On Taxation

by Gerard Emershaw

With tax day approaching, it seems a good time to discuss a few various and sundry issues concerning taxation.

The Economic Royalist Mantra

Almost half of all Americans pay no federal income tax! Many so-called conservatives have been lamenting this for years. If Sean Hannity did not have this dead equine to clobber, his show would only be a half hour long instead of an hour. Libertarians tend to believe that taxation is theft. Many go so far as to claim—following those like Ayn Rand—that taxation is akin to slavery. One would think that conservatives would share the view that forcing Americans at the barrel of a gun to pay tribute to the government is a bad thing. So why do so many on the right act like whiny economic royalists? Complaining that 43% of Americans pay no federal income tax is like saying that 43% of Americans are not enslaved. The goal should be to one day say with glee that 0% of Americans pay no federal income tax not to one day say that 100% of Americans pay federal income tax. Complaining about those who pay no federal income tax is a perverse sour grapes view that is like a wrongly imprisoned political dissident complaining that there are like-minded dissidents who are not in prison.

One might say that the problem is that those who do not pay federal income tax have no skin in the game. Therefore, since they do not pay federal income tax, they will be willing to support increases for those who do. Of course, one way to solve this problem would be to increase the size of the economic pie so that there is more prosperity and more wealth. One way to get more people to pay federal income tax is to create a state of affairs where more Americans earn more money, and hence, are legally required to pay federal income tax under the current system.

The whiny economic royalist mantra also ignores that many who do not pay federal income tax nevertheless have income tax withheld during the year which is later refunded. Given that these taxpayers are denied the time value of their money, they do in fact pay a tax. Those Americans who do not even have any income tax withheld still pay the myriad of other taxes imposed by the bloated and out of control federal government. And, of course, all but the wealthiest and best politically connected pay the “inflation tax” that is imposed by the Federal Reserve as it continues to “print” money and destroy the value of the dollar.

Whiny economic royalists help the tyrannical government with its “divide and conquer” strategy. Americans of all races, religions, socio-economic classes, etc. should be united against an increasingly despotic government and not fighting among themselves.

The Flat Tax

Many conservatives and even some libertarians have espoused a flat tax in which all Americans would pay the same amount of federal income tax. Oddly, such advocates of a flat tax often say that it is only fair that everyone pay the same percentage in tax. Such a regressive tax proposal is monstrous and would target the middle class and the poor unfairly. The reason that it would be unfair is that the wealthy simply receive more government services than the poor. Even if the nation followed a non-interventionist policy, it would still be true that defense spending would protect the considerable wealth and assets of the wealthy far more than that of the less affluent. The military simply does not protect the mansion of the homeless man. A corporatist military such as the United States currently has wastes tax money protecting the interests of multi-national corporations. The poor person who does not own considerable stock in Halliburton, an oil company, or the like simply does not benefit from this the way the wealthy do. To make matters even worse, corporate welfare costs taxpayers more than welfare for the needy. This is yet another example of how the government provides more services to the rich than the poor. Hence, the “fair share” of a wealthy individual or corporation should be much higher than that of a less affluent person. Even more egregious than corporate welfare is foreign aid. In 2012, the federal government gave nearly $37 billion in foreign aid. Giving money to rich foreign dictators hardly seems fair.

National Sales Tax

Another suggestion often made is a national sales tax. One problem with such a suggestion is that the federal government is most likely to install a national sales tax without abolishing the income tax. In essence, it will come in for yet another pound of flesh. Even if it were to abolish the income tax in favor of a national sales tax, this would be monstrously regressive. Poor people spend all of their income and then some whereas the wealthy spend only a fraction of their income. Basically, a pure national sales tax would be a massive wealth redistribution program which would employ a reverse Robin Hood strategy of taking from the poor to give to the rich.

A national sales tax would most likely lead to an increased black market. This will give organized crime yet another entry point into the economy. If anything, the government should be decreasing the influence and profitability of organized crime by ending drug prohibition. Instead, instituting a national sales tax would simply be giving the Mafia, the Triads, and street gangs another large stream of income.

The FairTax is a national sales tax that includes a “prebate,” which refunds the amount of sales tax that would be paid by a family at the poverty level. While this makes such a plan less regressive, it makes the system expensive to administer and ripe for fraud.

It is a general rule that one should tax something that one wants less of. A national sales tax is a way to decrease spending. This is no better than a federal income tax which decreases the incentive to work. The government should seek to remain neutral and not discourage either human activity. Of course, back when the federal government was Constitution-sized, it relied mainly on tariffs. Non-protectionist tariffs and excise taxes might be at least the start of a rational alternative to both federal income and sales taxes.