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In 1908 the Democratic Party included a proposal for a graduated income tax. It was marketed as a tax on the wealthy and a majority of Americans supported it. President Taft, who was a Republican, responded by asking Congress to tax the profits of large companies. With this kind of public and bipartisan support, Congress drafted the 16th Amendment to our Constitution. Ratification by the States and certified by the US Congress, the 16th Amendment became the law of the land on February 25, 1913.
The prevailing progressive thought of the day was that tariffs disproportionally taxed the poor, elevated prices for the public, while failing to raise enough revenue for the government. Yet, the income tax has not lowered the tax paid by the poor, nor has it lowered prices for the public, and it certainly hasn’t satisfied the ever-growing appetite of government.
In 1913, nobody paid income tax on the first $3,000 they earned. Furthermore, there was another, $1,000 exemption for married couples. In fact, it is a historical fact that only 4% of the public were subject to paying income tax the first year after the 16th Amendment was enacted. But this has certainly not held true over the years.
$3,000 in 1913 is equivalent to $83,745 in 2021. If the tax rates had not changed since 1913, then nobody earning less than $83,745 in 2021 would owe any income tax. Yet today only $12,400, the standard deduction on this $83,745, is tax exempt, or a $24,800 standard deduction for married couples. After this, a graduated income tax rate is applied to the rest of this income = $83,745 – $12,400 = $71,345.
In 2020, an individual earning $83,754 owed approximately $11,486 in federal income taxes. That’s a big chunk—more than 13% of their total income handed over to the government before they even considered state taxes, property taxes, sales taxes, or any of the countless other ways wealth is siphoned from wage earners.
Now, to put that into perspective, the median household income in the United States in 2019 was $68,703. That means half the country earned less than that, and many earned much less. Despite the assurances made over a century ago when the income tax was first introduced—promises that it would only affect the wealthiest Americans—the burden has steadily crept down the income ladder. Today, the federal income tax touches nearly every working American, including many of the poorest among us.
In fact, as of 2021, the federal government considered the poverty line for a single individual living in the lower 48 states to be just $12,880 per year. Yet even at that subsistence level, individuals are still required to file federal taxes. After applying the standard deduction, those who earn just slightly above the poverty threshold—say, $13,320 annually—still owe income tax on the $440 that exceeds the deduction. While it might seem insignificant, the 10% tax on that small amount reflects a broader issue: the federal income tax system, as it currently exists, doesn’t spare the poor. It taxes them too.
But while the income tax puts a burden on individuals, corporate taxes introduce a different dynamic—one that is often misunderstood. When people hear that a company is being taxed, they may feel a sense of satisfaction, believing that “big business” is finally paying its fair share. But in reality, companies don’t absorb those taxes—they pass them on. A corporation’s primary duty is to remain profitable. So when its tax bill goes up, it compensates by increasing the prices of the goods and services it sells. In other words, the customer—you—ends up paying the corporate tax through higher prices at the pump, the grocery store, and nearly every checkout counter in the country.
This is why increasing corporate tax rates doesn’t lead to lower prices for consumers or more fairness in the marketplace. Quite the opposite: it inflates costs across the board. When we tax producers—whether they’re multinational corporations or family-run farms—we don’t penalize wealth. We penalize productivity, and we pass those penalties directly to the people who buy what those producers create.
If the government were truly serious about lowering prices for everyday Americans, it wouldn’t begin by taxing businesses more or tightening the regulatory noose. Instead, it would look to loosen the grip of excessive regulation and allow real competition to flourish. Because in any healthy economy, it isn’t taxation that lowers prices—it’s competition. When companies compete freely, they innovate. They lower costs. They serve customers better. And the public benefits from better options and lower prices.
So rather than layering more taxes on top of an already complex and burdensome system, or villainizing producers for trying to stay afloat, the real solution lies in unleashing the power of the free market. Cut unnecessary red tape, foster entrepreneurial freedom, and trust that competition—not coercion—will serve the people best.
As politicians and bureaucrats are not really interested in lowering prices for consumers but are very much interested in increasing the money they collect from the public so they can spend more on their special interest projects, it becomes imperative that we the people have a financial tool which truly combats this progressive taxation. That is where participating whole life insurance comes to the rescue.
Participating whole life insurance builds cash value without taxation and can be accessed in the future without paying taxes as well. As participating whole life insurance superseded the 16th Amendment to our Constitution, it retains the ability to grow income tax free and be used income tax free. Because of this unique feature participating whole life insurance can be used as the great equalizer when it comes to income taxes. Those who realize and appreciate this simple fact use participating whole life insurance to keep more of the money they make and end up building sustainable wealth.
Jesus told us, “The poor you will always have with you.” But like Benjamin Franklin said, “The best thing you can do for the poor is not to become one of them.” Don’t let the income tax rob you of the wealth which God has provided for you to earn, keep and manage.
Call us at 702-660-7000 and find out how you can keep more of the money you earn so you can build the sustainability which you need today and in the future.
Tomas P. McFie DC PhD
Tom McFie is the founder of McFie Insurance and co-host of the WealthTalks podcast which helps people keep more of the money they make, so they can have financial peace of mind. He has reviewed 1000s of whole life insurance policies and has practiced the Infinite Banking Concept for nearly 20 years, making him one of the foremost experts on achieving financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.
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