Ignorant Elected Officials

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At a recent House Financial Services Subcommittee hearing querying Treasury Secretary Timothy Geithner, Congressman Bill Posey of Florida bristled when Mr. Geithner referred to a certain tax payment as a contribution, suggesting that Mr. Geithner had deviously coined the term to sugarcoat the burden to the taxpayer. Contributions are voluntary donations, not mandatory payments, protested Mr. Posey.

The congressman obviously had no clue that in tax lexicon the term contribution refers to a compulsory tax to cover the costs of benefits for a specified segment of the population, unlike a general tax, like say, the income tax, which extends benefits to the population at large.

A prime example of a compulsory contribution is the FICA tax—Federal Insurance Contributions Act to cover Social Security and Medicare.

Another example is the compulsory monthly contributions paid by employers to the Florida Retirement System (FRS). That Congressman Posey, a former Florida state Senator and Chairman of the state Banking and Insurance Committee did not know the wording of the tax laws in his own state makes one wonder about his qualifications, and, by association, those of his fellow legislators.

The term contribution in tax lexicon is as old the word tax itself. Note the use of the term in Adam Smith’s classic, The Wealth of Nations(1776):

“The war tax, having been undertaken, it was said, in defence of the trade of the country, the merchants who were to profit by it, aught to contribute to the support of it.”

“The time of payment for the tax, being the same as for the rent, is as convenient as it can be to the contributor.” (Book 5, Chapter 2, Part I.)

The Wealth of Nations , by the way, was high on the reading list of Alexander Hamilton, James Madison, Thomas Jefferson, Benjamin Franklin, and other American Founding Fathers. Members of our modern-day House Financial Services Subcommittee would, therefore, do well to familiarize themselves with the book. Those who have no time to read it could, at least, have one their staff summarize it for them, particularly the section on taxes, from which the above quotes were taken. Displays of ignorance by elected officials give democracy a bad name.