Thursday, March 4, 2010

Why We Should Scrap the Income Tax

1913 was a very bad year. That was the year the Federal Reserve was created and the 16th Amendment was enacted. In those days the United States Secretary of State had the task of verifying that an amendment to the Constitution had been properly ratified.

The man, a lawyer and professional politician, who was the Secretary of State at that time, was one Philander C. Knox, a Republican. There have been many folks who have called into question the 16th Amendment ratification process. There are some valid reasons why one could say it had not been properly ratified by the requisite number of states. That’s an academic discussion at this point. The 16th Amendment and the federal income tax are facts of life. The courts support the income tax. And why shouldn’t they. The salaries of judges at the federal level are supported by the income tax. They aren’t going to mess with what is a good thing from their standpoint. They want to keep the money pipeline open just as much as politicians and bureaucrats do.

We have looked at reasons not to continue with a central bank or at least to place the restriction of precious metal backing on money creation. Now let’s take a look at the income tax.

Professional politicians and bureaucrats whose very existence depends on taxation are always looking for ways to extract more money from the taxpayer. I think they recognize in an almost atavistic way that they must at some point curb their greed and desire for the power money can buy else they will kill the host. However, their insatiable desire for more money and power often clouds judgment and leads them to destructive policies. The power to tax truly is the power to destroy. In its modern form with features like payroll deduction and a powerful enforcement bureaucracy the income tax is a professional politician’s and bureaucrat’s dream. It provides an endless stream of cash and is a very useful instrument for rewarding friends and punishing enemies.

The very power focused reasons why politicians and bureaucrats love the income tax are also reasons why every citizen should want it abolished. There is another reason however. Even if you pay very little in income taxes or a lot (I have been in both positions) you should want this abomination deep-sixed for good. Why, you ask? The reason is that it is another governmental policy which acts like a sea anchor on the U.S. economy.

This tax system is very damaging to all but the governmental sectors of the economy. The U. S. advanced high tech economy has done well in spite of not because of damaging federal policies. Of all these policies the income tax is one of the worst. It not only siphons large amounts of capital from the private sector but also through its ridiculous complexities places a large added administrative burden on businesses and individuals to comply with the massive tax code and attendant regulations and letter rulings. In addition changes are made frequently by politicians who are constantly tweaking the code so from one year to the next no one can count on the stability of the tax burden being applied to them nor can they rely on constancy of reporting and filing. What does this mean? It means less capital available to truly productive sectors of the economy and fewer jobs.

There are lots of statistics and studies to back up the economic damage thesis so I won’t include a lot of tables and economic analysis. The interested reader will have no trouble finding large amounts of information on this subject.

We should repeal the 16th Amendment and institute some form of consumption tax like the FairTax. No tax is perfect but I would bet a lot in fact I would bet my life that if we had a balanced budget amendment with real teeth and got rid of the income tax in favor of a consumption tax businesses all over this planet would be lining up to set up shop in the USA. Capital formation, business formation and job creation would take off like a rocket.

Our problem of course is progressives again. I’ll end with this:

A progressive is one who is in favor of more taxes instead of less, more bureaus and jobholders, more paternalism and meddling, more regulation of private affairs and less liberty. In general, he would be inclined to regard the repeal of any tax as outrageous.

H. L. Mencken


Gill O'Teen said...

I am opposed to using any sort of consumption tax to fund the gum’mint, because any tax which artificially increases the cost of goods discourages their purchase and use. Ultimately, this hurts the very businesses we should be striving to support. Also, how would such taxes be imposed on products exported to other countries. though thanks to gum’mint stupidity the export problem is no longer as great as it should be. However, there is an import question as many of these so-called consumption taxes initiate the taxing process in the factory. Many of our foreign competition would view such a tax as a duty which few would embrace. Not to mention two potential impediments erected by OUR Founders:
1) The Constitution of the United States, Article. I, Section 9, which reads in part, “No Tax or Duty shall be laid on Articles exported from any State.”
2) The Constitution of the United States, Article. I, Section 10, which reads in part, “No State shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports ...”

I am in favor of a one-size-fits-all income tax. 10% is good enough for God. It should be more than enough for gum’mint. State taxes should be capped at 5% and local taxes at 0.5%. Local gum’mints could be granted an increase in their income tax rate if it is accompanied by a corresponding decrease in either sales or property taxes. And everybody pays. No exceptions. At the closing of the New York Stock Exchange on Friday March 5, 2 Yo, OUR Country’s GDP was about $14,299,585,000,000. 10% of this is a whopping $1,429,958,500,000. That’s almost 1½ terabucks - and it’s still early March. Those in favor of any sort of ‘progressive’ tax code are encouraged to read “The Constitution of the United States”, Amendment 14, which reads in part, “... nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Gill O’Teen
Celebrate Galt Day 4/15/2 Yo (aka 2010 A.D.)
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gxm said...


“I am opposed to using any sort of consumption tax to fund the gum’mint, because any tax which artificially increases the cost of goods discourages their purchase and use.”

That already happens with the income tax it’s just that it is hidden. Every business passes on any expense like taxes. If they can’t ultimately they go out of business.

Check out the explanation of the FairTax in Boortz's books. It is not a VAT but a national sales tax. Yes, it does have a rebate provision to make it progressive. I don’t like it but I can live with it if it means repeal of the 16th Amendment. Most states already have sales taxes and they are less expensive to administer. In addition taxpayers see what they pay every time they buy something. That means more resistance to increases.

I recognize that a national consumption (sales) tax would require an amendment but it could be done along with repeal of the 16th and might coincide with a balanced budget amendment. I like consumption taxes because they don’t give politicians and bureaucrats as much power to manipulate taxpayers and they encourage savings and investment. Even if we could simplify the income tax the politicians and bureaucrats would be right back at it again trying to make it more complex. I don’t think the Founders ever approved of income or wealth taxes.