When facing such obvious injustices as France's ancien régime, Russian czarism, or our own 1040 form, men and women of restrained temperament have an understandable urge toward random and immediate violence--and the presumption that the destruction of the present unsatisfactory oppression could only be followed by something better. But the French and Russian revolutions remind us that it is indeed possible to move from bad to worse.
Should friends of liberty in America rush to embrace radical reform of the federal corporate and individual income tax? And if so, which plan is better, Archer's or Armey's? Armey would tax "consumed income," exempting savings and investment, capital gains, and interest and dividend income. Unlike the present tax structure, all income would be taxed once and only once. Inheritance taxes would be abolished: You already paid taxes on that money, so it's yours. Armey contends a flat tax of 17 percent that exempts savings would do less damage to the economy, spur job creation, and be seen as fairer and less intrusive.
Archer, however, argues for a national sales tax and gives four imperatives that guide his thinking: First, the new system must not tax savings and investment. Second, the IRS must be abolished. Third, the new tax system must capture the underground economy. And fourth, the tax must be border adjustable (i.e., the tax must be removed from American exports and added onto imported goods and services to American citizens). This, as Pete DuPont has observed, describes not a national sales tax, but a European-style value-added tax. Any sales tax large enough to replace the income, Social Security, inheritance, and gift taxes (all enforced through the condemned IRS) would immediately become a value-added tax since avoidance at the retail level would force tax collectors to move to the wholesale level and backwards through manufacturing, as has happened in every European nation.
In comparing Dick Armey's flat consumed-income tax and Bill Archer's national sales tax/VAT, it is important to begin by outlining just what criteria determine the "best" or least destructive tax.
The most important aspect of any tax is that it be difficult to increase. This means a tax should be visible, painful, and applied equally to all taxpayers. Politicians love invisible taxes. How many times have we heard Ted Kennedy and Dick Gephardt urge that corporations pay more in taxes? Of course, the only way that General Motors gets any money to pay its corporate income taxes--or property taxes and wage taxes, for that matter--is to include the taxes in the price of cars it sells to the public.
Bill Clinton's 1993 tax hike "on the richest 1 percent" actually raised two-thirds of its revenue from small businesses filing as subchapter S corporations. Thus all Americans pay this "millionaires' tax" when they shop at the grocery store or go to the dry cleaners. Yet Clinton says--and may actually believe--that people don't pay his tax, businesses do.
By contrast, property taxes have the virtue of being paid in lump sum installments--not dribbled out as in a sales tax or withheld like the income tax. It's no accident that the first success of the contemporary tax revolt--California's passage of the Jarvis-Gann Proposition 13 in 1978--was a measure to roll back property taxes. Subsequent efforts to cut income taxes and sales taxes have been less successful, in part because those taxes are less obvious to taxpayers.
Dick Armey's flat tax would abolish withholding and require that all Americans send a check to Washington each month, just as we pay our rent, phone, or utility bill. Now this is creating truly revolutionary conditions. Monthly checks to the feds will be painful reminders of the cost of government. By contrast, the sales tax or VAT will hide the true cost of government. Sen. Dick Lugar (R-Ind.), speaking at the Cato Institute in favor of a national sales tax, was asked how much he paid in local sales taxes last year and he didn't know. Every citizen will know exactly how much he or she is paying with Dick Armey's flat tax. A tax bill hidden in a VAT will mask the deadweight cost of the state.
After visibility and painfulness, taxes should apply equally to all taxpayers--and perhaps as important--be seen to do so. Armey's bill would unify taxpayers by having all taxpayers pay one rate and by eliminating almost all deductions. With its many complicated deductions, one of the problems of the present tax code is that some taxpayers think that they are benefiting from deductions and are "getting away with something," despite their heavy tax burden. A flat tax not only puts all taxpayers in the same miserable relationship with the state but also lets taxpayers feel confident they are all in the same situation.
To the political class, the greatest virtue of the graduated or progressive income tax is that it allows politicians to divide taxpayers into discrete groups that tax increasers can target and mug one at a time, rather than having to take them all on at once. Bill Clinton worked hard at this, telling Americans, "Pay no attention to my little tax hike, I'm only going after the top 1 percent." The taxman's strategy is to divide and conquer, a little bit at a time.
Such a ploy works extremely well. The business community remains quiet when the personal income tax is raised or inflation shrinks the value of personal and dependent exemptions. Then individual taxpayers remain inert when business taxes are raised. Politicians such as Clinton and Gephardt even play to class envy, urging one group of income earners to hold the politicians' coats as they expropriate another.
In Massachusetts, the establishment left has tried five times through the constitutional initiative process to repeal the present requirement that the state income tax have one rate. Those who want higher taxes and more government know they cannot raise the income tax as high as they would like if they must face all taxpayers at once. Offered the chance to see "average taxpayers' taxes fall while the rich pay more," Bay Staters have rejected the siren call of envy. Dick Armey, in fact, may want to take a cue from Massachusetts and codify single-rate language in the Constitution.
When it comes to treating everyone equally, Archer's sales tax/VAT has no advantage over the present income tax. Every VAT in Europe has multiple rates. Politicians extort campaign funds from cowed industries that fear having their products taxed more or that want their product exempted from the VAT. Products are labeled "necessities" or "luxuries," and taxed at politically determined rates. In America, we already have politically driven multiple rates on sales of goods and services such as tobacco, alcohol, and hotel rooms. Sen. Daniel Moynihan (D-N.Y.) has suggested a 10,000-percent tax on gun ammunition. A national sales tax would politicize the "virtue" and "sinfulness" of every product and service in America.
The progressive or graduated income tax divides Americans by income class and treats them differently, just as racial preferences--whether old-style Jim Crow laws or new-style affirmative action--divide Americans by race. And for the same reason: so we can be divided against each other by the state. It is no coincidence that the graduated income tax and racial preferences are collapsing at the same time. Americans wish to be treated equally before the law. This is neither South Africa nor East Germany, despite the best efforts of Clinton and Gephardt to divide us against each other, first by race and then class.
There's another reason to be wary of a sales tax or VAT: Canada, Japan, and every European nation have a national sales tax or VAT and a personal income tax and a corporate income tax and wage taxes. In fact, it has long been a goal of the Democrat party to add a VAT to our present tax burdens. I remind readers that Hillary Clinton has three times argued for a VAT to pay for her German-style government-run health care plan. As further proof, remember that Bill Clinton has three times denied such plans for a VAT.
Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time.
nfl jerseys|11.17.10 @ 12:49AM|#
hyttgd
سهمي|12.11.10 @ 4:46PM|#
asgasg