Tax Analysts Blog

The Income Tax Is Inquisitorial -- Get Over It

Posted on Jan 29, 2013

Apparently, the Italians have found a way to make their unpopular income tax even more unpopular. In the face of rampant cheating, they've adopted a new enforcement technique. Now, instead of just pawing through paychecks, bank statements and the like, officials will also scrutinize spending habits. Living beyond your means (or at least means as reported to tax officials)? Expect a visit from the tax man.

This strikes me as pretty much intolerable. It's bad enough to have tax officials digging through all the ways you try to earn a little scratch. Now they want to see how you fritter it away, too. That could get embarrassing. (Nightmare scenario: "Excuse me, sir, but your spending on Viagra seems out of line with your income/age/marital status/attractiveness.")

But truth be told, this is only an incremental increase in the intrusiveness of the income tax. From the start, people have complained that taxing income thrusts the government into our personal lives. "Congress went well toward the limits of its constitutional functions, in the estimation of many good lawyers, in the enactment of this law," complained the Washington Post in 1914, "which grants inquisitorial powers that in the hands of careless officials could prove a menace to the country."

In fact,complaints about inquisitorial tax collectors were already old hat in 1913, having been aired at length during the Civil War experiment with taxing income. From a critic in 1870:

    Those who pay are the exception, those who do not pay are millions; and the whole moral force of the law is a dead letter. The honest man makes a true return; the dishonest hides and covers all he can to avoid this obnoxious tax. It has no moral force. This tax is unequal, perjury-provoking and crime encouraging, because it is at war with the right of a person to keep private and regulate his business affairs and financial matters. Deception, fraud, and falsehood mark its progress everywhere in the process of collection. It creates curiosity, jealousy, and prejudice among the people. It makes the tax gatherer a spy.

Basically, income taxes require vigorous enforcement. If people don't like that sort of heavy handed tax collection, then there are always options with (arguably) less intrusive procedures. (Although ask small business owners how they feel about sales tax collection procedures before you start getting excited about ditching the income tax.)

In any case, for at least 100 years, Americans have endorsed the income tax by voting for the lawmakers who enact and maintain it. Inquisitorial taxes are bad, but apparently not so bad that we want to abandon this, our most progressive tax. Fairness isn't free -- but so far Americans have been willing to pay the price for it.

Read Comments (3)

Rusty SteeleJan 29, 2013

Isn't that how they nailed Al Capone back in the 1920s? His lifestyle and
spending weren't consistant with zero income?

Joseph J. ThorndikeJan 29, 2013

That was part of it, I think. More broadly, the IRS has been known to use these kinds of tactics in relatively recent years. As I recall, they were called "financial status" audits, although they were probably better known as lifetstyle audits. Not popular, as you might imagine -- not with taxpayers and not with Congress. And supposedly no longer used.

lucas rachubaJan 30, 2013

"In any case, for at least 100 years, Americans have endorsed the income tax by
voting for the lawmakers who enact and maintain it"

No doubt. They also "endorsed" the military-industrial complex and plenty of
other things that don't change from Congress to Congress.

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