Monday, March 06, 2006


Statement of John William Kurowski
Founder Of The
American Constitutional Research Service
Before the
Committee on Ways and Means
United States House of Representatives

June 1995

Mr. Chairman and Members of this Committee:

The subject of tax reform was extensively debated by the Founders of our country. I do not know if other participants in these Hearings have take the time to research the accounts of these historical debates when formulating the suggestions they will present to this Committee, but, having researched the Founders' original tax reform package, I am inclined to believe its fundamental principals are as valid today as when they were put into practice over two hundred years ago.

Our nation's first revenue raising Act was " a certain sense a second Declaration of Independence; and by a coincidence which could not have been more striking or more significant, it was approved by President Washington on the fourth day of July, 1789." [See, Twenty Years of Congress, James G. Blaine, 1884, Vol. 1, page 185]

James Madison, in discussing this Act before Congress identified a fundamental principal concerning the power delegated to Congress to lay and collect taxes:

"...a national revenue must be obtained; but the system must be
such a one, that, while it secures the object of revenue it shall not be
oppressive to our constituents."

The Act went on to imposed taxes, not on Congress' constituents, but on specific "goods, wares, and merchandise, imported into the United States", and not one dime was raised under the Act by internal taxation! Internal taxes were frowned upon by the Founders, especially when a national revenue could be had by requiring foreigners to pay for the privilege of doing business on American soil!

Jefferson, in his Second Annual Message (December 15, 1802) states:

"In the department of finance it is with pleasure I inform you
that the receipts of external duties for the last twelve months have
exceeded those of any former year, and that the ratio of increase has
been also greater than usual. This has enabled us to answer all the
regular exigencies of government, to pay from the treasury in one year
upward of eight millions of dollars, principal and interest, of the
public debt, exclusive of upward of one million paid by the sale of bank
stock, and making in the whole a reduction of nearly five millions and a
half of principal; and to have now in the treasury four millions and a
half of dollars, which are in a course of application to a further
discharge of debt and current demands." [emphasis added]

Imagine...all this in consequence of "external duties"!

In Jefferson's Second Inaugural Address (March 4, 1805, he points out:

"At home, fellow citizens, you best know whether we have done well
or ill. The suppression of unnecessary offices, of useless
establishments and expenses, enabled us to discontinue our internal
taxes. These covering our land with officers, and opening our doors to
their intrusions, had already begun that process of domiciliary vexation
which, once entered, is scarcely to be restrained from reaching
successively every article of produce and property...

"The remaining revenue on the consumption of foreign articles, is
paid cheerfully by those who can afford to add foreign luxuries to
domestic comforts, being collected on our seaboards and frontiers only,
and incorporated with the transactions of our mercantile citizens, it
may be the pleasure and pride of an American to ask, what farmer, what
mechanic, what laborer, ever sees a tax-gatherer of the United States?"
[emphasis added]

Although the national sales tax proposals appear to be somewhat fairer than existing taxation, each would do ill to our nation as they are all based upon internal taxation, which would ultimately increases the cost of goods manufactured on American soil; burden the American Citizen in its collection; and, are to be paid by the "farmer, mechanic, laborer", etc., who will continue to see the intrusion of the "tax-gatherer of the United States" if such a system is adopted!

In view of the undesirable effects of an internal national sales tax, perhaps it is wise to further study the Founder's plan and learn how imposts and duties (external taxation) were successfully used to fill the national treasury, encourage domestic manufacturing and assist in building a strong industrial base.

In addition to imposing a specific amount of tax on specific articles of
consumption imported, the first revenue raising Act also imposed an across- the-board tax on imports which was higher for imports shipped in foreign owned foreign built vessels, and discounted the tax for imports arriving in American owned American built ships:

"...a discount of ten percent on all duties imposed by this Act
shall be allowed on such goods, wares, and merchandise as shall be
imported in vessels built in the United States, and wholly the
property of a citizen or citizens thereof."

This patriotic and skillful use of external taxation not only filled our national treasury, but gave American ship builders a hometown advantage and predictably resulted in America's merchant marine becoming the most powerful on the face of the planet. Unfortunately, today when I visit the docks in New York's Hell's Kitchen area, I am saddened that I can no longer read the names on the docked ships as they all seem to now be foreign owned foreign built irrefutable sign of America's decline traceable to the acceptance of thirty pieces of silver.

Yes, there was a day when our national treasury was gladly filled by foreigners paying for the opportunity to do business on American soil. But this was when members of Congress, and those running for Office, put American interests first and would have considered the NAFTA, GATT and the WTO as acts of sedition, and would have tarred and feathered those participating in the surrender of America's sovereignty.

A national sales tax plan which omits external taxation is a principal source to fill our national treasury, is in fact a surrender of national sovereignty to the advantage of foreign interests!

A Second Source To Fill The Treasury

Having identified imposts and duties (external taxes) as being the
Founder's intended primary source to fill our national treasury, I will now
turn to their intended internal consumption tax plan.

An across the board national sales tax would unquestionably increase the
cost of production on American soil, as previously pointed out. To avoid
this, and other unwanted effects of an across the board national sales tax,
common sense dictates we must exclude from the list of taxable items, tools of production, supplies necessary to conduct business, services needed to sustain business, and the necessities of life (food, shelter, clothing, medical expenses) i.e. all those items which makes labor possible must also be excluded.

In simple language, a consumption tax plan ought to be limited to articles of luxury, and each article must be individually selected by Congress and the appropriate amount of tax must be determined for each specific item chose, just as was done in the first revenue Act of our country!

By limiting the tax to articles of luxury, and requiring each article to be specifically chosen and the appropriate amount of tax determined by Congress, a self regulating check and balance is imposed upon Congress. If Congress does its job properly and the nation as a whole is productive and prosperous, the purchase of articles of luxury will undoubtedly increase, and with it, the flow of revenue into the common treasury! But, if Congress' policies become burdensome and its regulatory requirements upon business, industry and our nation's labor force inhibit a hearty economy, or any particular article is excessively taxed, the first sign would be in a decline in the flow of revenue into the national treasury!

Thus, the free market place determines the limit of taxation under the
Founder's internal consumption tax plan, and it establishes a self regulating
gauge beyond the reach of Congress' manipulation!

As Hamilton said, in regard to taxes on consumption, they:

"... may be compared to a fluid, which will in time find its level
with the means of paying them. The amount to be contributed by
each citizen will in a degree be by his own option, and can be
regulated by an attention to his own resources. The rich may be
extravagant, the poor can be frugal; and private oppression may
always be avoided by judicious selection of objects proper for
such impositions ... It is a signal advantage of taxes on articles
of consumption that they contain in their own nature a security
against excess. They prescribe their own limit, which can not be
exceeded without defeating the end proposed that is, an extension
of the revenue." [No. 21 of the Federalist, emphasis added.]

Balancing the Budget

Still one more question remains to be answered: what is to be done if insufficient revenue is raised from external and internal taxes on consumption?

Once again the Founder's plan shines bright above all contemporary suggestions. Careful research into our Nation's early legislative history reveals the Framers did in fact provide Congress with an emergency power to be used if deficits should arise. And the wisdom of the Framer's method, unlike the proposed balanced budget amendment (S.J. RES.1), contains a brilliant mechanism which would abruptly end Congress' current profligate spending habits!

Under the Framer's plan, whenever the monies arising from Congress' normal taxing powers (imposts duties and excises) are found insufficient to fund federal expenditures during a fiscal year, and a deficit is produced by Congress borrowing to finance expenditures, Congress must then use its direct taxing power at the beginning of next fiscal year to raise an amount sufficient to retire this deficit.

Congress is required to follow the rules of apportionment when imposing this tax, and bills each state for a share of the deficit. Each State must contribute a share of the total deficit in proportion to its allotted number of Representatives as set forth in Article I, Section 2, clause 3, of the United Constitution. The more votes a State exercises in the House, the larger is its share toward extinguishing a deficit . . . representation with proportional obligation!

The chart below is based on a total House membership of 435:


NEW YORK.............31.................................31/435's

EDITOR'S NOTE: the fair share formula may be expressed as follows:

State`s population

--------------------------- X SUM TO BE RAISED = STATE`S SHARE

Total U.S. Population

The states are left free to raise their share of the tax in their own way, within a time period set by Congress. But if any state shall neglect to pay its share, then Congress must send forth its officers to assess and levy that state's apportioned share, together with interest thereon.

Legislative History

This method of extinguishing deficits appears in seven of the ratification documents which gave life to the United States Constitution. The first emergency direct tax was imposed in 1798, to extinguish part of the Revolutionary War debt. It was later used during the War of 1812, and also to extinguish deficits during the Civil War.

The Sixteenth Amendment to the United States Constitution did not repeal or alter Congress' power, or obligation, to impose the emergency direct tax should a deficit arise. The power of Congress to impose a direct tax still exists, and direct taxes are still required to be apportioned among the states, as pointed out by the United States Supreme Court [see Stanton v. Baltic Mining Co., 240 U.S. 103, 103, (1916; Eisner v. Macomber, 252 U.S. 189 (1920); and, Bromely v. McCaughn, 280 U.S. 124 (1929). Also see Congressional Research Service Report No. 84-168 A 784/275, which was updated September 26, 1984].

Big Advantages

There is no smoke and mirrors with the 'FAIR-SHARE' method of balancing the budget. The emergency direct tax is required to be imposed whenever Congress closes a fiscal year with a deficit. The structural mechanism which would immediately bring fiscal sanity to Congress is the requirement of having Congress send a bill to the governor of each state, notifying him to remit his state's apportioned share toward extinguishing the deficit created during the year by Congress; the governors and state legislators being left with the burden of having to raise this money, and to send it off to Washington, D.C.

Picture, for a moment, the expression on the faces of the Governor of New York and the New York State Legislature, if New York should receive a bill for its apportioned share [31/435] of the 1995 federal deficit. This threat would create a compelling incentive for the Governor of each state, and the various state legislatures, to keep a jealous eye on the spending habits of their Congressional Delegation . . . it would require the fiscal accountability which the state governments once demanded from their Senate and House Members!

In addition, because each state's share of the tax burden is determined by a fixed rule, similar to that which determines the House membership size of each state, a barrier is erected preventing the kind of mischief which Congress now practices, i.e., discriminatory tax legislation; pork-barrel favoritism; special interest lobbying, etc.

Bottom Line

The Framers of the Constitution provided a specific method to extinguish anticipated deficits through an emergency direct tax. Hamilton, in No. 36 of The Federalist Papers, reminds us:

"Let it be recollected that the proportion of these taxes is
not to be left to the discretion of the national legislature, but
is to be determined by the number of each State, as described in
the second section of first article [United States Constitution].
An actual census or enumeration of the people must furnish a rule,
a circumstance which effectively shuts the door to partiality or
oppression. The abuse of this power of taxation seems to have
been provided against with guarded circumspection." (EMPHASIS

The rule of apportionment was written into our constitution to remedy a major defect associated with "democracies", which Madison points out in No. 10 of The Federalist Papers:

"... have ever been spectacles of turbulence and contention; have
ever been found incompatible with personal security or the rights
of property; and have in general been as short in their lives as
they have been violent in their deaths."

And so, the Founding Fathers formed a Constitutional Republic to avoid
the predictable disastrous consequences of democracy.

The intended use of the emergency direct taxing power to extinguish
deficits is not only far superior to any of the proposed balanced budget
amendments being offered . . . it is already part of our Constitution. The
method in text form is as follows:

The Fair Share Balanced Budget Method

"A R T I C L E (?)"

"SECTION 1. Congress ought not raise money by borrowing, but when the money arising from imposts duties and excise taxes are insufficient to meet the public exigencies, and Congress has raised money by borrowing during the course of a fiscal year, Congress shall then lay a direct tax at the beginning of the next fiscal year for an amount sufficient to extinguish the preceding fiscal year's deficit, and apply the revenue so raised to extinguishing said deficit."

"SECTION 2. When Congress is required to lay a direct tax in accordance with Section 1 of this Article, Congress shall immediately calculate each State's apportioned share of the tax based upon its number of Representatives as allotted by the Constitution, and then notify the Executive of each State of its apportioned share of the total tax being collected and a final date by which said tax shall be paid into the United States Treasury."

"SECTION 3. Each State shall be free to assume and pay its quota of the direct tax into the United States Treasury by the final date set by Congress, but if any State shall refuse or neglect to pay its quota, then Congress shall send forth its officers to assess and levy such State's proportion against the real property within the State with interest thereon at the rate of ((?)) per cent per annum, and against the individual owners of such property. Provision shall be made for a 15% discount for those States paying their share by ((?))of the fiscal year in which the tax is laid, and a 10% discount for States paying by the final date set by Congress, such discount being to defray the States' cost of collection."



There are participants at this Hearing, and many political pundits appearing on talk shows across our country, who are far more articulate than I in identifying the glaring defects and dishonest nature of income taxation, whether flat or progressive. Likewise, there is also an abundant supply of those presenting well rehearsed arguments against an across the board national sales tax, and have displayed their rhetorical skills quite admirably. But who, I ask, has made a substantial argument against the Founding Father's original tax reform package?

Perhaps our only problem in regard to tax reform is that we, as a nation, have lost touch with the original intent and wisdom of those who framed and ratified our Constitution...such negligence culminating in our current dilemma.

In closing Mr. Chairman, I would like to take this time to thank you and your staff for allowing me this opportunity to present my humble opinion on a subject of such great importance.