Strategic Considerations
Aside from hating the amount of tax we pay, we suffer greatly from consequences of the bad forms in which they are collected, especially the intrusiveness of the income tax. We can improve our lives and expand our liberties even before getting into the fight over how much we pay. Let's examine the dynamics.
Multilevel Government
The USA, with its multi-tiered government structure, does not need to grant, to all levels of government, direct access to tax paying citizens. I think that a good way to limit government is to pit one level against another, making at least one our ally in curbing the appetite of the other.
We could allow the Feds to gather all taxes and then distribute funds to states, a bad idea toward which we have made several unfortunate steps, making states the federal government's puppets. Alternatively, we could allow only states to gather taxes directly from the people, leaving the Feds to levy their taxes upon the states. The latter invites the Feds to weigh heavily upon the states, but we can solve that.
Progressive Taxation: Soaking the "Rich"
Being "rich" and having "high income" are not always the same thing, even though the latter often leads to the former. Consider that "very rich" describes money already in the bank (or mattress or whatever) while "high income" describes money on the way or arrived only recently. If somebody has enormous debts to pay, is it fair to tax away their ability to dig themselves out of the hole? Clearly, a progressive income tax is not quite the same thing as soaking the rich.
"Old money" can qualify one as "rich" even if one has little or no recent income and, therefore, pays little or no income tax. This is an important distinction for those who advocate taxing "the rich" by targeting high incomes. While they do get many rich people that way, they also get those who are not yet rich but who are trying pay off debts to get there. At the same time, they miss all of those who are not cashing in their investments. Therefore, taxing income retards upward economic class mobility, and our progressive income taxes especially hold back the middle class from becoming rich.
If you want a tax that places more burden on those who have more, then tax real property. Whether the rich own land outright or own stock in corporations that own vast tracts of land (and valuable improvements), it should all be weighed equally.
Jurisdictional Ambiguities
Sales taxes and income taxes rely on capturing transactions. Unfortunately, transactions cross borders and pass through the ether of the internet. This mobility makes their locations ambiguous, which makes jurisdiction ambiguous. Federal, state and local governments' attempts to confine transactions geographically have caused constant havoc.
There's only one real measure of wealth whose location is unambiguous: real property. It and government jurisdictions are both very geographically oriented, and titles are jurisdictionally based, so the jurisdiction for taxing real property should never be ambiguous except during a war of conquest, something that has happened only once during US history.
Economic Tinkering and Social Engineering
What tax doesn't tinker? Well, in their simplest forms, several are economically unbiased. However, few are legislated in their simplest forms. We have tens of thousands of pages of impenetrable legalese attempting to motivate us in every detail of our waking and sleeping lives, not to mention our wills after death. Hey, if we can't possibly comprehend it, what good does it do?
Does such tax-based socialism do any good even when we do comprehend? I say no. To the extent that anyone does grasp them, every tax incentive, every loophole, and every bias causes economic distortions. If you understand free market economics, then you know that every such distortion is costly, above and beyond the tax extracted. At a minimum, compliance costs the time and effort required to monitor the tax law (or pay someone to do so), keep the records, and file some form(s). At worst, vast quantities of scarce resources are misdirected into unproductive enterprises because of tax motivations.
One tax in particular is the epitome of economic bias, and that is excise tax. Each excise tax makes some good or service less economical than it would be in a free market, therefore, every excise tax causes economic distortion. The only excuse I can think of for an excise tax is to cancel a complimentary market distortion, such as when gasoline is taxed to pay for roads that are "free". Unfortunately, most excise taxes have no such linkages.
Indeed, most excise taxes are not even motivated by revenue but by the distortions they can cause, and a high enough excise tax is effectively a prohibition; that's why it's called "prohibitive". Every prohibition induces a black market with all of its negative fallout, which is not only extremely harmful to society, but also bad for revenue. Sadly, many fascists lurking in our society are perfectly willing to sabotage society in a vain effort to implement their social engineering agendas. Show me a "sin tax" advocate, and I'll show you a fascist.
In a free society, the people grant authority to the government for specific purposes, and government should not use any of its authority for any unintended purpose. To do so is not use but ab-use, and abuse of authority is treason against the people who granted it. The specific purpose of taxation is to gather revenue. To exercise taxation authority to engineer society is abuse if government has not also been granted authority to engineer society (and it hasn't).
Note: Though it can be hard to tell, a tax is abusive if it is higher than the point at which it would gather maximum net revenue. A clear sign that a tax is well beyond that point is when it is so prohibitive that the government spends more on enforcement than it collects in revenue. Show me such a tax, and I will show you tyranny.
Privacy
Income taxes give states and the federal government unfettered access to all of our personal financial data. Our banks, brokers and employers, without court orders, routinely cough up records we wouldn't share with our best friends and closest family members. Further, after half our paychecks are confiscated, we must file more details to get some of our own money back. Adding injury to insult, several of us are audited each year, giving our personal financial records a full rectal exam just for the government's convenience, to gather statistics on compliance.
Therefore, even if privacy were the only consideration, income tax is an unacceptable form of taxation in a free society. Whatever tax method we use, it must be based on public knowledge so that it can never become an excuse for violations of personal immunities.
Possible Reforms
Flawed National Sales Tax Proposal
I have recently seen, in several publications, a so called "Fair Tax" proposal of a national sales tax. I don't like it. It doesn't stop states from keeping their own income taxes, thereby perpetuating all of the intrusions into our personal finances with their attendant requirements for meticulous record keeping. If for no other reason, no free society should abide any income tax. The government's examination of private records is intolerable.
Furthermore, creating a national sales tax can't stop the Feds from resurrecting their income tax a few years from now if our backs are ever turned. Only the repeal of the 16th amendment and a prohibition against all income taxes might protect us.
Perhaps worst of all, the "Fair Tax" does nothing to curb federal taxing and spending. Intense special interest lobbying on each spending decision will still face only token opposition from a diffuse and disorganized citizenry. Perhaps most insidious, a national sales tax would fragment tax payments into little pieces that citizens would have difficulty measuring in total, and it would probably be implemented as, or soon converted into a hidden VAT, as in Europe, burying the load in sticker prices so that we citizens would be even further hoodwinked.
A Superior Alternative
I have a strategy, and it would do better. Consider these 3 actions taken together:
1. Repeal the 16th amendment and explicitly prohibit income taxes so that neither the Feds nor the other government levels can examine citizens' personal finances without probable cause.
2. Further restrict the feds to just one tax: levies upon the state treasuries in proportion to their gross revenues from all sources. Cutting off the feds from direct access to tax paying citizens has several benefits:
* Remaining tax authorities would be competing with one another. If any became too burdensome, citizens could move to another, something that isn't easy when one wishes to escape a national tax.
* State governments would be put into the position of curbing the federal appetite on our behalf, an elegant solution to our being divided and conquered.
* Apportioning by gross revenues would place a higher load on wealthier states.
* Even better, high-tax states would become generous states, thereby dissuading them from taxing & spending out of line with the others.
Still, the states would need teeth to fight off federal sapping, so:
3. Repeal the 17th amendment (popular election of US senators) to restore the states' check against federal encroachment. On the surface, popular election looks like more democracy, but all it really does is centralize the expression of popular will at the expense of variety among the states.
The whole reason we have two legislative chambers is because the framers had two essential purposes to fulfill: express the people's will (House of Representatives) and curb federal intrusion into state level of governance (Senate). If senators are chosen by (and answer to) state legislatures, they'll not only have a natural tendency to curb the new federal levy from step #2, but all manner of other encroachments and redundancies as well.
Optionally, we could also eliminate senators' 6-year terms, leaving them to serve until replaced. That way they serve only at the pleasure of their states, further ensuring their cooperation, and they would not have terms expiring inconveniently when their states' legislatures may not be able to agree on a new appointment.
The US Congress then, with the President's signature, could raid states' treasuries to fund any of their programs. However, with state governments in direct, immediate control of the US Senate, we can hope that Federal spending would be contained, and wasteful duplication between state and federal levels would disappear.
The states would need to raise revenue without resorting to income taxes. Of course, with nobody paying income taxes, there will be money out there. This is a problem that can be solved in many different ways. I recommend fixed property taxes because they hit both businesses and residents, because property title is public, and because real property location makes jurisdiction very unambiguous. However, I am not as concerned about the selection of property tax as I am about weaning the federal government from direct access to citizens' money. Therefore, I would be content to see several states try several methods in the search for the best one.
Conclusion
Granted, a US constitutional amendment is a tall order, especially one that would need some prompting from state capitols before our popularly elected US Senate would grant the states the opportunity to ratify it. However, nothing short of an amendment will endure the next shift in political winds, and my plan's payoffs in personal liberty and decentralization of power are huge enough to justify the effort required.
Copyright 2003 by Jeff Fisher