Posted on 11/13/2002 2:55:22 PM PST by sheltonmac
[I was asked by a journalist about the issue of alternative means of taxation: income tax or consumption tax. Here is my answer.]
The tax shift is one of the great games of government. In the game, the government uses the prospect of lowering one tax in order to buy support for raising another. The proposal to move from an income tax to a consumption tax is a good example of the game.
The essential key to understanding the trick is to realize that the government wants money and is going to get it one way or another. Zig zagging from one method to another does not change the reality. But it can fool the gullible. And it can raise a lot of money from affected groups during the transition period.
One helpful way to understand this is to think of a robber who promises to stop coming through your front door if you promise to leave the back door open. So it is with the state that promises to stop taxing your income if you let it tax your consumption. The issue is not the method; it is the amount.
The case for the consumption over the income tax rests on these essential claims:
1. The consumption tax is at least voluntary. Actually, it is just as coercive as any tax. Under the income tax, if I earn income and don't pay the tax, I can be fined and jailed. Under the consumption tax, if I consume a taxed item and don't pay the tax, I get fined and jailed.
It's true that I can choose not to consume that item. Similarly under the income tax, I can choose not to earn income. Nothing is voluntary if I am not permitted to exempt myself. There is no such thing as a voluntary tax. If there were, it would be called something else.
2. The consumption tax doesn't tax production. Yes it does. Businesses don't set their own prices, which is why they cannot simply pass on the consumption tax to the consumer. If they could raise their prices without affecting their profits, they would have already done so. Imposing a new tax new on a business, all other things being equal, the business will have to absorb the cost of that consumer tax into its own operations. In this way, the consumption tax is a tax on production, wages, research, investment, and every other aspect of economic life.
3. The consumption tax is easier to collect. Assuming this to be true, why is this necessarily a good thing? A tax that is hard to collect suggests that it less tempting to raise. What's more, a consumption tax might be easy to collect at 1%. But to replace the federal tax with a national consumption tax would require a tax approaching 20%. This would throw markets into chaos, create an overnight black market in everything, and give a great excuse for massive despotism and mandatory record keeping.
4. The consumption tax doesn't tax savings. Generally this is true. But the government should not be in the business of prodding us into a particular pattern of saving and consumption. It should leave that up to us. Saving is great to the extent it reflects individual preferences. Consumption is great in the same way. But there is no way to know a priori what the right mix should be. And think of this: the degree to which the consumption tax discourages consumption is the same degree to which it does not raise revenue. How does the tax-hungry state deal with that paradox?
5. The consumption tax, whatever its problems, is at least not progressive. Far too much is made of the flat versus progressivity issue. Think of it this way. Would you rather pay a flat 40% tax, or finagle your way through a system with 20 different rates ranging from 1% to 39% (all else being equal)? If you knew that you would pay less under a progressive system, that is the one you would favor.
The champions of the consumption tax, particularly those who claim to support free markets, need to redirect their energies, away from the method of taxation to its level. They need to adopt the general principle that whatever the existing tax, it should be lower. Going back to the robber analogy, the ideal system would leave every door and window bolted down.
Let's not reform taxes. Let's eliminate them, starting with the income tax. That is not unrealistic. The income tax this year will yield $1 trillion for the federal government. Cutting that amount gives us a budget equal to the federal budget of 1987. Was the government intolerably small back then?
I agree the 16th Amendment should be repealed, but that can't happen until a proven alternate revenue source is in place. Even without repeal of the 16th, if the IRS is defunded and its records destroyed, it would be very difficult for a future Congress to reinstate the income tax on a whim. Yes, it is a risk, but IMO the greater risk is to allow the income tax to continue to exist, given the historical trend of ever-increasing rates.
"Cutting edge"? Why not repeal the 16th Amendment and get rid of the income tax? Why do believe in simply replacing one tax with another? Don't you want to see government shrink? You are living in a fantasy world if you think a consumption tax will magically fix things. A sales tax can be raised just as easily and be just as lop-sided as an income tax. Like many others on this thread, you seem to miss Rockwell's point. Re-read the last paragraph.
A flat tax is a better choice until it gets to be so onerous as to cause rebellion. The root problem is as described. Government wants so badly to spend our money to get votes, to get promoted, and in rare cases to do good. I, for one, am tired of forwarding 50%+ of my earnings to these bandits. It wears you down to a nub.
Good line for the masses.
No, it can't.
Read Alexander Hamilton Federalist Papers #21. Look it up someitme.
Yes. This is the cutting edge position---historically, economically, in terms of liberty, and (this is the most salient point in this particular conversation)---POLITICALLY!
Why not repeal the 16th Amendment and get rid of the income tax?
I'm game. Where do I sign? That is a key provision of what we have to accomplish...but is a second track towards the same goal.
Why do believe in simply replacing one tax with another? Don't you want to see government shrink?
Spending outside the enumerated powers granted constitutionally is a separate issue...one which will be impossible to remedy first. Before you can attack that leviathan successfully (politically speaking) you have to get the tax system out in the open where everyone can see it in all it's hideous glory. The vast majority of the current load is hidden carefully from public view...but a single tax, collected at one rate at the cash register would lay the tax burden open for all to see.
You are living in a fantasy world if you think a consumption tax will magically fix things.
It won't 'magically fix things'. But it will create a transparent collection system; one that is fair and collected from all equally. It will end the competitive advantage now held by goods produced outside our borders. It will remove the tax burden for our producers who want to sell our products in the world market. It will force over a hundred thousand IRS bureaucrats to go find productive work. It will put tax collection back into the hands of the States where it belongs. It will prevent the federal government from knowing every scrap of my personal business information. It will stop penalizing thrift and productivity, and rewarding cheaters and black marketeers. I could go on...the list of other benefits is extremely long. But hopefully you get my point...IMO you are making the perfect the enemy of the good.
Once we have all Americans with a clear view of the current tax burden, and united in the only tax debate that would remain---the rate---we can then go whole hog, together as a people, in the task of putting the spending monster back within its constitutional limits.
A sales tax can be raised just as easily and be just as lop-sided as an income tax.
I'm sorry, my friend...but you're just plain wrong.
Like many others on this thread, you seem to miss Rockwell's point. Re-read the last paragraph.
I read it in detail the first time, and understand it perfectly. Rockwell is speaking from ignorance and a lack of political vision.
EV
A flat tax is a better choice...
You are unaware that the consumption tax being proposed in Congress right now, HR2525, is the polar opposite of a VAT. A VAT taxes every step of production of every product sold anywhere. The nrst taxes consumption one time only, at the point of final retail sale.
Further, you seem unaware that a flat income tax is a VAT....
Why don't you take a look around here?
Interesting...this is one of the main reasons I support the nrst - it eliminates withholding.
That's simply one more form of rearranging the deck chairs on the Titantic.
Go back and read what the New Dealers who were responsible for the imposition of withholding openly admitted back when they did that dastardly deed in the late Forties...they weren't shy about admitting that their scheme had little to do with revenue collection, and everything to do with social engineering...a phrase they didn't even try to hide back in those days.
You can dress a hog up in frilly clothes, apply makeup and a nice wig, but in the end, it's still a pig.
Under a NRST, you are free to grow your own food, make your own clothing or buy it used, and/or build your own house or buy a used one (only new construction would be taxed). All of those things would keep you completely outside the scope of the retail tax.
Thrift is a virtue, one which would be facilitated greatly under this new form of taxation.
By the way, the other two pluses along these lines would be the fact that we would no longer be taxing savings and investments...the keys to capital formation---the foundation stones of capitalist growth, productivity and living standards.
As is apparent to all, the current system is a direct and constant attack on these bedrock footings for prosperity.
I love you guys that want to make the rest of us seem to be unaware. I stated that it reminds me of the VAT tax experiment. I did not say that I thought it was the same.
It is not as polar opposite as you believe. If you think point of sale tax (POS) does not affect the preceding steps then you suffer from a certain amount of naivete. Manufacturers and sellers will defer as much of the cost as possible to the consumer, always.
A flat tax resembles VAT in no way that I can determine. Your referenced link was unhelpful. I think a flat tax is potentially more honest than any other tax. It hurts us all equally. That is what doesn't exist, and has not existed for decades. Sleight of hand, three card monte, three shells and a pea, are the policies that have dictated our tax code since I have been born. If it changes in my lifetime I will be surprised. Your unsubstianted assertions are not welcomed by me.
If you go out in the pasture and find a big cow pie--then smash it flat---it's still a cow pie.
Taxing income is fundamentally flawed from it's inception. The original income tax from 90 years ago was flat...but it certainly didn't stay that way. Rates were flattened quite a bit in the eighties...but they didn't stay that way.
Your solution is no solution at all...it doesn't even begin to address the most egregious aspects of what we have right now. It simply does what politicians have been doing for years...make someone like yourself believe they are doing something to reduce the burden, when in fact they are doing nothing of any substance.
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