To attempt to understand the budget expenditure and tax rates debate is to embark on a complex journey that leads to a vague end. First some background: In 1913 the US Congress added the Sixteenth Amendment to the Constitution. The thirty words of the Sixteenth Amendment were a short but extremely powerful addition to the Constitution. 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".
By its language the Sixteenth Amendment seems rather innocuous. It says nothing about a graduated income tax; it sets no upper limits or tax brackets; it does not mention tax on capital gains, payroll, or projected (imaginary) earnings or allocating the revenue collected from such taxes to fund off-budget items. Most important, the Amendment says absolutely nothing of creating the IRS to administrate all the revenue the direct income tax promised to bring into the federal Treasury.
But the world of 1913 was not the world of 2001. The 63rd Congress which presented the Amendment could not envision the extent the institution it created to oversee the new tax would take on a life of its own. In 1913 when the Sixteenth Amendment gained legal effect, most Americans paid no income tax, and the top rate was 1%. Eighty years later the 1993 Clinton budget plan introduced the single biggest tax increase in American history. Two years later the Congress cut those $265 billion of increases by $245 billion. Now at the urging of President George W. Bush, Congress will approve a $1.35 trillion set of tax cuts.
The IRS gained real powers during the 1930s when income tax funds were poured into social programs like Social Security and other welfare entitlements that now are given the unobtrusive collective label "off-ticket items" or "off-budget entitlements". These entitlement programs absorb the most government spending with much less desirable results than the money given them indicates they yield.
Entitlement programs grew consistently and proliferated from the 1930s through the 1960s. Fearing the prospect of increasing debt, the Eisenhower administration substantively lowered defense spending but expanded Social Security and other entitlement benefits. To his credit, President Eisenhower was the last American President to take the problems of national debt seriously. As the conflict in Vietnam deteriorated, defense spending increased to meet the needs required of it. As part of its nuclear disarmament agenda and its belief that Vietnam was the last war American soldiers would ever fight, the Carter administration drastically lowered defense spending and grew entitlements to negate the savings. In 1980 when the Kemp/Roth plan was proposed, the top tax rate was 70%.
