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CONSTITUTIONAL
RIGHTS FOUNDATION
Bill of Right in Action Spring
1995 (11:3) Historical
and Current Proposed Bill of Rights in Action focuses on historical and current proposed changes in the way the federal government operates. The first article examines the federal deficit and debt and probes whether a balanced budget amendment is needed. The second article tells the story of the 16th Amendment, which permits an income tax, and explores how some would like to change the income tax today. The third article focuses on another current proposal for changing the federal government—congressional term limits. U.S. Government: The Balanced Budget Amendment U.S. History: The Income Tax Amendment U.S. Government: Term-Limits Debate Should America Balance the Federal Budget? In 2001, the federal government will spend about $1.8 trillion ($1,800,000,000,000). Since it will receive about $1.98 trillion in revenues, the government's budget is predicted to run a surplus of about $184 billion. The federal surplus is the amount that a year's revenues exceed spending. In 1998, the Federal budget reported its first surplus since 1969. In 1999, the surplus nearly doubled to $124 billion. However, every year between 1969 and 1998, the federal government ran a deficit. A deficit is the amount that a year's spending exceeded revenue. The accumulated amount borrowed over the years is over $5.5 trillion. This is the national debt. Of course, borrowed money including interest has to be paid back. Servicing the national debt has become an important part of each year's federal budget. It is projected that the Government will spend 11 percent of its budget to pay interest on the debt in 2001. While this percentage is lower than it has been in recent years, there are those who still voice concern about the debt. Many of them fear that the government will revert to deficit spending. Is deficit spending dangerous? Economists have different views on this issue. "Deficit Hawks" and "Deficit Doves" Some economists, known as "deficit hawks," believe that a reversion to deficit spending would pose a major problem. They argue that running deficits would lead to even larger annual debt payments. To make these high payments, the government would have to increase taxes or eliminate popular government programs like Social Security. The inevitable result would be a steady decline in the standard of living for future generations of Americans. To prevent this, they believe that deficits must be avoided. Other economists, known as "deficit doves," believe that federal deficit spending and debt are both healthy for the economy. They argue that the national debt must be compared to national wealth. In particular, it should be compared to the Gross Domestic Product (GDP)—the total amount of wealth the country produces in one year. In 1946, while the national debt was only about $270 billion, it amounted to more than 100 percent of GDP. Today, although the national debt is far higher, it amounts to only about 50 percent of GDP. The percentage has dropped because the economy has grown faster than the national debt. Deficit doves further believe that deficits often help the economy to grow. For example, during the Great Depression of the 1930s, businesses failed, millions lost their jobs, tax revenues plummeted, and the economy was in shambles. Investors feared putting any money into businesses. The economy didn't fully recover until the government started massive deficit spending to finance World War II. At the war's end, many predicted the large debt would lead to stifling inflation. Instead, it led to the prosperous decades of the 1950s and 1960s. Many deficit hawks agree that deficit spending can spur economic growth in a depressed economy. But they fear deficits that are too large in relation to economic growth. They point to the decade of the 1980s, when the economy boomed. During this period, the national debt as a percentage of GDP grew from about 25 percent to more than 40 percent. Both deficit hawks and doves want the next generation to avoid economic troubles. The hawks believe trouble will come if we revert to deficit spending. Doves believe trouble will come if the federal government does not start spending more on the nation's infrastructure—its transportation, education, and communication systems. It is not easy to run a balanced budget since it usually entails tax raises, cuts in federal spending, or a combination of both. Since most Americans believe that their taxes are already too high, few politicians today would argue for tax increases. This leaves cutting government spending. But does Congress, or for that matter the American people, have the will to make major reductions in federal government spending for years to come in order to eliminate the federal debt? The Balanced Budget Amendment Attempts to pass a constitutional amendment requiring Congress to balance the federal budget began during the Great Depression. At that time, the national debt was about $50 billion, a small fraction of what it is today. Since then, balanced budget amendments have been introduced in Congress 11 times, including in 1995. On January 26, 1995, the balanced budget amendment passed the House, 300-132, with 10 votes more than the two-thirds majority needed to pass a constitutional amendment. Action then shifted to the Senate. Most Senate Democrats opposed the amendment for a number of reasons. Some argued that since President Clinton and the previous Democratic-controlled Congress had already started the process of reducing the deficit, changing the Constitution was not needed. Others wanted a guarantee that Social Security would not be included in the cutbacks necessary to balance the budget. Democratic critics also demanded to know what would happen in the event of a recession or series of natural disasters, which would greatly increase the need for federal relief. On March 2, every Republican senator except one, along with 14 Democrats, voted to approve the balanced budget amendment. But supporters still fell one vote short of getting the necessary two-thirds majority and the amendment failed to pass. However, arguments over the federal budget continue to be lively topic of discussion among politicians and citizens alike. For Discussion and Writing 1. What is the difference between the federal deficit and the national debt? 2. What is the disagreement between "deficit hawks" and "deficit doves"? Who do you agree with? Why? 3. Which of the following strategies do you think is the best one to deal with the federal deficit? Why?
4. Do you support the balanced budget amendment? Why of why not? For Further Information A Citizen's Guide to the Federal Budget: This web page, updated yearly by the Office of the President, details how the Government raises revenues and spends money, how the President and Congress enact the budget, and how the government has been able to move from deficit to surplus. U.S. Department of the Treasury: The home page of the U.S. Department of the Treasury. A C T I V I T Y Balancing the Budget: Hard Choices This activity asks you to explore the issue of whether a balanced budget amendment should be added to the Constitution.
The
Income Tax Amendment: Most . . . in this world nothing can be said to be certain, except death
and taxes. In 1913, the 16th Amendment to the U.S. Constitution was ratified. It allowed the federal government to levy an income tax. Most people at the time thought an income tax was a great idea. Before 1913, federal government revenues came mainly from taxes on goods—tariffs on imported products and excise taxes on items like whiskey. The burden of these taxes fell heavily on working Americans, who spent a much higher percentage of their income on goods than rich people did. When a tax takes a larger percentage of a poor person's income than a rich person's income, economists refer to it as "regressive." But in 1913 when Congress passed an income tax law after the ratification of the 16th Amendment, the tax burden shifted to the rich—at least for a while. Roots of the Income Tax Although an income tax was proposed as early as 1812, Congress did not enact one until 1861, when the Civil War began. The enormous costs of waging war had plunged the Union into debt ($75 million in 1861) forcing Congress to seek a new source of revenue. When the Union debt reached $500 million in 1862, Congress next passed the nation's first graduated income tax. Those with an annual income between $600 and $10,000 were taxed at the rate of 3 percent while those earning over $10,000 paid 5 percent. Thus, individuals with more ability to pay were taxed at a higher rate. This graduated tax structure is often called a "progressive" tax. During the war, Congress raised the tax rates. After the war, however, Congress reduced income tax rates and then finally abandoned the income tax altogether in 1872. The federal government once again depended on "regressive" tariff duties and excise taxes as its chief sources of revenue. Several attempts were made in Congress over the next 20 years to restore the "progressive" income tax. Support came largely from Southern and Midwestern populists who attacked the wealthy for flaunting their millions by building mansions and spending extravagantly while barely paying any taxes at all. The election of 1892 produced a Democratic president (Grover Cleveland) along with Democratic control of both houses of Congress. This ended the long reign of the Republicans who had opposed restoring the income tax. In 1894, the Democrats succeeded in passing a 2-percent income tax on those earning $4,000 or more a year, less than 1 percent of the population at the time. Unlike the Civil War income tax, this one was not graduated. Everyone with an income over $4,000 paid the same 2-percent tax rate. This type of income tax is sometimes called a "flat tax." Opponents of the new income tax claimed that it was a socialistic confiscation of wealth by the federal government. Barely a year after it was enacted, the Supreme Court declared the tax unconstitutional. In a 5-4 ruling, the high court decided that the income tax was forbidden by Article I, Section 9, of the Constitution. This prohibits direct taxes on individuals unless apportioned on the basis of the population of each state. The majority of justices ruled against the 1894 tax law even though the Supreme Court had earlier upheld the similar Civil War income tax. [Pollock v. Farmer's Loan and Trust Co. (158 U.S. 601 (1895).] The Income Tax Amendment As the progressive reform movement began to gain strength at the turn of the century, interest in the income tax revived. One of the supporters of the income tax was Cordell Hull, a Democratic congressman from a poor rural district in Tennessee. Hull (who later became President Franklin D. Roosevelt's secretary of state) put together a coalition of progressive Democrats and Republicans. They tried to attach income tax bills to tariff legislation making it more difficult to pass. Most Americans disliked tariffs since they drove up the price of many goods. In 1909, Hull worked out a deal with the Republican president, William Howard Taft. Hull and his allies promised not to stall the passage of tariff laws, while Taft came out in favor of a corporation tax and a constitutional amendment authorizing Congress to enact a federal income tax. A constitutional amendment was necessary because the Supreme Court had struck down the earlier income tax as unconstitutional. But the process of amending the Constitution made this difficult. First, the income tax amendment would have to pass both houses of Congress by two-thirds majorities. Then, three-fourths of the state legislatures would have to ratify it. Only after ratification would Congress have the clear power to pass an income tax law. At first, few thought the income tax amendment had much of a chance surviving a vote in Congress. But the unpopularity of high tariffs eased the amendment through both the Senate and the House. In just a few days during the summer of 1909, the proposed 16th Amendment was approved by the Senate (77-0) and the House (318-14). Thirty-six state legislatures had to ratify the 16th Amendment before it could go into effect. The public and most newspapers seemed to favor it. The main argument for ratification was that the amendment would force the wealthy to take on a fairer share of the federal tax burden that had in the past been largely carried by those earning relatively little. Only a few critics spoke out forcefully against the amendment. John D. Rockefeller, one of the country's richest men, stated: "When a man has accumulated a sum of money within the law. . . the people no longer have any right to share in the earnings resulting from the accumulation." Ratification moved slowly but steadily through the state legislatures. Some of the states had already passed income tax laws of their own in seeking new ways to finance public schools and other social needs. Surprisingly, the income tax amendment drew widespread support in cities and in rural areas alike, from both Democrats and Republicans, and in all geographical regions. Even New York ratified the amendment despite the state's reputation as the capital of "money power" with numerous millionaires among its residents (including John D. Rockefeller). By early 1913, 42 states (six more than needed) had ratified the income tax amendment. Only six states rejected it. "The Fairest and Cheapest of All Taxes" Rep. Cordell Hull introduced the first income tax law under the newly adopted Sixteenth Amendment. He proposed a graduated tax starting with a 1-percent rate for incomes between $4,000 and $20,000 increasing to a top rate of 3 percent for those earning $50,000 or more. The House Ways and Means Committee called upon citizens to "cheerfully support and sustain this, the fairest and cheapest of all taxes. . . ." The first tax collection day under the new law took place on March 1, 1914. Since the average worker earned only about $800 a year, few people actually had to pay any federal income tax. Less than 4 percent of American families made an annual income of $3,000 or more. Deductions and exemptions further shrank the pool of taxpayers. Nevertheless, the federal government collected $71 million that first year. Millionaire John D. Rockefeller alone paid an estimated $2 million. All in all, most Americans thought the new tax was a great idea. One taxpayer wrote to the Bureau of Internal Revenue, "I have purposely left out some deductions I could claim, in order to have the privilege and the pleasure of paying at least a small income tax. . . ." Abolish the Income Tax As We Know It? A few years after the income tax amendment was ratified, the United States entered World War I. As in the Civil War, Congress turned to the income tax to quickly raise large amounts of revenue. In 1917, Congress lowered the standard exemption to $1,000 for individuals thus expanding the taxpayer pool. At the same time, the lawmakers increased the base tax rate from 1 percent to 2 percent. Those earning over $1 million were taxed at the unheard of rate of 50 percent (this rose to 77 percent by the end of the war). With the income tax increases, federal receipts climbed from under $1 billion in 1917 to nearly $4 billion in 1918. At war's end, about 60 percent of federal tax money came from the income tax. It replaced tariff duties and excise taxes as the main source of revenue for the U.S. government. Tax rates were reduced after the war. But Congress had discovered how easy it was to pump enormous amounts of money into the U.S. treasury. Today, more than 80 years after the ratification of the 16th Amendment, the income tax has changed dramatically. Unlike 1913, most Americans today must pay some federal income tax. Instead of the $71 million collected in 1913, the federal government currently collects over $500 billion in income taxes each year (plus another $117.5 billion from corporations). The 15-page tax code has expanded to more than 1,000 pages. And today, more people grumble about paying income taxes. Some critics call for replacing the complicated graduated income tax with a much simpler "flat tax." Others want to abolish the federal income tax entirely in favor of a form of national sales tax. But the fundamental question is the same today as it was in 1913: What is the best way to tax Americans? For Discussion and Writing
A C T I V I T Y What is the Best Tax System? Outlined below are three different ways to tax Americans in order to finance the federal government. For the purposes of this activity, assume that each would be the only federal tax in place and that each would produce an equal amount of revenue. Form small groups to evaluate the advantages and disadvantages of all three types of taxes. After doing this, each group should decide which tax system is the best and report its conclusion, with reasons, to the rest of the class. In evaluating the three taxes, consider the following criteria: "progressivity" vs. "regressivity," simplicity vs. complexity, effect on consumer prices, and overall fairness. Graduated Income Tax Income tax reporting forms, exemptions, deductions, and regulations have grown increasingly complicated since 1913. Under the existing graduated income tax, those with higher incomes pay higher tax rates. ADVANTAGES: DISADVANTAGES: Flat Tax A flat-tax proposal by economists Robert E. Hall and Alvin Rabushka of Stanford University's Hoover Institution would establish a single income tax rate of 19 percent for all individuals regardless of what they earn. No tax would be paid on the first $25,000 earned by a family of four. But virtually all deductions, including mortgage interest, would be eliminated. Tax returns would be completed on a simple single-page form easily processed by the IRS. ADVANTAGES: DISADVANTAGES: Value Added Tax Most European countries raise substantial amounts of revenue with a value added tax (VAT). This is a form of national sales tax collected by the government at every stage that a good is produced and distributed. Manufacturers and businesses add the cost of the tax to the price that the consumer finally pays. Some European countries have a VAT rate of nearly 40 percent. To equal federal revenue now raised by the graduated income tax, the United States would have to have a VAT rate of at least 25 percent. This would show up in substantially higher consumer prices, although some products like basic food items could be exempted or taxed at lower rates. While collecting the VAT from manufacturers and businesses would probably expand the IRS bureaucracy, individuals would have no annual tax returns to file or income tax to pay. ADVANTAGES: DISADVANTAGES: Term-Limits
Debate: Professional Politician Who makes a better lawmaker—a professional politician or a citizen legislator? A professional politician makes a career of serving as a legislator acquiring knowledge, experience, and effectiveness while also gaining seniority. A citizen legislator, on the other hand, serves only a few years in office bringing fresh ideas to do the people's business and then goes home to resume a normal life. In recent years, professional politicians have come under a great deal of criticism. They have been accused of being corrupt, indebted to special-interest groups, and more interested in getting re-elected than working for the people. This cynicism about career politicians has led to demands for term limits—placing legal limits on how long legislators can remain in office. Term limits can take different forms. A legislator could be limited to a certain number of terms for life, or, he or she might be allowed to run again after being out of office for a while. Those now holding office could be required to count the terms they have already served, or, the term counting might start with the next election. Opponents of these restrictions, however, argue that term limits prevent voters from electing whoever they want, which violates the very idea of democracy. Term Limits Over Time Ancient Athens, the world's first democracy, placed a two-year lifetime limit on citizens who served in the Council of 500. Athenians believed this term limit promoted widespread public service and prevented tyranny. During the American Revolution, delegates to the Continental Congress were limited to three one-year terms over a period of six years under the Articles of Confederation. But, when Rhode Island delegates reached the three-year limit, they refused to leave office. After much heated debate, Congress finally dropped the issue and the Rhode Islanders remained. The founding fathers were divided over the principle of "rotation in office," as congressional term limits were then called. Jefferson and Washington favored it; Madison and Hamilton opposed it. Largely because of the unpleasant experience with the Rhode Islanders in the Continental Congress, "rotation in office" never made it into the Constitution. For the first 80 years of our country, however, few members of Congress served more than two terms. But after the Civil War, this changed. Congress organized permanent committees, which were chaired by the members with the most seniority. From then on, the longer a senator or representative served in Congress, the more powerful he or she became. Many members of Congress started serving long careers. Ironically, the first successful federal term limits were not aimed at career politicians in Congress. They were directed at the president. Democrat Franklin D. Roosevelt had managed to get elected to four terms. After World War II, a Republican Congress passed, and three-fourths of the states ratified, the 22nd Amendment to the U.S. Constitution. This placed a two-term limit on the president. Attempts to impose term limits on Congress failed at this time. Term Limits and the States Much of current demand for term limits is a reaction against the continuing re-election of career politicians. Since the end of World War II, incumbent U.S. senators have won re-election 75 percent of the time. In the House of Representatives, the re-election rate for incumbents has been over 90 percent. High re-election rates may simply mean voters are satisfied with their senators and representatives. But it also may mean incumbents have many advantages over their rivals. They have greater name recognition, an office staff paid by the taxpayers, and mailing privileges. They also find it easier to raise large amounts of campaign money from special-interest groups seeking favorable legislation. This is especially true when an incumbent senator or representative chairs an important congressional committee. In 1990, California voters approved a ballot proposition that capped terms in the state Assembly to a total of six years and terms in the state Senate to eight. These are lifetime limits, although a member of one house who reaches the limit there can run for the other house or for federal office. Since 1990, a total of 18 states have adopted state legislative term limits. In 1995, the Supreme Court ruled 5-4 in U.S. Term Limits v. Thorton that adopting similar term limits for federal legislators would require a Constitutional Amendment. Before this decision was reached, 22 states had already adopted term limits for their representatives in Congress. Justice Stevens delivered the opinion of the court, writing that "Allowing individual States to adopt their own qualifications for congressional service would be inconsistent with the Framers' vision of a uniform National Legislature." He specifically cited Article I of the Constitution as the Framer’s definitive list of qualifications – age, residency, and citizenship — for House and Senate members. In a dissenting opinion, Justice Thomas wrote that "Nothing in the Constitution deprives the people of each State of the power to prescribe eligibility requirements for the candidates who seek to represent them in Congress." He argued that the establishment of term limits fell into the category of states’ "reserved powers." The Term-Limits Amendment The American people overwhelmingly support congressional term limits. Opinion polls show 70–80 percent approval ratings. During the 1994 congressional elections, House Republicans proposed a term-limits constitutional amendment in their "Contract with America." After taking control of the House, Republicans led by Speaker Newt Gingrich fulfilled their promise to bring term limits to the floor for debate and a vote. Actually, the House considered four different versions of a term-limits constitutional amendment. The main Republican proposal called for a maximum of six consecutive two-year terms in the House (12 years) and two consecutive six-year terms in the Senate (also 12 years). These would not be lifetime limits. Term counting would begin at the first election after the amendment had been ratified by three-fourths of the states. During the House debate, the majority of Democrats opposed any version of term limits. While most of the Republicans favored at least one of the proposed amendments, some veteran GOP House members rejected the whole idea. "In time of real crisis, we need people of experience," protested 20-year Republican House member Henry J. Hyde (R-Ill.). By contrast, many freshman House Republicans criticized the main GOP proposal for not going far enough. They wanted to cap House terms at three (6 years). Generally, House members in favor of term limits argued that elections would become more competitive, resulting in a Congress based more on merit than longevity. Since legislators would remain in office for relatively short periods of time, they would be more likely to make tough legislative choices and less likely to become dependent on special-interest groups for campaign contributions. The new citizen lawmakers would also be less susceptible to corruption, complacency, and arrogance than "lifetime legislators." The opposition countered that term limits would sweep out both good and bad lawmakers. Those elected to take their place would tend to concentrate on immediate issues rather than what was best for the nation in the long run. By being in Washington for only a few years, senators and representatives would be apt to become overly dependent on government bureaucrats and special-interest lobbyists for information about pending legislation. On the last day of the debate in the House, Rep. Hyde asserted that, "America needs leaders, it needs statesmen and it needs giants—and you don't get them out of the phone book." On March 29, 1995, the House voted 227-204 in favor of the main Republican term-limits amendment. But the vote fell short of the two-thirds majority (290) needed for the constitutional amendment to pass. For Discussion and Writing
A C T I V I T Y Term-Limits Debate In this role-play, the class will debate the merits of the following proposed constitutional amendment:
Officers: Knox Cologne, President; Alan Friedman, Immediate Past President; Publications Committee: Jerome C. Byrne, Chairperson; Paul Cane, Gerald Chaleff, Peggy Saferstein, Marvin Sears, Eugene Shutler, Lloyd M. Smith, Marjorie Steinberg, Lois Thompson, Susan Troy. Staff: Todd Clark, Executive Director; Marshall L. Croddy, Director of Program and Materials Development; Lisa Friedman, Associate Director of Program and Materials Development; Carlton Martz, Writer; Bill Hayes, Editor; Cristy Lytal, Web Editor; Andrew Costly, Production Manager; Carlton Varner, CRF Board Reviewer. © 1995, Constitutional Rights Foundation,
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