My friend and colleague Jeffrey Herbener, who teaches American Economic History, brought to my attention that while the original 1913 tax law stipulated a bottom rate of 1% and a top rate of 6%, by 1918, the bottom rate was 6% and the top rate was a whopping 77%. Such was the consequence of the Progressives' and Woodrow Wilson's need to finance their Great War.
The moral of the story is to never assess a new tax, no matter how low and how temporary it is claimed to be.
Our current tax regime is destructive of both economic prosperity and sound morality. In the first place, it leads to massive capital consumption which reduces productivity and therefore our standard of living. As I explain in my book, Foundations of Economics:
Because of higher taxes, people have less of their income to save and invest. There is a decrease in the capital stock to the extent that the state is successful in collecting the increased taxes. Less capital results in lower labor productivity, lower wages and incomes, and results in fewer goods available to society. At the same time that people have less income to save and invest, they also have less incentive to save and invest what disposable income they have left because interest income from such investment will be taxed as well.
Additionally, increased taxes provide an incentive for the development of what is called the underground economy. The underground economy is the network of voluntary exchanges that take place in ways that are unreported and undocumented to the taxing authority. As taxes on incomes increase, more and more transactions are undertaken for cash or barter, so that no record of a sale and no record of income are evident to the government. If the government does not know of income earned, it is difficult to tax.
At the same time, our current confiscatory income tax violates the Eighth Commandment (Thou Shalt Not Steal). As the Westminster Shorter Catechism teaches in Question and Answer 74:
Q. 74. What is required in the eighth commandment?
A. The eighth commandment requireth the lawful procuring and furthering the wealth and outward estate of ourselves and others.
Happy Tax Day!