(Bumped from the Bush era.)
The picture to the right, in case you were wondering, is John Collier’s artistic rendition of Lady Godiva. She graces our presence because her notorious ride was in fact a tax protest. Every now and then, at a domestic tax demonstration, there are rumors that a similarly-clad rider will appear. I don’t know whether it ever really happens.
We live in a world where just about everything is taxed, sometimes overtly and sometimes with subtlety. Aside from being the source of government revenue, each tax is a little piece of social engineering, causing people to change their behavior to avoid paying. Sometimes this behavior modification is deliberate, such as the high cigarette taxes designed to discourage sales. Other times it’s accidental, such as the “yacht tax” of a few years ago, which drove boat builders out of business.
Here are some fundamental tax types:
- Consumption taxes, such as sales tax, which tax you for stuff you use
- Production taxes, such as income tax, which tax you for your productivity
- Property taxes, which tax you for stuff you own
- Transfer taxes and fees, which tax you for transactions in which non-consumable goods change hands
- Taxes on capital gains and investment income, which tax you on the growth of assets you hold
- As the final insult, there’s a death tax
Excessive taxes can suck the life out of an economy. Some types of taxes are more toxic than others. A strong economic argument can be made favoring the consumption tax over the alternatives. Taxing consumption rather than production encourages savings, which are an essential part of the foundation upon which a prosperous economy is built. Also, taxing consumption levels the playing field with respect to domestic production, since all goods are taxed at the same rate regardless of origin, instead of having domestic goods weighed down by built-in taxes. Unfortunately, it’s politically awkward for an elected official to advocate rational tax policy, because the political opposition strives to make good ideas sound ugly. Lowering or (gasp!) eliminating capital gains and income taxes appears to be a sop to the rich, and indeed it will make the lives of the rich easier. Of course, the rich take care of themselves in any case; a simpler tax structure makes their job less inefficient, and also makes it easier for the less-than-rich to aspire to riches. But that’s a hard message to get across in a world where the misery merchants reinforce a sense of individual helplessness.
The FairTax organization is promoting an ambitious plan to abolish the IRS and replace the existing tax structure with a national sales tax that will generate the same level of revenue. That sounds like a wonderful idea to me. Imagine an end to income taxes and record keeping and all the other intrusive nonsense we put up with in order to assure the government takes its “fair” share of the fruits of our labor. But you can see this movement, as great as it is, faces an uphill battle.
Let’s talk about the history of income tax for a moment. Another April 15 disaster was the sinking of the Titanic in 1912. Immediately afterwards, the Sixteenth Amendment was ratified, authorizing the American government to levy a tax on income. And the rest, as they say, is history.
Income tax rates have gone up and down over the years. Here is an interesting historical chart. You’ll see some high marginal rates in the early years, but these only applied to the very very very rich. When we got into WWII, the income level at which confiscatory rates cut in dropped precipitously, and they stayed pretty much in place until Ronald Reagan’s tax cuts. The high rates didn’t affect the average wage earner, but they created a firm barrier against becoming rich through a salary. This made for what amounted to a national wage cap. Getting rich required, among other things, some very creative accounting.
As a practical matter, between George Bush’s inclination to spend money and the Democratic inclination to take money, I don’t imminently expect any tax reforms that will do more good than harm. If any of you are in a position to conjure up Lady Godiva, now would be a good time.
I consider another tax type (broadly speaking) the huge litigation settlements like the tabacco cases where hundreds of billions of dollars are being taken out of the private sector (American business) and transfered to “victims”. In my humble opinion this is taxation without representation, one of the most basic principles upon which this country was founded. Another example is the movement to win huge settlements from American corporations for slave reparations. These lawsuits are meant to move huge sums of money from corporations to victims which is nothing more than income redistribution. Many states were part of the tabacco settlements in which the tabacco companys are paying huge sums to states for health care costs. The problem is we all pay for these settlements and we had no say in these cases whatsoever. This is the old end around play through the court system that the lefties like to play. If you can’t get a tax increase through representative government, then find a court that will simply do the work for you.
The fundamental effect of taxation is to get less of the thing taxed. Lowering income tax rates, for instance, yields more reported income and more revenue to the govt, as illustrated by the positive effect of the President’s tax rate cuts in stimulating revenue. Taxing consumption at an increased rate will simply distort the market. The real solution to tax woes of all kinds is for the govt to spend less. We need to ask less of the govt. A thought: If the real goal of taxation is to get more money for social spending, why don’t the Dems support a program which encourages economic growth and lower marginal tax rates, which would increase revenues to the Treasury, thus yielding more spending money for them?
Hint: taxation is really about power and control.
You hit the nail on the head Robert. It’s all about pork, income redistribution, and voting blocks. The Democrats see tax policy as a way to dole out pork to their voting blocks not as a way to grow the economy but maintain their base of power. The welfare state is the ultimate utopia for the Democrats. They can ration out the candy that they have taxed from the “rich”.
“Taxing consumption rather than production encourages savings, which are an essential part of the foundation upon which a prosperous economy is built.”
Sorry to disagree. Consumption, just like production is a critical part of the economy. Remember Brave New World, where there is in fact conscription of consumption? As their saying goes “ending is better than mending. The more stitches, the less riches”.
The rich do not pay higher taxes, never will. They use tax shelters, trust funds, foundations, off shore accounts, dummy corporations, and all sorts of loop holes to get out of paying their fair share. How disingenous they are when John Kerry, Bill Clinton, and Ted Kennedy say they are for higher taxes for rich people like themselves. Keeping a straight face when they state such bull**t is their only real talent. Their money is squirreled away in all kinds of creative, yet legal (I assume), tax avoidance schemes. When taxes are raised, only the middleclass pays. The poor pay little to nothing or continue to collect from govt. services. The rich contact their tax lawyers. The middleclass, without the resources to hire a tax lawyer, pay. A flat tax without any exceptions, loopholes, etc. is the only fair way for taxes to be collected. Of course a huge segment of the economy relies on an archaic, convoluted tax system. Think of all the lawyers, accountants, lobbyists, bankers, investors, tax preparers, etc. whose jobs are dependent on this unjust system. Their lobbyists keep the tax system just where it is.
Oh yes Tammy, you said it on the air, the IRS itself is the biggest benefactress of all when it comes to a bloated, byzantine tax system! Like any government agency, it’s really just a huge job creation, public works program that guarantees all who work there great pay, great benefits, generous leave, no accountability whatsoever, guaranteed (non-merit based) promotions, and job security for life. In return, these grateful bureaucrats arrive late, leave early, surf the internet, play solitaire, and of course vote for the politicians who ensure it all stays this way.
MAYNARD
Hooyaaaahhhhhhhh!
In other words I agree, strongly!
TAXPAYER’S LAMENT
Tax his cow, Tax his goat;
Tax his pants, Tax his coat;
Tax his crop, Tax his work;
Tax his ties, Tax his shirt;
Tax his chew, Tax his smoke;
Teach him taxing is no joke.
Tax his tractor, Tax his mule;
Tell him, Taxing is the rule.
Tax his oil, Tax his gas;
Tax his notes, Tax his cash;
Tax him good and let him know,
That after taxes, he has no dough.
If he hollers, Tax him more;
Tax him till he’s good and sore.
Tax his coffin, Tax his grave,
Tax his sod in which he’s laid.
Put these words upon his tomb,
´´Taxes drove him to his doom.´´
After he’s gone, we won’t relax.
We’ll still collect inheritance tax.
Not sure if this “took”, so please delete if duplicate.
TAXPAYER’S LAMENT
Tax his cow, Tax his goat;
Tax his pants, Tax his coat;
Tax his crop, Tax his work;
Tax his ties, Tax his shirt;
Tax his chew, Tax his smoke;
Teach him taxing is no joke.
Tax his tractor, Tax his mule;
Tell him, Taxing is the rule.
Tax his oil, Tax his gas;
Tax his notes, Tax his cash;
Tax him good and let him know,
That after taxes, he has no dough.
If he hollers, Tax him more;
Tax him till he’s good and sore.
Tax his coffin, Tax his grave,
Tax his sod in which he’s laid.
Put these words upon his tomb,
´´Taxes drove him to his doom.´´
After he’s gone, we won’t relax.
We’ll still collect inheritance tax.
Thankfully, residents of New York were able to avoid another middle-class tax gouge from another rich autocrat, Michael Bloomberg, when his “Congestion Tax” was defeated in Albany.
Of course, awful ideas never go away – they just mutate into even WORSE ideas, so I’m sure New Yorkers will get screwed over one way or another by the same living, breathing jokes they seem to elect with great regularity.
Some people never learn.
The real reason we won’t see a national consumption tax is because it makes the tax too obvious. You can go back and read the Congressional testimony about income tax withholding and see that the real purpose was to make income taxes as invisible as possible, so as to make it easier for the government to impose higher rates. If people had to pay a lump sum on 15 April, the rates would be much lower. Now, thanks to the clever withholding scheme, many people associate tax day with getting money back, even though it was taken from them in the first place.
http://www.fairtax.org/
The 16th amendment is the problem, and here’s why:
The supremes ruled on the 16th and said that the amendment conveyed no new powers of taxation. Congress could have imposed a wage and salary tax prior to the 16th. The supremes also ruled that income is derived when someone puts capital, materials, and labor together to produce something for a profit. That profit is income. Further ruled: Wages are an even exchange of labor for money, and no income is derived. (None of these decisions have ever been overturned by the S. Court.) The 16th pulls a page straight from the Karl Marx playbook. It is a tax without apportionment.
The Constitution specifically requires all federal taxes to be equally apportioned. You can’t charge a rich guy a $5 tax on gasoline and then charge a minority cardholder a $1 tax. The 16th allows non-producers to vote themselves a handfull of your money. The more you have, the more disproportionately they will take it.
Here’s why a National Sales Tax is a bad idea: The guy at the bottom pays tax on 100% of his income because he needs it all to live and support his family. This is Mexico’s tax system. If you are in a hole, it makes it more difficult to dig out.
Better solution: Repeal the “without apportionment” provision of the 16th. Then you can tax anything you want, but everybody pays, and everybody has a stake in seeing their taxes remain low. When some social engineer like Rob Reiner says “we’ll tax millionaires to help needy pre-natal children” the minority (millionaires) have no chance, and no voice. If he say “we should all pay more taxes to support needy pre-natal children”, watch how the power starts to shift. The representatives suddenly realise that imposing more taxes on everyone to benefit a small lobby is not going to fly.
The downside of any flat-type tax created, is that it will come with a complicated set of rules and exeptions and in the end wind up as just another hidden or obvious tax thrown on the pile of existing taxes. We have to address the root cause of the tax issue, or we will never make the government truly responsible to the people.