A Flat Tax Would Be Fine, A Consumption Tax True Perfection

The intensity of the ongoing Republican presidential debates has a very uplifting silver lining. Specifically, the competition ensures a much needed discussion of the proper mode of federal taxation.

Texas Governor Rick Perry seeks somewhat of a flat tax, and the positive implications of such a move would be quite something. Not only would this reduce the price of work for most Americans, but it would make tax preparation a snap such that a lot of fecund minds whose employment is a function of byzantine tax laws would be released into more productive lines of work; the U.S. economy a certain beneficiary of such a scenario.

After that, a flat tax (not Perry’s unfortunately for now) presumes the zeroing out of the myriad economy-distorting deductions that amount to the federal government rewarding its likes and dislikes through the tax code. To put it very simply, tax rates – particularly on high earners today – are high precisely because deductions reduce the burden. A flat tax would remove politicians from the business of offering favors, and the certainty wrought by something flat would drive all manner of productive work to a higher level.

All this said, a flat tax remains a price. Worse, it’s a price placed on productive work effort. As it stands now, a flat tax would serve as a cost and penalty placed on economy-boosting endeavors. We’re used to being fleeced at various rates at this point, but the idea that our work costs us something per federal whim should horrify us, not to mention that a flat tax ensures that the vital few who do the most to enhance our economic spirits would pay the most to the federal government under such a regime.

I wanted to take this one step further.
Assume we are both American Citizens. You make 10K I make 100K. We both drive on the same roads and are defended by the same military. Given a 10% income tax you pay 1K and I pay 10K for the same benefits (roads and protection). If we both pay 10%, I pay 10X more than you do for the same benefit of our citizenship.
If we pay 10% of our consumption (above and beyond our income tax) and you spend every dime of your 10K and I spend only half of my 100K I still pay 5X more than you for the same benefit.
My savings of 50K (which was taxed as income) contributes to our national wealth and is available to investors as loans. They grow and hire workers with that money and I get interest from that savings(loan). Those folks make money and I make interest. everybody wins! If the government takes it only the elected class wins.

You equate caviar-stuffed lobster and ramen noodles. I’ve had both (minus the caviar). They are not the same.
.... If I have $50, and you have $5, and together we go to Wendy’s to each buy the same burger costing $4.50 with a 20% sales tax; who gets to eat, and who doesn’t?.....

I guess I will have to buy a cheaper burger, whats the problem?

... Or, to put it in terms of income: if I make $150k, and you make $30k, and we each buy the same $20k car with a 20% sales tax; who pays a greater percentage of their income (wealth) as tax?......

Um what difference does it make, they both pay the same percentage, a fair tax. Whether you spend you 150k on a car or not is up to you, if you decide to buy a 20k car and save the difference or buy a more expensive burger with your money how can that be unfair?

Actually, the thing about the Founders supporting consumption taxes I had no problem with (other than saying that they ALL favored it).

I'm not sure how taxing the first dollar of the poor is any more regressive than taxing the first (and each subsequent) dollar of the rich or middling.

I fail to see how a sales tax will stop the rich from getting around U.S. taxes other than by changing how they go about it. In the case of a consumption tax, they'll avoid it by not consuming in America, but rather consuming elsewhere. Foreign buyers would do the same. And if the sales tax would have an accompanying tariff(which would be necessary to make it effective), those willing and able to avoid both taxes by leaving the country would do so.

I'm still not seeing the origin of the income tax in the Manifesto. I believe (tho I'd have to research it) that income taxes existed before Marx was born. Otherwise, what were the Founders preferring a consumption tax TO?

Marx recommends a graduated, "progressive", income tax to redistribute wealth to and through the government. It's a type of income tax that the Manifesto suggests; not ANY income tax.

For that matter, even progressive income taxes likely pre-date Marx. And, not all progressive income taxes would achieve his ends. For instance, a king could impose a progressive income tax and simply keep all the money without redistributing it to the less wealthy.

Lastly, though I didn't address it, some Founders having preferred a consumption tax doesn't make it the best idea (or even a good one). I'm not saying that it isn't the best idea; it might well be. But Jefferson's and (especially) Madison's "say so" isn't as magical to me as it would have been prior to my reading The Anti-Federalist Papers.

I'm dubious of the national sales tax for four reasons:

1) I don't know enough about taxation;

2) It would do less to solve problems than to stop some problems and create new, unfamiliar ones;

3) No person that I've heard advocate in favor of a sales tax has adequately explained how such a tax would not be regressive, and;

4) It has been called the "Fair" tax. In my experience, such names are given only to proposals which are the opposite of what they claim to be. This may not be the case with the "Fair" tax; but, it's pretty standard for politicians naming legislation or regulation, and is typically a tool of statism ... it makes me suspicious.

If a wealthy person's consumption is modest he does save on taxes but his frugality allows him to save his earnings from redistribution by force of government decree. He could donate those savings to charity or to his family and friends. He could blow it in a casino if he wants. He earned it! He could invest his savings into companies (that hire more workers with that growth capital), but he would want to share in their profit. If he and all the wealthy are modest in their consumption, however, only those workers making Escorts would have jobs and the Cadillac builders would have to find something else to do. Folks make choices based on their resources. Almost half of the population now pays no income tax because they are below the threshold. The folks who pay nothing benefit from the government to the same extent or more than the person paying 40% currently (fed income only).

Shouldn't everyone, who is able, help pull the wagon?

But back to your Wendy's example. Say it costs Wendy's $4 bucks to make that burger and they sell it for $5 to turn a profit. With a lowering of the tax costs and not just the amount paid but the man hours spent calculating exemptions from our 70,000 page tax codes, it would reduce the cost to produce that burger and they could sell it cheaper to make the same profit. If they didn't pass on those savings to the customers we would, being thrifty, eat at burger king who does pass on the lower tax cost burden.
Prices go down as the tax code is simplified.

Of course, If every one earns the same and buys the same items we would have no inequality. We would have communism.

Show me where I said that Marx INVENTED the income tax. What is said was that the income tax came to US right straight out of the Communist Manifesto and that is true. There have been many attempts at some form of income taxation going all the way back to ancient Egypt and every single one of those ended very badly for the rulers who imposed them.

The income tax, ANY income tax requires to close a relationship between the tax enforcer and the tax payer. It requires the modern equivalent of the Spanish Inquisition for it’s enforcement. A sales tax can be paid in a manner that keeps the vast majority of tax payers completely anonymous to the tax collector . THAT is how FREE men should pay their taxes! Again quoting Jefferson ...”by reason it has not so direct a relation to the person.”

The income tax is imposed on exactly the WRONG end of the spectrum in that it taxes effort and input. What we put in to the economy vs what we take out of the economy as a sales tax would do.

The income tax, in ANY form, leaves the decision as to exactly what is, or is not, “income” with the government and THAT seemingly small thing is at the root of all the current corruption in Washington!

A sales tax is not regressive because it is applied equally to all purchases. Those with very low income are taxed at one percentage, and those with very high income are taxed at the exact same percentage. That’s flat.

I know the argument is that sales taxes are regressive because if you are paying taxes on necessities, then a higher percentage of your income is taxed. This has nothing to do with tax rates being progressive or regressive. Those are defined by rates, not by total amounts. If we are to believe that sales taxes are regressive, then by definition we must accept that flat taxes are highly progressive (a contradiction).

Additionally, this is a very weak argument in general. Those with lower income pay a higher percentage of their income in general. Screw taxes - rent, food, clothing, car payments, insurance, you name it - EVERYTHING lower income people spend money on requires a higher percentage of their income. That would mean that the price of goods and services is regressive in and of itself, which is completely illogical.

"...The socialistic and anti-social character of the income tax is inherent. Imbedded in the philosophy of the law is the destructive principle, so that once it is in effect the economic and political consequences are inevitable. The principle of the income tax is the denial of private property.
There is nothing in the Sixteenth Amendment, there is nothing in the principle of the income tax, which puts a limit on the amount the State may demand, and hence the implication is clear that the individual's absolute right of private property is denied.
The theory of republican government, that its powers are derived from the will of the people, is no safeguard against this denial of private property.
Assuming that the Sixteenth Amendment at the time of its enactment did express the will of the people, every one of them, the substance and effect of income taxation was to destroy the will of any subsequent generation for modification or revocation.

It is unlike any other law. For the denial of the right of private property is in essence the denial of the right of the individual to himself. He is no longer a free person if he is not free to keep and enjoy the products of his labors..."

Excerpted from From Solomon’s Yoke to the Income Tax by Frank Chodorov

I don't know Frank but but I do know that he is right as rain in what he's said here!

From Solomon's Yoke to the Income Tax and you really should read the whole thing!

No, it's not.

Whether a tax is on income or outgo, what is taxed is wealth -- what you have. A percentage of the price of an item is not equal to a percentage of a person's wealth. An equal price is a different percentage of two individuals' wealth depending upon the amount of that wealth.

A sales tax is NOT a flat tax!

...who pays a greater percentage of their income (wealth) as tax?

You are right! You DON'T know much about taxation! Equating income with wealth is a VERY bad mistake made by many but it is VERY instructive never-the-less.

Warren Buffet, a name we have heard a lot recently, takes in BILLIONS of dollars annually but takes only $100, 000 as his personal compensation which he pays income taxes on. There are many more who do the exact same thing. (Again that little What is the definition of "income" conundrum arises!) They live very well, consuming like crazy, but pay very little if anything in income taxes. With a sales tax in place that would not be possible!

If what you excerpted is indicative of the rest, I WILL NOT read the whole thing. The insanity you posted is enough.

Income taxes can be any percentage of income. True enough. But it can never be greater than income, A SALES TAX CAN!

What is magical about calling it a "sales tax" that makes it immune from being increased by politicians?

If you have already had your right to private property taken, why are YOU STILL HERE? By that logic, America is not engaged in socialism headed towards communism, ... it is currently a totalitarian FULL-ON communist state.

If we have a sales tax rather than an income tax, how does that have less impact on the right to private property? If the sales tax is 1000%; then I cannot buy ANYTHING. Then, I HAVE nothing. Then, my right to private property has been taken from me .... by a SALES tax!

You have a right to the fruits of your labor, your private property. You have a right to keep it all to yourself and pay no taxes. You DO NOT have a right to the benefits of the LEGITIMATE powers of a government if you choose to not pay taxes at all. Forgetting questionable purposes like roads or firemen; if you choose to keep ALL of your private property and pay no tax at all, you cannot claim the benefits of citizenship in ANY civil society.

This Chodorov's argument is not one against income taxes or for sales taxes. It's an argument against ALL taxation. ANY taxation MUST come from the private property of citizens. Where else would it -- could it -- come from? To say that the absolute right to private property can remain "absolute" while living under ANY government (i.e., within ANY civil society) is not an argument about the best way to tax private property, it's an argument for ANARCHY.

CHOOSING to avail yourself of the benefits of a government and a civil society, REQUIRES giving up some of your private property. Conversely, choosing to NOT give any of your private property in the form of taxes, means that you have NO right to the benefits of a civil society. No military, no police, no courts, no law, no LAND within the territorial borders of that society. No protection for your private property other than what you can provide yourself, and no place to keep your private property that you cannot seize on your own.

Good luck with that.

BTW, how's that "anonymity" benefit of a sales tax going to impact illegal immigrants?

Pretty good, I would think. After all, if the benefits of citizenship are contingent upon the payment of taxes (and they are), then an anonymous tax will allow for anyone to claim the benefits of citizenship.

If you pay all the taxes of a government, how can you be denied the rights guaranteed by that government? How could you be denied citizenship, and the right to .... oh, let's say ... VOTE.... if you pay the only existing tax that allows a government to exist?

Heck, forget illegal immigrants; Europeans on vacation in DisneyWorld will have the right to vote. Not to mention any Islamist, communist, fascist, or aborigine FROM ANOTHER NATION who pays the U.S. "sales" tax.

Congrats on your back-door amnesty, open-borders, borderless society, nation-killing "sales" tax.

Warren Buffet, a name we have heard a lot recently, takes in BILLIONS of dollars annually but takes only $100, 000 as his personal compensation which he pays income taxes on.

The mistake is YOURS, not knowing what the word "INCOME" means.

Those BILLIONS that he "takes in" (your words, not mine), are his INCOME. His IN COME. It COMES IN. He TAKES IT IN. It is his IN COME. INCOME.

The fact that his "SALARY" is not the sum total of his "INCOME" is a separate matter.

What you own is your wealth. Your wealth is what you TAKE IN --- your IN COME, INCOME. Where else do you figure wealth COMES from? And how do you get it, if it does not COME IN ("in-come", ... get it?) to you?

I will converse with you further when your grasp of the English language improves.

The ONLY way to stop that in it’s tracks is to institute a tax system which would allow virtually all taxpayers to, as our founders intended, pay their taxes in a manner that is COMPLETELY anonymous to the government.

This is not an issue of revenue or even of money. It is an issue of freedom and of privacy. The direct taxation of income gives government bureaucrats access to complete knowledge of nearly all aspects of your life because they need to collect data on where you make money, where you spend money, to which that money is given in charity, where that money is invested or placed in trust. How much income is generated from those trusts, and a myriad of other things they can use to control your behavior.

If this excuse for societal control was removed then freedom would increase exponentially.

We need to stop framing the argument in financial terms and start making this a freedom issue because that is where the battle needs to be fought.

BTW the Bureau of internal revenue was not disbanded in 1872 when the first income tax was abolished because congress deemed them necessary to ensure that the current "revenue" was sufficiently collected.

The BIR then became the IRS in 1913 when the current income tax was instituted

Thank you! You have perfectly illustrated my point and the mistake is NOT mine but yours. The people in Washington do NOT speak the same English language that you and I do and your definition of ‘income” is NOT the one currently holding sway there!

Perhaps you should explain all that to the folks in Washington and the IRS because I’ll guarantee you that he does NOT pay income tax on anything like what he takes in right now!

Accumulated wealth and current income are two ENTIRELY different things my friend! Educate yourself!

If I have $50, and you have $5, and together we go to Wendy's to each buy the same burger costing $4.50 with a 20% sales tax; who gets to eat, and who doesn't?

Why is the guy with $50 going to Wendy's when he can have a fine meal at an upscale restaurant?
Why is the guy with $5 going to Wendy's when he can't afford it?

Why are either of them wasting their money on greaseburgers when they could be visiting my website (see tagline), where even the "poor" guy can stretch his fiver for two days of food, and the "rich" guy can eat nice meals for two weeks and _still_ enjoy a bottle of bourbon?

Your analogy is just as absurd as sending the guy with $50 to Café Anglais and complaining that he doesn't get to eat. (Story is a dinner there runs around 1000 francs.)

Likewise the car analogy: why is the guy making $30k buying a $20k car? Why does someone have to pay a higher tax just because someone else wants to spend beyond their means? (which I write as a guy who drives a 12-year-old car I bought 6 years ago for $1000.) Or, to reverse it, why is the guy making $150k buying a $20k car instead of a $100k one? should he get jailed for tax evasion?

If you're living a 5x or 10x lifestyle, living on the inverse of that isn't going to cut it. For someone living a life where $50 lunches are the norm, spending $5 at Wendy's isn't going to cut it and for a reason (you don't take big-money clients out for cheap burgers); likewise, someone who pays 2/3rds their income on a car isn't going to cut it and for a reason (now he CAN'T go even to Wendy's).

Upshot: people tend to spend on par with their income. If you're making a half-million a year, you tend toward the $50 lunch and $90k cars; if you're making $50k a year, you tend toward the $5 lunch and $15k cars - and under a flat tax, the taxation is about the same fraction just like cars & lunches are.

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