Tax Strike!

– April 2, 2023 Reading Time: 4 minutes

As the deadline to file individual federal income taxes looms, some readers might wonder if they receive sufficient services in return for what they pay. Over the centuries, many Americans have answered that question in the negative, and teamed up with their neighbors to do something about it.

The American Revolution was about taxes at one margin, though at root monetary and budgetary policies were to blame. The Stamp Act seemed onerous to the colonists because there was so little money in circulation in 1765 that squirrel-scalp bounties circulated as money in rural Pennsylvania. Also, the colonists wanted to disburse salaries to Imperial officeholders themselves, because they had discovered the “power of the purse” when confronting intransigent Royal and Proprietary governors over the course of the eighteenth century. Withholding their salaries made them so much more pliable.

Soon after Independence, at least three major rural tax revolts took place (Shays, Whiskey, Fries) and many state and local elections hinged on tax matters. The Civil War was primarily about slavery, but Southerners’ hatred of high tariffs, which enriched Northern industrialists at their expense, were certainly a secondary consideration.

So many Americans rebelled over high taxes, in fact, that in the late nineteenth century, statists rejected the intuitive and venerable “benefit principle” of taxation, which held that taxpayers should pay in proportion to the benefits received, as with use fees and taxes based on the value of real estate under government protection. Statists like Progressive economist E.R.A. Seligman shouted down the benefit principle, arguing instead that taxpayers should pay based on their ability to do so, regardless of what they perceived that they received in return.

“Every one is equally interested in the State,” Seligman wrote, “because he cannot exist without the State. The principle of contribution becomes shifted from that of benefits to that of ability, of faculty, of capacity. Every man now must support the State to the full extent, if need be, of his ability to pay. He does not measure the benefits of State action to himself” [emphasis mine].

Progressives managed to pass a constitutional amendment and establish a federal income tax with so-called “progressive” rates that increase with income. Nevertheless, many Americans did not come to believe that their very existence depended upon the government and wanted something in return for their hard earned cash. They stopped rebelling though, and started legally avoiding or illegally evading taxes by hiding income and/or finding loopholes, which abounded due to the Progressive predilection of trying to use the tax code as a tool of social policy.

Real estate taxes, though, were more difficult to dodge. During the Great Depression, governments pushed hard to collect real estate taxes needed to pay for government programs and make up for declining income tax receipts. Many real estate taxpayers pushed right back. In Manhattan, for example, the West Side Taxpayers’ Association encouraged taxpayers to delay paying until municipal employees’ salaries were cut (the prices of consumer goods had plummeted after all) and their assessments revised to reflect recent real estate market declines.

The greatest Depression-era tax “strike” of them all, though, took place in Chicago. Led by former tax collector and Georgist John Morgan Pratt, the Chicago Association of Real Estate Taxpayers (CARET) rallied 4,000 taxpayers to file protests with the city’s real estate review board on a single day, 29 November 1930. When a lower court ordered the board to review appeals from an estimated 30,000 taxpayers, tax collection efforts shut down for two years.

Bankers, union leaders, and Chicago’s mayor, Anton Cermak, eventually convinced newspapers to refuse the tax strikers news coverage and even paid advertisements, and instead to donate ad space to “Pay Your Taxes Savings Clubs.” Then, in late 1932, the US Supreme Court refused to hear CARET’s test case, exposing the strikers’ tax-delinquent real estate to sheriff sale. By early 1933, many of those who could pay, did, and the strike was broken. That was just in time for the New Deal, which tripled taxes to fund a huge number of experimental government programs that ensured both Franklin Delano Roosevelt’s reelection and continued high levels of unemployment.

Today, no American would dare to attempt a tax strike, much less a tax rebellion, no matter the disconnect between what they pay and what they receive in return, even if, “like a Neanderthal,” they still adhered to the benefit principle. A more serious threat to the Republic is that of rapacious tax collection, like that of the infamous “tax farmers” of France’s Ancien Regime.

After all, a dozen state governments today readily seize and sell real estate worth even a thousand times more than the tax debt due and keep the excess. Moreover, anyone can lose his automobile or home without a criminal conviction if a little bit of the wrong substance magically appears in the asset during a law enforcement search. And there is little anyone can do to thwart collection of the most insidious tax of all: inflation.

The American Bar Association assures Americans that the planned 87,000 new Internal Revenue Service (IRS) agents will not bust through your door this year, because it takes a couple of years to train them up, the labor market remains tight, and IRS human resources practices are very good but necessarily slow. Moreover, for political reasons, the beefed-up IRS probably will not cause serious trouble until processing 2024 returns in 2025. Unless, that is, taxpayers rebel the only way they still can, via the electoral process, starting with candidate selection.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.