—the so-called “indirect” taxes—there is no apportionment rule. The Constitution requires only that “all Duties, Imposts and Excises shall be uniform throughout the United States.” This is a relatively easy requirement to satisfy: what’s taxed and the tax rates mustn’t vary from state to state. In the nineteenth century, most of the government’s revenue came from “duties, imposts and excises” on consumption of various goods.
So even though, under the Neutral Tax, we would be indirectly taxing individuals we are directly taxing the states and therefore, it may be a violation of the Taxing Clause of Article 1, Section 2, Clause 3 and Article 1, Section 9, Clause 4 because it is not based on population but a flat tax percentage, regardless of population. The Neutral Tax may be considered an indirect tax on states, but the question is, does income tax generated on the state level fall under “all Duties, Imposts, and Excises?” I’m not sure, I’m not a constitutional scholar, but if the Neutral Tax is implemented, it will be held up in courts for years and could be considered unconstitutional.
Other issues I found. Looking at the 16th Amendment it states, “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Therefore, it seems to me that the 16th Amendment is not meant for expanding the federal government’s right to levy taxes on the states but gives direct taxation on “income” on “individuals.” Therefore, I don’t see how the 16th Amendment can give authority to the federal government to implement the Neutral Tax. I see the Neutral Tax only being implemented via the Taxing Clauses in Article 1 but would have to change to a tax based on population instead of a flat percentage based on state income.
If you take this to be a direct taxation of the individual to utilize the 16th amendment then you might have another constitutional issue. The keyword in the 16th Amendment that we must look at is “incomes.” What constitutes an income? It does say from whatever source derived, but it must be on income.
In the same article by the Constitutional Center they stated:
Still, it is possible that we could in the future have another debate about “direct” versus “indirect” taxes. In Eisner v. Macomber (1920), the Court struck down an unapportioned income tax as applied to certain stock dividends, holding that they effectively fell on property, not income; other cases from the 1920s made similar distinctions. Today, most commentators think those cases are no longer good law, but they haven’t been overruled, and Chief Justice John Roberts favorably cited both Pollock and Macomber in his opinion in NFIB v. Sebelius (2012), which approved the core of Obamacare. If some future Supreme Court decides to impose new limits on Congress’s power to tax, these old characterization questions could reappear.
So if the federal government is taxing say a state like Texas that has no income tax, but a bulk of their tax revenue comes through property tax (approximately 41% of state revenue), will that be off limits to the federal government? A state can impose a property tax, but the federal government under the 16th Amendment cannot tax property, only income.
Regardless, where you fall under the constitutionality of the Neutral Tax, it would find itself in the courts if it was ever implemented.
Conflict Trickle-up-Taxation with Neutral Tax
Other issues I had with the federal version of Trickle-up-Taxation, which was similar to the Neutral Tax, let’s say California and a host of states adopted Trickle-up-Taxation. How would taxes be levied on the states? If most of the money was relegated to the local level and limited on the state level, would the federal government have adequate funding? Cities and counties are not defined in the constitution, and therefore the federal government has no legal authority to tax them. If they did it would be unconstitutional.
So if you had a state like Texas that didn’t have Trickle-up-Taxation and you have California that does. If the federal government comes and says, “We are taking 20% of state revenue.” Isn’t that an unfair burden to place on Texas? California cities and counties would be exempt from these taxes. Only the state’s portion would be available to the federal government.
Also, you can’t say, states with Trickle-up-Taxation must pay 40% and all other states 20%. That would be a violation of the Taxing Clause in Article 1, Section 8. All taxes must be uniform. This is not to say you couldn’t have a sort of progressive or regressive tax scale that could pass constitutional muster, but it would have to be uniform for all states.
Hence, this was another reason that I stayed away from a federal version at this point. With the constitutional issues that I found and the issues of non-Trickle-up-Taxation states would be too much of a hurdle right now and should be sidelined because the focus on change I believe must happen at the local level first, because I do not believe the federal government will willfully give up power.
To avoid these issue I decided that people via a ballot initiative taking power away from the states and states taking power away from the federal government via an Article V Convention of States would be the best way and would not have any constitutional issues since whatever we came up with would be constitutional since it would amend the U.S. Constitution, and therefore we could come up with something like the Neutral Tax that would solve the issues I discussed.
Overall, I am leaning towards a combination of taxing based on population and Duties, Imposts and Excise. This would be more in line with the original intent of the Founders, it would be constitutional, and with technology that we have today the problems of counting populations and collecting is no longer an issue as it was during our founding. I am still open to a Neutral Tax, but that is where I am currently, having thought this through.
Where did Trickle-up-Taxation come from if not plagiarized from the Neutral Tax?
I looked at my home state of California which is a high-tax heaven for big government politicians and looking at the tax code I realized that local municipalities collect the bulk of taxes generated locally were based on sales tax and property tax. This incentives local government to approve the development of centers that produce low-skilled minimum wage retails jobs over high-wage service jobs. It is in the cities best interest because this is how they can maximize revenue generated locally. Also, these centers increase property tax revenue for cities because, commercial retail, on the whole, produces higher property tax values over business centers with higher wage earners. Again, incentivizing municipalities to invest in low-wage job creation.
The other issue I found with the tax code is that is was based on a 20th century model of economics. The tax code was written before the internet and online sales. Amazon and other online retailers are depriving a large chunk of the sales tax revenue away from cities that rely on locally generated sale tax revenue. Therefore, politicians in Sacramento and local politicians are looking at not only increasing sales tax but are looking to tax services (e.g. labor). I wrote an article recently about this called, “Raising sales tax isn’t the answer. There is a better way.”
Therefore, trying to find a solution to this problem and looking at our Federalist system. I looked at how we could go back to our founding principles of local control and incentivizing local municipalities to focus on creating more high-wage jobs, expand freedom, decentralize government, as well as, break the political divisiveness we find in our country today.
Therefore, I looked at the Swiss model of governance. Even though Switzerland is a direct democracy and we are not, I wanted to see what they have done since our Founding Fathers looked at their system as inspiration.
In an article written by Dan Hannan, a British Conservative MEP, in the Washington Examiner, titled, “The Swiss have found the secret of democratic happiness.” He states:
Swiss democracy is direct, decentralized and devolved. Most fiscal decisions are taken locally. Result? Swiss voters are the happiest in Europe, their economy is the freest, and their state budget the smallest. The Legatum Institute ranks the Swiss as the wealthiest people in the world, and the UN says they have the third highest quality of life (after Norway and Australia).
As you can see, this is where the seeds of Trickle-up-Taxation comes from; I looked at the Swiss, which predates the Neutral Tax.
In that same article it quotes our Founding Fathers:
I am a Helvetophile for many of the same reasons as America’s Founders. James Madison was fascinated by the way Switzerland had “no concentered authority, the Diets being only a Congress of Delegates from some or all of the Cantons.” John Adams believed that such a system bred brilliance: “It is not at all surprising, among so much freedom, though among rocks and herds, to hear of literature, and men of letters who are a ornament to their country.” George Mason was entranced by the militia system: “Every Husbandman will be quickly converted into a Soldier, when he knows & feels that he is to fight for his own. It is this which preserves the Freedom and Independence of the Swiss Cantons, in the midst of the most powerful Nations.”
The Founders instinctively grasped that notion, and would be distressed by the extent to which power in the United States has now shifted from the 50 states to Washington and from the citizen to the government. But they’d recognize Switzerland as being the same ornery, freedom-loving country they admired in their own day.
How aptly Patrick Henry’s words still apply. “Those virtuous and simple people have not a mighty and splendid President nor expensive navies and armies to support. No, Sir, those brave republicans have acquired their reputation no less by their undaunted intrepidity, than by the wisdom of their frugal and economical policy. Let us follow their example, and be equally happy.”
Hannan finishes his article, “Good advice, America. It’s not too late to take it.”
I have not and did not steal or plagiarize the Neutral Tax plan, as I stated earlier, I never heard about it until recently. I owe much of my ideas to the Swiss and our Founding Fathers. I stand on their shoulders, not on the Neutral Tax, and I agree with Hannan. It is not too late, and I believe Trickle-up-Taxation is the key to our happiness.
That being said, I have no hard feelings towards Tom Ryan for accusing me of plagiarism and trying to rebrand his idea. I do have constitutional concerns with his plans which I faced when I was developing my idea. I genuinely wish him success in his endeavor to get the Neutral Tax passed. I think it is a brilliant idea and I think we both want the same thing. Limit the federal government and bring local control to America. I just believe my way of implementation has a higher chance of success and will not face the constitutional issues the Neutral Tax will face.
I still see him as an ally in the fight to bring Constitutional Federalism back to America, even though he does not feel the same way about me.