Death To The Graduated Income Tax
By Robert E. Meyer (08/10/04)
President Bush was correct in principle to have made tax cuts the hallmark on his economic stimulus package. But in a sense he is trying to win the derby riding a lame horse. The graduated income tax system should have been put out to pasture long ago, and is laden with parasites.
Recently, though, there have been rumblings about the idea of a consumption tax. It has been said that Bush is interested in pursuing such a system if he were to secure a second term. Most people are probably thinking it will never get serious consideration in congress. Maybe so, but it is encouraging that the issue is even brought up. We have often heard the slogan-almost a war cry, "abolish the IRS!" Yet such sentiment is meaningless without a fundamental change in the whole taxation structure, since some agency, regardless of name, will have the responsibility for tax collection and enforcement. I first heard this articulated so well in a stump speech by Alan Keyes prior to the 2000 elections.
The current system is one fraught with corruption and unfairness. It is unfair because it not only seeks to extract more money from people with higher incomes, but to plunder the fruits of achievement at a greater percentage through bracketing. Karl Marx advocated this idea as one of his planks, in a strategy for destroying capitalism. It places people who are in low income brackets as the primary recipients of benefits, while people in upper income brackets pay for the benefits. If it is somebody's "right" to receive a benefit, it is also someone's duty to pay for it. A system that creates the oxymoron of "coerced charity."
The system is corrupt because it allows politicians to manipulate the brackets, so the majority of voters pay the least tax, and are then enticed to reelect the politician based on the promise of new spending programs funded by the others. Thus, politicians can use this scheme to perpetually fund their own incumbencies. We are constantly reminded about the "greed of the rich," while we ignore the malice of envy and a covetous spirit. Politicians appeal to the masses, that taxation is really about "getting even", thus we lose the concept of economic policy that is a tide to raise all boats.
The idea of decreasing taxes to increase government revenue is not voodoo. The democratic president John F. Kennedy, was touting this idea of supply-side economics in the early 1960's. The theory works on the same principle as a retailer that has a sale. The percentage of profit deceases, but the volume of sales more than makes up for it. The same happens to economic activity when taxes are decreased. The reason people have opposed this idea economically, is because they see the whole economy as a pie of a fixed size. Take so much from one area and there is only so much left elsewhere, they contend. If this type of static analysis were true, the economy would still be the same size as it was during the war of 1812.
Okay, so you can't fight something with nothing. I propose that we replace the graduated income tax with a consumption tax, or federal sales tax, exempting a basket of goods and services deemed to be the necessities of life.
This system would have a variety of advantages. First of all, it takes the politics out of taxation. No more can politicians manipulate tax brackets to perpetuate class envy. You don't burden the poor in the process, since a market basket of essential goods and services will be exempted, many will pay little or no federal tax at all. You tend to encourage conservation and frugality, because people can make decisions that effect their total tax impact, regardless of their personal income. Conversely you don't penalize achievement and personal alacrity. People can cease to make economic decisions primarily on the basis of tax avoidance.
Yet another advantage, is that you no longer have the problem of hidden tax passed on by corporations, in the cost of goods. The constant call for increased corporate taxation is largely based on the fallacy that corporations actually pay taxes, rather than merely collecting them. In times when corporations lose their pricing power in the market, the temptation increases to move industry and jobs off shore. When the price of a product goes up, the consumer never knows why, or if price gouging has occurred. Under this system, you would know which portion was profit, and which portion of the total cost was taxation. Because taxation would be wrung out of the cost of the product, it would send prices downward. Furthermore, if you want or can afford luxury, you pay the extra tax without harming a particular industry, like the targeted luxury taxes of the past.
But we have to be candid here; this is an excellent time to mention that any system of taxation will become burdensome, if we don't insist politicians quit spending tax revenues in ways not authorized by our constitution. The primary reason that past tax reduction resulted in increased federal debt, was not a function of reduced revenues, but rather lapse in restraining spending. No system of taxation, regardless of how well designed, can avoid being a fiscal millstone, if there does not exist a mind set to reduce frivolous and unnecessary expenditures.
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