Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
July 29, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2443 words
HEADLINE:
TESTIMONY July 29, 1999 THOMAS A. SCHATZ PRESIDENT HOUSE
JUDICIARY COMMERCIAL AND ADMINISTRATIVE LAW TAXES IMPOSED BY FEDERAL AGENCIES
BODY:
Testimony of Thomas A. Schatz, President
Citizens Against Government Waste before the House Judiciary Subcommittee on
Commercial and Administrative Law Thursday, July 29, 1999 Mr. Chairman, members
of the subcommittee, thank you for the opportunity to testify today. My name is
Thomas A. Schatz. I am president of Citizens Against Government Waste, a 600,000
member nonprofit organization dedicated to eliminating waste, fraud and abuse in
government. Citizens Against Government Waste has not received at any time any
federal grant and we do not wish to receive any in the future. Citizens Against
Government Waste (CAGW) believes the Taxpayer's Defense Act addresses a matter
of the utmost urgency -- preventing unelected bureaucrats from imposing
taxes on the American people. Article 1, Section 8 of the
Constitution clearly states: "The Congress shall have power to lay and collect
taxes, duties, imposts and excises." With this
concise sentence, the founding document of our government clearly states that
Congress alone has the power to tax. The interests of the
taxpayer have always been of paramount concern in this country. The American
Revolution was fought in part to ensure our right to be free from burdensome and
unfair taxation. The events leading up to that war and the Declaration of
Independence generated the seminal phrase "No Taxation Without Representation" -
a statement as valid today as it was more than two centuries ago. There is no
governmental action that has as profound an impact on the common person as
taxes. Today, the tax burden on our economy is
the highest in peacetime history. The average American family pays more in
taxes than on food, clothing and shelter combined. With
taxes robbing us of so much of our annual income, Americans
cannot help but be concerned about why they are being taxed and by whom.
Involved in this concern is the desire to ensure that the taxes
that are imposed are fair, equitable and just. Taxes that are
imposed by governmental agencies without the authority of Congress do not meet
these criteria. Without congressional approval of a taxing policy, there is
little oversight on agencies imposing unauthorized taxes, which
leaves the door wide open for abuses of power. In the words of Alexander
Hamilton in the Federalist Papers #36: There is no part of the administration of
government that requires extensive information and a thorough knowledge of the
principles of political economy so much as the business of taxation. The man who
understands those principles best will be least likely to resort to oppressive
expedients, or to sacrifice any particular class of citizens to the procurement
of revenue. It might be demonstrated that the most productive system of finance
will always be the least burdensome. There can be no doubt that in order to be a
judicious exercise of the power of taxation, it is necessary that the person in
whose hands it is should be acquainted with the general genius, habits, and
modes of thinking of the people at large and with the resources of the country.
It is for precisely the reasons stated by Alexander Hamilton that Congress was
granted the exclusive Constitutional power to levy taxes. As
representatives of the citizens of the United States, members of Congress are in
the best position to speak to the needs and desires of all Americans. As
popularly elected officials, members of Congress must have some concern for how
their policies affect their constituents. Knowing that they are up for
re-election every two years, they are less likely to abuse their powers for fear
of being turned out of office. Also, members of Congress feel some affinity
toward and a sense of accountability to their constituents. It is this lack of
implicit accountability to the American people that makes giving taxation power
to non-elected officials such a dangerous prospect, to say nothing of its
dubious constitutionality. While an elected official must worry about being
re-elected, a non-elected official doesn't have those concerns. As long as that
person achieves the desired goals of his or her organization, job security is
assured. These are the policy reasons for preventing bureaucrats from taxing
citizens. The constitutional authorities are even more compelling. Two recent
cases have made it clear that under Article 1, Section 1 of the Constitution,
lawmaking functions cannot be delegated. The Supreme Court, in 1996, declared in
Loving v. U.S., that "the lawmaking function belongs to Congress. . .and cannot
be conveyed to another branch or entity." The Court also found the line-item
veto to be an unconstitutional transfer of lawmaking authority to the president,
and overturned the law. The line-item veto permitted the president to cut
spending and eliminate taxes after bills were passed by
Congress, and while one may argue with the decision, it is consistent with the
Loving case and consistent with the provisions of the Taxpayer's Defense Act.
The problem being addressed by your legislation, Mr. Chairman, is one of
Congresses' own making. The line-item veto legislation, while well intentioned,
was essentially an admission that Congress could not control its own spending
habits, and therefore needed help from the president. While that law was in
effect, the result, while disappointing in its meager exercise by President
Clinton, was in fact to reduce wasteful spending. A more recent example of
passing its duties to the executive branch is the Universal Service
Tax. On May 27 of this year, the Federal Communications
Commission voted to increase this tax by about $1 billion. In
addition, the FCC adopted a rule that would bar telephone
companies from separately itemizing this tax in order to hide
its actions from the taxpayers. This is deception and subterfuge at its worst.
This entire catastrophe could have been avoided if Congress had simply passed a
bill that excluded the FCC from the line of decision making, and had designated
the agency as the administrator of a constitutional user fee or
tax to increase the number of schools with Internet access,
instead of giving the FCC the ability to create the tax. In
addition to imposing a massive tax, the FCC created two
nonprofit entities that the General Accounting Office has found to be
unconstitutional and at risk for waste, fraud and abuse. The Taxpayer's Defense
Act would restore constitutional balance and authority by requiring
congressional approval for any rule that establishes or raises a
tax before said rule could take effect. This would prevent
agencies from directly establishing or raising taxes, while
providing them with an avenue to advance proposals to Congress. What makes this
bill so important is that the American people are already suffering from the
imposition of the FCC's Universal Service Tax. Universal
service -- the idea that everyone should have access to affordable
telecommunications services -- is certainly a noble and beneficial idea. The
problem arises from the effect of the 1996 Telecommunications Act on the idea of
universal service. This act allowed the FCC to extend universal service funds to
provide "discount telecommunications services" to schools, libraries, and rural
health facilities. This sounded reasonable, but its effect is pernicious. The
Act gave the FCC the power to decide the level of "contributions" --
taxes -- that telecommunications companies would have to pay to
support universal service. The FCC determines how much can be collected in
taxes to subsidize a variety of "universal service" spending
programs. It charges long-distance providers, who pass on the costs to consumers
in the form of higher telephone bills. The Universal Service
Tax is problematic and harmful in many respects: The Universal
Service Tax is in addition to the federal excise
tax on telecommunications service. Not only is it an unauthorized
tax, but it is double taxation on consumers for use of a vital
service. The universal service system is extremely inefficient. According to
Jerry Hausman of the American Enterprise Institute, every dollar raised through
the Universal Service Tax winds up draining an additional $1.05
to $1.25 from the economy. In a letter written to Senator Ted Stevens
(R-Alaska), the General Accounting Office stated that the FCC "exceeded its
authority when it directed the National Exchange Carriers Association, Inc.
(NECA) to create the Schools and Libraries Corporation and the Rural Health Care
Corporation. The Government Corporate Control Act specifies that 'an agency may
establish or acquire a corporation to act as an agency only by or under a law of
the United States specifically authorizing the action.'" Not only has the FCC
decided it has the power to levy taxes, it has decided it can
authorize the creation of agencies. The FCC is slowly expropriating increasing
amounts of power that belong exclusively to Congress. The tax
is a hidden tax. Only cellular and business customers will get
full disclosure of this tax. The American people are being
assessed a tax that was not approved by Congress as it should
have been, and are not being told about this tax. That is
deception at its worst. Outlays for the Universal Service Fund will rise from $1
billion in fiscal 1997 to more than $13 billion in 2003. In other words, in just
five short years every household in America will be squeezed for an additional
$120 annually. There are two approaches currently under consideration by the
House that would correct this usurpation of congressional authority. Rep. Billy
Tauzin (R-La.) has introduced the Schools and Libraries Internet Access Act to
phase out the Universal Service Tax, along with the
telephone excise tax. The E-Rate Termination Act, introduced by
Rep. Tom Tancredo (R-Colo.) would repeal the Universal Service
Tax outright. It should be clear that by allowing agencies to
impose taxes without gaining congressional approval, Americans
have become vulnerable to abuses such as those resulting from the Universal
Service Tax. By requiring congressional approval for all
federal taxes, the Taxpayer's Defense Act ensures that Congress
will retain its Constitutional powers as intended by this nation's Founding
Fathers. According to the Federalist Papers #10, "the apportionment of
taxes. . .is an act which seems to require the most exact
impartiality." Congress, although far from perfect, is considerably more
impartial than a self-interested federal agency. As popularly elected officials
who must be accountable to their constituents, members consider many viewpoints
when making policy decisions, making them more likely to advocate policies that
the American people will view as beneficial, necessary and just. The government
requires taxes to carry out its everyday operations and fulfill
the obligations placed upon it. Both the need for some taxes
and the desire among the populace to have their tax burden
decreased are considered and weighed by Congress when deciding whether or not to
impose a tax. There is no chance of ever receiving that
courtesy from government agencies, which are looking out for their own
interests. The FCC is concerned with advancing the declared and undeclared goals
of that agency. In order to achieve these goals, any and all methods that are
potentially legal will be used. The FCC has proven this by twisting the
provisions of the 1996 Telecommunications Act to gain the power to impose
taxes. The legality of their actions is in question, but as yet
has not been rejected. Another area ripe for hidden taxes is
the Internet. It has attracted another bureaucratic predator that would like to
muscle in and get a piece of the action. In 1998, the Department of Commerce
established the Internet Cooperation for Assigned Numbers and Names, or "ICANN."
The stated objective of this new organization was to facilitate the transition
of the domain name system to the private sector from U.S. government oversight.
Through "consensus-based" decision-making, ICANN was supposed to establish
standards by which the Internet would operate. An interim Board of Directors was
supposed to establish ICANN as an open membership organization. The members
would then elect the actual board and all the decisions made would involve those
effected. Unfortunately, ICANN took a detour somewhere on the road to
cyberspace. ICANN has no members and the unelected "interim" board proposed a $1
tax on every registrant for a domain name in order to fund its
$5.9 million operating budget. This decision was shielded from public view
because its meetings were held in secret. In addition to the
tax, a letter to ICANN from the Department of Commerce
underscores the importance of this hearing and your legislation, Mr. Chairman.
The letter outlined several reforms that should be instituted by ICANN. Among
these suggestions was the elimination of their $1 tax. However,
their reason for suggesting this wasn't because it was unconstitutional or done
without Congressional mandate, it was because "it is controversial." Commerce
explained that while the "user fee may be determined to be an appropriate
method" to fund ICANN, the "permanent financing method should not be adopted
until after the nine elected members are added to the ICANN Board." Fortunately,
ICANN has withdrawn its proposed tax as a result of public and
congressional concern. But it seems that Department of Commerce wasn't as much
concerned with the legality of the tax as it was worried about
a public relations problem. Your bill, Mr. Chairman, would restore the control
of all taxes where everyone agrees it should be -- in Congress.
The Taxpayer's Defense Act provides a method of checking the power of
governmental agencies. In order for an agency to establish or raise
taxes, it must submit a proposal to Congress and gain
Congressional approval. This will require the agency to justify the imposition
of a new tax or an increase in an existing
tax. If it cannot be justified, it will not be enacted. This
will prevent unnecessary and detrimental taxes from being
imposed by agencies. Our government operates on a system of checks and balances
to prevent tyranny. The power to tax is the power to destroy or
improve our lives. In order to retain control of this awesome responsibility, it
is imperative that Congress remain the only branch of the federal government
with the power to levy taxes. Mr. Chairman, the Taxpayer's
Defense Act protects the interests of taxpayers. It promotes accountability on
the part of political leaders and federal agencies, reduces hidden
taxes, and ends taxation without representation.
LOAD-DATE: July 31, 1999 
