Abolish the IRS (and the Income Tax With It)

No dissenter can ever rest assured he is safe from the arbitrary power of the IRS.

The Internal Revenue Service has been caught engaging in political profiling while processing applications for tax-exempt status. In this case it was against organizations with “tea-party” or “patriot ” in their names and other right-wing groups. Next time it could be libertarian or left-wing antiwar and pro-civil-liberties groups. No dissenter can ever rest assured he is safe from the arbitrary power of the IRS.

Nothing will have been learned from this scandal if all that happens is the firing of some IRS administrators and the issuance of new guidelines on 501(c)(4) applications. That is not nearly enough.

Obviously, tax exemptions exist only because individuals and some organizations are subject to income and other forms of taxation. Congress levies a tax on incomes, then in its “wisdom” chooses to exempt certain activities but not others. This is social engineering, with Congress seeking to encourage some kinds of organizations — while not forgoing more revenue than necessary. The IRS then writes rules to carry out the directions of Congress.

Where possible, people will naturally strive to qualify for exemption by pushing the boundaries of the regulations. That incentive will always be strong because a nonprofit organization that is exempt from taxation will have more resources with which to pursue its mission. Since the language of statutes and regulations is inevitably vague, the IRS will have room to interpret when ruling on who qualifies and who doesn’t qualify for exemption. The line between vigilance and harassment is not bright, and the potential for abuse is great.

It should be apparent that this power, which is inherently arbitrary, ill suits a society that sees itself as free.

Take the current controversy. The IRS says that to qualify for 501(c)(4) tax-exempt status, a nonprofit organization must “be operated exclusively to promote social welfare.” To do that the “organization must operate primarily to further the common good and general welfare of the people of the community (such as by bringing about civic betterment and social improvements).”

What exactly constitutes the common good and general welfare of the people of the community, or civic betterment and social improvements? The IRS will let you know. What does “primarily” mean and how does it relate to the seemingly contradictory exclusivity requirement? This is subject to a “facts and circumstances” test — that is, the IRS will decide. Approved activities are generally regarded as educational, but how broadly or narrowly that term is interpreted is left to the IRS and, if challenged, to the courts. Lobbying for “legislation germane to the organization’s programs is a permissible means of attaining social welfare purposes.” However, direct or indirect participation in political campaigns is not regarded as promotion of social welfare — although an organization “may engage in some political activities, so long as that is not its primary activity. However, any expenditure it makes for political activities may be subject to tax.”

As this demonstrates, once government undertakes to tax income, it acquires even more power through its authority to define “income,” “taxable income,” subsidiary terms, and the rules of exemption. There is no escape from arbitrariness and caprice.

One might propose to remove the government’s arbitrary power by ending tax exemption. But that would make the tax burden worse. And besides, politicians aren’t likely to agree, because they would be giving up the power to dispense favors that manipulation of today’s tax code affords.

There’s a better way to go that’s demanded by liberty and justice. Since taxation is nothing less than the confiscation, under threat of force, of what belongs to productive individuals, it has no place in a free society. In other words, everyone should be exempt from income and other taxation. (Americans lived without income taxation for more than 125 years — except for ten years beginning during the Civil War.) If something can’t be accomplished through consent, contract, and cooperation — without aggressive force — we should ask whether it is worth doing.

When the income tax was first proposed in America years ago, opponents always had the same word of warning: inquisitorial. How right they were.

This column originally appeared at the Future of Freedom Foundation. 

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  • np||

    Americans lived without income taxation for more than 125 years

    b..bu..but what about ROADZ?

    If something can’t be accomplished through consent, contract, and cooperation — without aggressive force — we should ask whether it is worth doing.

    why do you hate teh children?

  • Austrian Anarchy||

    Sheldon's calender must be different than mine, or we use different calculators. My math has 85 years between 1776 and 1861. In 1862 it was replaced by a progressive income tax and established a Commissioner of Internal Revenue.

  • NL_||

    That tax was repealed a few years later, and the next tax they passed in 1894 was struck down in 1895 in the Pollock case. So I guess if you add up the years from 1776 to 1913, then subtract the few sporadic income taxes, you could get 125.

    Of course, the income tax was not an important revenue source for the feds until WWII. Before then, they leaned heavily on excise taxes.

  • Austrian Anarchy||

    Well, Sheldon replied to me on Twitter: "You're right. It was." (1861 an Income Tax).

    So we survived 85 years without an income tax.

  • ||

    That's not entirely accurate though, for the reasons mentioned above. We went without an income tax for many more years after 1861 just as we did before 1861. If you're going to be a nitpicking pedant then I suppose that kind of thing is important.

  • vopiwobypacA3||

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  • np||

    EU cracking down on Switzerland, Liechtenstein, San Marino, Andorra and Monaco, after Luxembourg and Austria gave up their long resistance:

    http://www.reuters.com/article.....S620130514

  • Ken Shultz||

    That money will find somewhere to run.

    Those banks first became exceedingly wealthy in reaction to the French Revolution. That's why so many of them are close to France.

    When money is safer outside the country, it will flee. They recently uncovered evidence that Sarkozy was working to become a tax refugee.

    http://www.standard.co.uk/news.....61697.html

  • ron650||

    Start working at home with Google! It's by-far the best job Ive had. Last Wednesday I got a brand new BMW since getting a check for $6474 this - 4 weeks past. I began this 8-months ago and immediately was bringin home at least $77 per hour. I work through this link, www.Mojo50.com

  • Ted S.||

    Where does the bot stash the money to prevent the IRS from getting its filthy paws on it?

  • John Galt||

    Pakistan, possibly China.

  • Ken Shultz||

    Congratulations, Mr. Richman, on having written The Greatest Post in the History of Hit & Run.

    There are lots of other practical reasons to get rid of the income tax, too. Among them, the income tax makes it more expensive to hire unemployed people, and pay them their take home pay. In other words, people would work for what they take home--but because they have to pay income tax on top of what they earn, companies have to pay people the amount of their income tax on top of their wages.

    Thus, the income tax artificially inflates the cost of hiring unemployed people. What a stupid tax! Even from a utilitarian perspective, income is one of the very last things we should tax.

  • Agammamon||

    The (less desirable) solution to that is to set an income tax floor - make less that a certain amount and you pay no tax on it.

    Given how liberals love them some progressive tax rates, its amazing that they hate that idea - less opportunity for the government to get credit for redistributing money and giving them "freebies".

  • Ken Shultz||

    You're absolutely right.

    It isn't by accident that they didn't try to slash tax rates--even if it was just for poor people.

    They actually raised the payroll tax on poor people--when the unemployment rate was up over 8%!

    I don't know how they sleep at night.

  • Bill Dalasio||

    I don't agree. If anything, our tax system has become too top-heavy as it is. Since the Clinton administration, any cuts have to be loaded in favor of lower tax brackets and any increases have to be loaded in favor of higher brackets. Otherwise the proponent is accused of wanting "tax cuts for the rich" or "raising taxes on the poor". This has created a political environment where too sizable a portion of the population see no particular downside to tax and spend. Setting up a large exemption will only exacerbate that problem. Honestly, it's wrong to say that some people should be taxed at a higher rate than others. The same rules should apply to everybody.

  • ansible||

    are you kidding me!!?
    do you know what the minimum income tax bracket is in some of the scandinavian countries? F***ing 0% (yeah zero)
    do you know what the max bracket is? nearly 50% (which starts at something ridiculous like $200k)

    now THAT'S friggin top heavy.

    the tax system in this country is the most bottom heavy of any in the west! how the hell do you guys even say these things?

    if the US instituted a scandinavian tax system the debt would be paid by tomorrow, everyone's health care would be free, all the roads would be awesome and we'd all have our very own pony that shot rainbows out it's ass... ok, so that last one might not be true...

  • DJK||

    Blah blah blah. The lowest tax bracket may not be 0% (although you could argue that someone making less than $9k or whatever, who doesn't file income tax, is in a 0% bracket). However, there are all kinds of refundable tax credits that essentially bring that down to 0%.

  • Mike M.||

    We already have a system where nearly half the country pays no income taxes after deductions. Has everyone already forgotten Mitt Romney's comnent that the media (including this journal) went apeshit over?

  • ||

    So, to all of you, Bill, Mike, Ken, Ag...

    How would you do it?

  • Bill Dalasio||

    Well, I spell out my tax system for billtopia below. In reality, I could live with a flat tax with a poverty-level exemption (maybe a bit higher). What I object to is the current trend of ever-more progressive tax rates trying to (not really) finance an ever-expanding welfare state. Even setting aside my libertarianish objections in principle, it just doesn't work. Total revenues become way too variable (and that's ignoring the math of how much money you'd need.). You look at moderately non-retarded social democracies, and they realize just what I said. They tend to have (acknowledgedly high) flat rates. They realize you can't do socialism on someone else's dime.

  • ||

    They realize you can't do socialism on someone else's dime.

    True enough as far as it goes, but only by necessity. No country besides the United States can finance an astronomical debt as cheaply, so they have an incentive to keep budgets relatively sane. If they could get by with what we're doing, they would.

  • ansible||

    @Bill Dalasio
    "They tend to have (acknowledgedly high) flat rates"

    total. utter. lie. name one country with a flat rate, i'll name ten with progressive tax brackets

  • Mike M.||

    If we're going outside the bounds of reality and I can do anything I want, first I eliminate Medicare and Medicaid, the biggest scams in America.

    Social Security, I scrap the disability program (the next biggest scam in America), implement means testing, raise the retirement age by a year or two, and eliminate the cap on contributions.

    Next, I eliminate every executive department except Defense, State, and Treasury. I close down every Army base overseas, and eliminate all foreign aid (including to Israel). Finally, the total no brainer of no more stimulus programs and bullshit pork barrel spending.

    Do all these things and we could have a huge income tax cut, and maybe even scrap it altogether.

  • Tom Beebe||

    What do you think of eliminating departments this way? The military has a rule-of-thumb to assure clear and timely communication up and down the chain of command. In general, they have no more than six or eight persons reporting to a single superior. Contrast that with the cabinet reporting to the President:
    1. State
    2. Defense
    3. Justice
    4. Treasury
    5. Agriculture
    6. Commerce
    7. Interior
    8. Labor
    9. Health and Human Services
    10. Education
    11. Energy
    12. Homeland Security
    13. Transportation
    14. Housing and Urban Development
    15. Veteran’s Affairs

    And “cabinet level positions”
    16. Chief of Staff
    17. Environmental Protection Agency
    18. Management and Budget
    19. Trade Representative
    20. Ambassador to the United Nations
    21. Council of Economic Advisors
    22. Small Business Administration

    Is it any wonder the executive branch is out of control? Can you imagine you, as President, trying to get anything done in a cabinet meeting?

    Let’s start over, letting the redundancies and overlaps be resolved by crowding them together.

    1. State
    2. Defense
    3. Justice
    4. Treasury
    5. Human Resources
    6. Natural resources

    I bet it would be easy to assign the agencies of every other department, and the “Cabinet Level Positions”, and the “Czars” who were created to avoid Congressional approval, all to one of these six cabinet departments. How much would this reduce the waste, the overlap, the out-of-control bureaucracy? Might it even make the Leviathan manageable?

  • ansible||

    so why complain that the payroll tax has seemingly gone up (under those dirty lefties) when half the people don't end up paying income tax anyway?

  • mad libertarian guy||

    ANYTHING is better than a graduated, "progressive" income tax where the rules of who pays what are arbitrary and up to nothing more than the mood of a bureaucrat who has to live in Cincifuckingnnati.

    Kill it with fire and institute one (but not more) of the following in order to account for the needs of national governance: 1) a flat income tax payable by all individuals nationwide with no exceptions, or 2) a national consumption tax on all goods and services exempting only food. If the federal government can't afford it with the revenue brought in by whichever tax they choose + the ability to borrow no more than 3%, it doesn't get fucking done. Simple as that. It would cut down significantly on the cost and size of government, and disincentivize graft and the doling of favors to the politically connected.

  • Ken Shultz||

    "A flat income tax payable by all individuals nationwide with no exceptions"

    If it started out that way, it wouldn't stay that way for long.

    If I had to condense the average voter's justification for the income tax, it would be, "From each according to his ability, to each according to his need".

    They think it's a good redistribution scheme. The income tax is really about class envy. The cause of the problem is in the average voter's head.

  • Austrian Anarchy||

    Best description yet. Thank you.

  • np||

    Totally with you man, but even if I believe it's very much practical to get rid of the income tax, or have an extremely low flat tax--the feasibility of both are already demonstrated in modern times in other countries--it's simply politically impossible.

    But assuming it does happen, I think this will be the result: we will still have government growth, and it will be done by monetary inflation, at the while we keep our reserve currency status, and still some time beyond that I believe. Legal tender laws will force us to use that money, and capital controls will be implemented (they already are, partially)

  • Agammamon||

    Then get rid of the central bank also - no more dollar, just a bajillion individual currencies competing in the market.

  • Xenocles||

    "...disincentivize graft and the doling of favors to the politically connected."

    And that's why it won't happen, because it depends on the cooperation of the politically connected.

  • Agammamon||

    ". . .a national consumption tax on all goods and services exempting only food."

    NO EXEMPTIONS and a tax floor where if you make less than the poverty line you don't pay tax.

    Then reduce welfare payments.

  • Finrod||

    This is very close to the FairTax, actually. Instead of a tax floor, it simply rebates to everyone the amount of tax charged on $500 worth of purchases.

  • wareagle||

    a national consumption tax on all goods and services exempting only food.

    which sounds well and good until all the lobbying arms for goods and services NOT called food go to work. Each will attempt to portray itself as indispensable to human life and worthy of whatever tax break/credit is proposed.

    That is the bedrock of the tax system as it exists - every so-called loophole or other tax-avoidance/abatement device is the work of people bribing elected officials to, in turn, bribe us.

  • C. S. P. Schofield||

    If you think income tax is invasive, consider how much government snooper it would take to track all sales, everywhere, of nearly everything.

  • ansible||

    both good ideas.
    low income families would end up paying very little after deductions and high income families would actually pay taxes for once. love it.
    second one also awesome. do you know what an average consumption tax is in the more civilized countries in the west? 20%ish. although, they have progressive income tax brackets. so we should probably put our consumption tax around 40% so the government can... you know, educate our children... you don't hate children do you?

  • Tom Beebe||

    The federal government will gather no taxes except as provided for in this act and make no payment except in return for goods or services rendered to it, or as provided for in this act. There shall be no federal tax any business.

    All shall come together in “households”. They need not be related, need not reside together, and a household may consist of as few as one person.

    Each year congress shall set a "minimum wage" and a "tax rate", to be applied to the previous year’s reported incomes to set the budget.

    The following shall be exempt:

    A year's earnings at the minimum wage, for adults (age 20-65), decreasing 10% per year to 50% at age 15, and increasing 10% per year to 150% at age 70.

    Necessary health care including drugs, vision and hearing aids. Health care insurance premiums may be deducted but not health care expenses paid for by such insurance.

    Education costs including day care, state and local taxes spent on education, parochial school expenses going for non-sectarian education, and private school education.

    Income saved into an account; withdrawals for the benefit of any member of the household are taxable. Withdrawals that are not for a member’s benefit are exempt from taxation.

    The "tax rate" shall be applied to any income above the deductions listed above, regardless of amount. If deductions exceed income, the government shall make payment to the household equal to the tax rate times that deficiency.

  • Tom Beebe||

    The above was edited to stay within the 1500 character limit.

  • WomSom||

    Sounds like a pretty solid plan to me dude. wow.

    www.Prox-Anon.tk

  • Xenocles||

    Given the diversity of Tea Party groups and the considerable breadth of the umbrella label, I'd bet that many of the targeted groups were in fact libertarian ones. The tax day rally I attended in Seattle when this thing started up certainly was dominated by libertarian speakers.

  • Coeus||

    The one I attended in Houston at the beginning of the movement was mostly libertarian as well.

  • mad libertarian guy||

    The one I attended in Houston at the beginning of the movement was mostly libertarian as well.

    I'd imagine that the same Tea Party rally with the same attendees, were it to happen today, would be very much like your average Team RED gathering being that Houston voted for Romney over the one candidate who represented fiscal sanity (as well as Houston itself as a member of the HoR) at a clip of over 5:1.

    I had sympathies for the TP when it first emerged and was focused. Then it did exactly what I thought it would do, which was primarily turn out to be Republicans bitching about Democrats rather than libertarian leaners bitching about government.

  • Coeus||

    I'd imagine that the same Tea Party rally with the same attendees, were it to happen today, would be very much like your average Team RED gathering

    I have bolded the part that makes your statement incorrect.

  • ||

    The TP was hijacked by the socons (namely Palin).

    Not defining their objectives up front was their downfall. They allowed others to do it and lost control to the mainstream Republicans.

  • Finrod||

    Palin didn't hijack the Tea Parties. The SoCons did that all on their own.

  • Tom Beebe||

    I have attended, proudly, both Tea Party and Libertarian events. I hope members of both will recognize their common distaste for big government and join together. Even those who seem far removed from our beliefs, the OWS, might fond common ground. We must not allow ourselves to be swallowed by the main parties.

  • Ken Shultz||

    It's hard to oppose government bailouts without sounding like a libertarian.

  • Xenocles||

    That's true, but I think there are groups out there that also hold considerable socon positions in addition to the fiscal messages.

  • Ken Shultz||

    Yeah, hopefully they'll continue to evolve.

    There's definitely a Ron Paul contingent in the Tea Party, and I keep hoping that they'll make some headway.

    The Tea Party people are almost like Populist libertarians. It's not my brand of libertarian--but neither are the Paul people, the LP or the Objectivists.

  • Tom Beebe||

    You should read David Stockman's comments, in his book The Great Deformation, about the bailouts and about the taxpayer subsidies of huge Wall Street salaries. He's tough on both parties. His list of villians and heros is definitely non=partisan and enlightening.

  • Stormy Dragon||

    The key word is speakers. Tea Partiers love to speak libertarian, but when it comes down to action, there's always a "but" to explain why they have to be statist in this case.

  • Ken Shultz||

    But if we can't convert them, then we don't have any chance with the rest of society.

  • Tom Beebe||

    Talk consistency; you can't get government out of your pocket if you can't get it out of your bedroom.

  • mad libertarian guy||

    The move, described as 'historic' by Germany's Finance Minister Wolfgang Schaeuble, redoubles pressure on Switzerland to open up account details and will likely pave the way for Austria to ditch its own bank secrecy for foreigners.

    By giving the European Commission the go-ahead to negotiate with Switzerland, Liechtenstein, San Marino, Andorra and Monaco, EU finance ministers hope to push for the same rules to be applied to these countries as within the European Union.

    Translation: The EU can enter "negotiations" in which the EU will do everything they can to force the Not-EU to adopt the laws that will benefit only the EU. Because "fuck you, that's why." I'd say the Swiss should look at the EU, give them the equivalent of the finger, and tell them to fuck off while they continue to enjoy the influx of foreign cash. Hell, they might even do well to actively advertise the ability to ditch part of your tax obligations by opening accounts there.

    "Hi. I'm Franz, and I want to know the answer to one, simple question. Are you tired of being strong-armed for your hard-earned income by a government that doesn't know how to live within its means? If you answer yes, give us a visit.

    Honest, secret banking. We're Switzerland, we want you to keep what you earn, and we're here to help you do it."

  • np||

    Those are the low to no income tax countries with strong privacy laws and I knew their neighbors and/or the EU would eventually try ganging up on them.

    In certain circles Austria is famous for Das Safe. Now I'm not so sure if it can still keep its promises, or even be in business going forward

  • Cdr Lytton||

    Too late for that. The Swiss already rolled over for the US.

  • Rrabbit||

    Honest, secret banking. We're Switzerland, we want you to keep what you earn, and we're here to help you do it."

    Switzerland was not able to keep these bank accounts secret. CDs and DVDs full of detailed data have made it out of Switzerland, and have been sold to foreign governments for cash.

  • Agammamon||

    The EU is just taking a page from out tyrranical playbook - play by our rules and give us the advantage or we'll make it impossible for you to make money doing business with us.

    Since we and the EU are large markets, that lure of cash wins out over principaled resistance.

  • Tom Beebe||

    The EU, and its bastard child the Euro, are doomed.

  • Nazdrakke||

    When I read articles like this I experience a bit of conflict. There's my natural libertarian reflex that says "of course we should kill the IRS," and there's another part that has trouble taking it very seriously.

    The problem, as I see it, is that American society would have to undergo some sea-level changes in its consciousness before it could dismantle the IRS.

    Our society is programmed for semi-socialism from a very early age and large-scale coercive taxation is part of deal. People quibble endlessly over fair shares and taxed enough, but there is little questioning of the underlying idea that the political class has a right to x amount of a citizen's income to disperse as they and their buddies see fit.

    I don't see any magic bullets to get us there, but, for what it's worth, I think that applying income tax to everyone and no bullshitting about income levels might move us that direction faster. Let everyone equally experience the fair share and maybe the needle will move, or the frog will get used to the new temperature, who knows.

  • Ted S.||

    I don't see any magic bullets to get us there, but, for what it's worth, I think that applying income tax to everyone and no bullshitting about income levels might move us that direction faster.

    That, and get rid of withholding. It disappoints me every time I hear somebody think he's made out like a bandit because he'd getting a big refund from the IRS.

  • mad libertarian guy||

    That, and get rid of withholding. It disappoints me every time I hear somebody think he's made out like a bandit because he'd getting a big refund from the IRS.

    This.

    All these people have succeeded in doing is to give the government an interest-free loan. Because, you know, the government has shown that it's so trustworthy with our hard earned money that it deserves an interest-free loan.

  • Agammamon||

    Actually, getting rid of withholding may just be that magic bullet - make people notice how much they're paying out by making them pay it directly.

    Once they realize how much the fed and state governments take (and add in how much city/county is also raking in)they have both incentive *and* ability to keep as much of that money for themselves as possible.

    And yeah, I *do* advocate tax evasion.

  • Xeones||

    Step 1: get rid of withholding.
    Step 2: move Election Day to April 16th.

    You might actually see some fiscal responsibility, then, or at least a decrease in Con-gressional incumbency rates.

  • Tom Beebe||

    You also make the case against sales taxes. Taken at a few pennies on every sale, they don't seem so onerous. Put all taxes together in no more than four (quarterly) payments and we see the true cost of government. Its called "transparency". See my detailed post above.

  • mad libertarian guy||

    I don't see any magic bullets to get us there,

    It seems to me that the idea of taxing income is so entrenched in enough of the American psyche that the only way to get rid of it would be to use literal bullets rather than magic ones. About 1/2 of the country subsists off of NOT paying income taxes. There is no way they will submit willing to suddenly having to pay them. Because fairness and, most of all, racism.

  • Ted S.||

    There you go mentioning the 47% again. :-)

  • Almanian!||

    I wish

  • Sevo||

    "Abolish the IRS (and the Income Tax With It)"
    Not going to get a lot of argument with that around here.

  • creech||

    Sounds like Sheldon has been re-reading some old SIL issue papers.

    Is a 501-c-4 donation tax deductible to the giver? I don't recall ever taking a deduction for one, though I know 501-c-3 donations are
    deductible. Shouldn't every non-profit end up exempt from federal taxation because, almost by definition, they have no profit to tax?
    So one problem is the administrative burden of keeping the books and filing a return, which, of course, the group should be doing anyway so its supporters can see how it is using funds donated.
    Even a 501-c-3 has that burden. Its the selective enforcement that is the real problem, and as Richman points out, that swings both ways.
    Guess who won't be shouting it is "only political grandstanding" when President Palin starts targeting left wing groups for special scrutiny.

  • Tom Beebe||

    Here's a start: The idea of ending all taxes on businesses, and financing government entirely from individual income taxes, is probably an anathema to most Americans. But consider these points:
    1. Where but from their customers, you and me, does a business get money to pay their taxes? You’re paying those taxes with each purchase, but they’re hidden from you. Wouldn’t “transparency” dictate that you see when you pay the cost of government?
    2. We decry “crony capitalism. Why? Does it give some enterprises a preference over their competition, in exchange for favors from campaign contributions to outright bribes to law makers? If you think all businesses should be on an equal footing, how else would you accomplish such a condition? If you’d like to get corporate money out of elections, how better than to eliminate incentives to buy those lawgivers?
    3. Health care for employees gives some tax subsidized health care at the expense of others. If there was no tax to avoid, it would, put all workers on the same level playing field.
    4. Having the lowest possible taxes on businesses would make the product of American labor competitive in the world market while preserving higher take-home wages.
    5. It is a far easier call for the IRS to hold all citizens to a common standard than to attempt to differentiate among businesses, unions, religions, and advocacy groups as diverse as the Sierra club or the NRA.

  • ant1sthenes||

    Eliminate income tax and fund all government programs through Kickstarter.

  • Tom Beebe||

    The idea of ending all taxes on businesses, and financing government entirely from individual income taxes, is probably an anathema to most Americans. But consider these points:
    1. Where but from their customers, you and me, does a business get money to pay their taxes? You’re paying those taxes with each purchase, but they’re hidden from you. Wouldn’t “transparency” dictate that you see when you pay the cost of government?
    2. We decry “crony capitalism. Why? Does it give some enterprises a preference over their competition, in exchange for favors from campaign contributions to outright bribes to law makers? If you think all businesses should be on an equal footing, how else would you accomplish such a condition? If you’d like to get corporate money out of elections, how better than to eliminate incentives to buy those lawgivers?
    3. Health care for employees gives some tax subsidized health care at the expense of others. If there was no tax to avoid, it would, put all workers on the same level playing field.
    4. Having the lowest possible taxes on businesses would make the product of American labor competitive in the world market while preserving higher take-home wages.
    5. It is a far easier call for the IRS to hold all citizens to a common standard than to attempt to differentiate among businesses, unions, religions, and advocacy groups as diverse as the Sierra club or the NRA.

  • Agammamon||

    At the very least one of the things we can do is get rid of corporate taxes.

    Corporations don't pay taxes - employees, customers, and shareholders pay taxes. All corporate taxation does is provide cover for double taxing your income.

  • space junk||

    I agree with most positions on here. But it would need to be done in steps one decade a time.

    Decade 1: no withholding, term limits for congress. How about 12 years for Senate and House? Also, end all lobbying.

    Decade 2: flat tax (no exemptions). Maybe 15%? Also, reduce global military foot print. It's called the Department of Defense, NOT the Department of Offense.

    Decade 3: income tax eliminated and introduction of VAT that is constitutionally restricted to no more than 'X' % of the purchase. To me, X=10% or less. Others may have a different number in mind. A good study of projected government income should be conducted to determine that. This way government income and spending is directly tied together with the health of the economy. Also in a constitutional restriction should be a borrowing limit of some percentage to GDP.

    Decade 4: The previous 3 decades will run late on the deliverables. So this is a grace period to sort out the unexpected details.

    Decade 5: Finish up all the cleanup from the previous 4 decades and wind down government assets for agencies that have been eliminated or reduced (selling land and buildings off...office supplies and computer equipment).

    We would be fools to think that we can get out of this quickly without the use of force. So I look at the above as a somewhat peaceful solution to the problem.

    But we still have two big problems:

    1. The electorate is generally really dumb.
    2. The greed of human beings.

  • Tom Beebe||

    Ending business income taxes would be an relatively easy step. Compare it to some reform of individual taxes. I would prefer the latter, but suggest the former as more expeditous. Please see posts above.

  • ||

    So Sheldon, how do you suggest we fund the legitimate functions of government?

  • Agammamon||

    How about a sales and excise tax coupled with a land value tax to supplement local government.

    This way you *encourage* saving rather than spending and debt.

    And - its quite ridiculous that the federal government requires 10 times the money to run that my state government does.

  • Tom Beebe||

    Exempt all savings. Tax only withdrawals specifically for the benefit of a family member. To those who favor going to a sales tax, isn't this the same thing? What you don't save is what you spend. I'd go for a flat tax with a large personal exemption and health care and education along with the savings mentioned above. then we could end all the student loans and grants that are overloading us with unemployable grads while enriching the educational administrators, and trim the health care issue down to size. With these exemptions we could endure a rate up tiowards 35%, which means 35% of our health care and education would be offset by tax reduction. Like you I gag on the 35% marginal rate, but I'm thinking of a personal exemption equal to the minimum wage for every adult. So your average rate would probably be in line with today's.

  • Agammamon||

    An income tax works basically the same as taxing withdrawals - the difference is in record-keeping.

    With a sales tax you don't have to report income and withdrawals to a central beauracracy - seller's just have to report sales and that's relatively anonymous.

  • ||

    With a sales tax you don't have to report income and withdrawals to a central beauracracy - seller's just have to report sales and that's relatively anonymous.

    And now you know why the income tax will never EVER be gotten rid of.

  • Tom Beebe||

    One requirement is that we build and sustain support for whatever plan we come up with. A sales tax is insidious. You pay it a few cents at a time. Quarterly payments of income tax hurt enough that citizens would come to realize the burden that all this wonderful government costs. As to sales vs. income, please consider that if savings are exempt, an income tax is the same as a sales tax; what you don't save is what you spend, and vice versa.

  • ansible||

    @Agammamon
    "This way you *encourage* saving rather than spending and debt"

    wow. which do you think helps grow the economy? saving or spending? go on... think it through.

    also... where do you get that x10 number from? total state and local spending across the US is roughly $3trillion. same order of magnitude as the federal budget... AND about a 1/3 of state spending is actually paid by federal funds... so no...

  • Tom Beebe||

    I presume you believe the Keynesian theory that spending needs to be encouraged. Many including me would disagree. Saving provides investment which along with labor and entrepreneurship creates wealth... the things we all want and need. There is a legitimate issue of class involved in these maters. People in lower income groups need to spend every cent they can get theiri hands on. But the higher ncome groups will invest. How to balance these two impulses has long bothered economists. I support the Austrian school who suggest that natural forces, undistorted by government policy, will tend to the optimum balance.

  • ansible||

    @Tom Beebe
    "Saving provides investment which..."

    investment _is_ spending...

  • Bill Dalasio||

    I've been mulling a question for a little while. Would it be possible to create a contract tax? That is, could you develop a tax that would be assessed on the net present value of a contract at some (presumably low) rate? The tax would be, in a sense, optional in that no one would have to pay it, even if they entered into an agreement. The only thing would be that said agreement would not be legally enforceable. That strikes me as the most genuinely libertarian tax you could create, in that you'd be paying the government for services actually rendered and there'd be no inherently coercive element to the tax.

  • ||

    My way, is somewhat problematic as it requires cutting current spending to only those things enumerated in the Constitution. But this is how I'd set it up if starting from scratch. And who knows, we may get such an opportunity.

    A flat fee. Every man, woman and child pays an equal share of the federal budget. 1/310x10^6. I figure, if all the government did was what government was tasked to do, you could run this country on about a trillion dollars a year. Everyone's share would be $3225.

    Everybody has the same skin in the game. No exemptions. No hiding it. If you attempt to grow the size of government, you are directly hurting the poor. And everybody writes a check once a year so they are acutely aware of how much is being spent.

    Multiple problems solved. Eminently fair.

  • Agammamon||

    Personally I'd prefer a percentage of spending (or income if you prefer) - its progressive enough to assuage my conscience ($3200 is a huge bite at the lower end of income distribution) and still pretty damn fair (it takes into consideration that, to an extent, your greater income is protected by that government - i.e. that the richer you are the more skin you have in the game).

  • ||

    Should a rich person pay more for a gallon of milk than a poor person?

    Why should they pay more for their rights to be protected? Everyone has equal access to government provided services.

    I guess I have no conscience.

    I like a national sales tax more than a flat tax.

  • Tom Beebe||

    I dislike sales tax as they hide the cost of government by hitting us a bit at a time. Death by a thousand cuts. A flat rate income tax with a savings exemption is the same thing; what you save is what you don't spend.

  • gaoxiaen||

    Equal access to government provided services? I guess that's why there are no lobbyists. I'm sure that a cop responding to a call at Mitt Romney's house would shoot the dog and kick the door in.

  • Agammamon||

    Everyone has equal *access* but the rich get more *value* out of (my hypothetical small government arrangement) than the poor.

  • Xenocles||

    Make it a poll tax. That way you have to have paid into the treasury in order to have a say in how it's spent.

  • ansible||

    @Francisco d Anconia
    "A flat fee. Every man, woman and child pays an equal share of the federal budget. 1/310x10^6."

    that's only fair if everyone started out in year 0 of this tax system being paid exactly the same wages... for obvious reasons...

    otherwise a farmer in wisconsin will be paying the same amount for a road (that he almost never uses) as a billionaire who made his fortune transporting goods and services on that road.

    flat rates are obviously retarded.

  • Tom Beebe||

    As my post above notes, I strongly agree with "everybody writes a check once a year so they are acutely aware of how much is being spent." I favored four times, but we agree in principle,

  • John Galt||

    Good article. Valid points, all of them.

  • 4thaugust1932||

    Govt doesn't need our taxes. Govt can print currency.
    Govt is imposing taxes to CONTROL the citizens.

    https://goo.gl/StBEh

    A currency with an automatic devaluation _if_ not spent within a month or so.
    This of course causes things to be done, since money supply is automatically there... and one is forced to spend it...

  • CS||

    http://en.wikipedia.org/wiki/Fairtax

    A practical solution.

  • ansible||

    love it. i'll be shopping online for goods from canada/eu/asia.
    yeah, we should all do that... oh... wait...

  • CS||

    ... and you'll be paying taxes on those purchases as well.

    In fact, the problem is the other way around. Production costs for all US-made goods will go down. Prices (pre-tax) will drop. While the (pre-tax) prices of foreign goods will stay more or less the same. So the FairTax is sort of a hidden tariff on imported goods.

    I don't think that's a big problem though. For one thing, most other countries are using significant consumption taxes themselves.

  • ansible||

    @CS
    "... and you'll be paying taxes on those purchases as well."

    yeah, you are right there. but what i was getting at was the the US consumption tax would be very high. that's the only way you could balance a budget (even with a very limited government). plus, because of the way investment vs purchases is defined i don't think investments would be hit by such a tax, effectively dropping the tax rate for the wealthy to 0.

    not really the way you wanna go with fair tax reform (get it, fair tax, fairtax)

    if all spending (including investments) were taxed, then maybe...

  • CS||

    Someone who creates lots of wealth (high income) and consumes very little right away (low spending) will not pay a lot of taxes compared to today, that's true. But why is that a problem? It's not an argument against fairness or efficiency. It may be *different*, but different is not automatically bad.

    (Imagine if you were proposing an income tax in a society where people were used to a consumption tax based system . Could you defend a massive tax hike for the productive and frugal, and no taxes for those who only consume and create nothing?)

    If you choose to save your money instead of spending it, that's a good thing. It means more available capital and thus a more efficient economy.

    And eventually the money gets spent - and taxed.

  • ansible||

    a truly efficient economy would have $0 in savings at any time. which is misleading cos what that actually means is that any available capital (ie savings) is consumed by investment the second it becomes available

    the thing about flat rate systems that ignore investment is that money DOES get spent, but NOT taxed. if i spend $1000 on some electronics i'm taxed right? but what if i invest that $1000 and earn $500 back. you might say: awesome, and yes it is, but the $1500 i have now is not the same money that i had before

    i essentially transformed $1000 into $1500 rather than transforming $1000 into some electronics. both cases is about obtaining value, but only the latter is taxed

    this creates a huge problem and essentially destroys upward mobility because only the people with extra cash (ie the rich) can invest and spend, the poor can only spend. which means that over time, the people capable of investing will amass cash FASTER than the people that can't. which means that the rich get richer and poor get poorer

    if that's what you want, then sure, flat tax away

    it's not what i want. and it's not what's good for the economy long term, because once enough wealth is amassed at the top, the poor simply can't spend as much as they used to (due to inflation eroding their wealth) and then the economy stagnates and we're all screwed

    TL;DR: investment is spending that is untaxed, creating an advantage for the rich that can be leveraged for more cash (ie the rich get richer)

  • CS||

    In this context "saving" = "investing". A society without savings is a crude stone age society. And investing is not spending/consumption. The wealth does not somehow disappear just because you use it in a productive way for a while.

    Let's use your example. If you *spend* $1000 on electronics you have *taken* $1000 worth of resources out of society, to use for your own pleasure. If instead you *invest* $1000 in a company that makes electronics, those resources are instead (for the time being) used to help create something of value. However, your own standard of living remains the same. (You might gain some pleasure from having financial security, but that's a side effect of the ability to consume in the future.)

    If, one day, you sell your shares in that company for $1500, you now have $1500 to *spend*. And as a side effect, the government will end up with more money than if you'd spent it right away.

    And no, "the poor" do not benefit from a vast and incomprehensible tax code compared to "the rich". The rich are far better equipped to adjust to the system, find the loopholes and lobby the politicians for special exceptions.

    Under the FairTax the truly poor will pay no taxes at all. (Due to the "prebate".) More importantly, economic growth will lead to more/better paying jobs, and it will be easier to run a small business. That's how you help the poor.

  • ansible||

    sorry for the long wait: holidays
    part 1:
    "In this context "saving" = "investing""
    but you do realise that there is a distinction between the two, right? giving $1000 to the bank(saving it) is different that investing $1000. those two things have different meanings and different risks. right?

    as for spending $1000 on stuff or investing $1000: an investment of $1000 isn't resources that you give. money is not a recourse. what that investment actually is is you purchasing $1000 worth of equity. you could argue that "equity" is not the same as "stuff" and you'd be right i guess. the point however is that $1000 has changed hands. that qualifies as a purchase = spending = taxable. if you later spend $1500 and are again taxed isn't really important. that is exactly the same as the company buying stuff off a subcontractor who again bought stuff from a mine. those resources would also be taxed at each transaction point. an investment is also a transaction point.

    that the poor are disenfranchised by the current system i agree with. i don't think your proposal is a solution however. which brings me finally to this gem:
    "Under the FairTax ... it will be easier to run a small business"
    which is not just wrong, but exactly wrong! what you are proposing would kill capitalism! allow me to explain: what consumption tax is is the government levying a fee for each transaction made. so me buying a car, the car company buying aluminum and x other stuff, and the aluminum refinery ...
    continues

  • ansible||

    Part 2...
    buying aluminum ore are all transactions that are taxable. with me? good. so now we have 3 car companies. good competition and good for consumers, pricing being competitive. however, 1 company do something clever. rather than buying aluminum they simply buy an aluminum refinery. so since they own the refinery they no longer need to pay the tax on one of the transactions. that reduces their costs by x% and save them some money. over time they could acquire more and more of the subcontractors until the point where they have no taxable transactions at all since they own the whole supply chain. the other companies either follow suit or go out of business as the first company can simply lower their prices because of lower costs and take over the market. right? this would happen in all areas of the economy with a race to lower costs by owning the whole supply chain. over time you are promoting large super companies because of relying solely on consumption tax.

    so what you've done is kill genuine competition and make start ups impossible (in established areas) since they would be unable to compete with the larger super companies, since they have to pay tax on at least one more transaction (and probably a transaction worth more, since it's higher up in the supply chain).

    in your last reply you didn't really respond to the "destruction of upward mobility" argument that i made. i'd love to hear your thoughts on that.

  • Nicholas D. Rosen||

    Given that even a smaller government would need to be financed somehow, I support a land value tax (for a multitude of reasons, of which reducing the arbitrary power of the tax collectors is one). If you paid the same tax on the land you occupied regardless of whether you were a private person, a for-profit business, a social welfare not-for-profit, or a political group, the IRS wouldn't have to decide whether you were too political to be tax-exempt.

  • ||

    So those without property pay nothing yet receive benefits?

  • gaoxiaen||

    Property taxes are included in rent. Landlords just pass it on to the tenants.

  • juliusaugustus||

    There is nothing to abolish the IRS is a Delaware private corporation which has moved to puerto rico. The Income tax was never codified into law. Taxation is technically voluntary. When you get a drivers license, social security card, sign with the IRS, or what have you volunteer for it.

  • Agammamon||

    Yeah, no.

  • juliusaugustus||

    Actually yes

  • devan||

    Contact your state reps and request that they begin the process to repeal the 16th Amendment. If they will not, a taxpayer strike will be the only way to restore our freedom and liberty.

  • Tom Beebe||

    The strike starts tomorrow! Be in front of your local IRS office to join the protest. You've probably heard a lot of negatives about the Tea Party. Their motto is: "TaxedEnoughAlready" and they echo those who threw British Tea in Boston Harbor, rather than let it be sold to provide tax revenue. See you there?

  • Tony||

    The issue at the Boston Tea Party was never merely taxes, but that tax policy was set for colonists without colonist input, i.e., taxation without representation. Do you have representation in government? Yes? There, the protest demands of the Boston Tea Party are satisfied.

    If you feel you are taxed too much, vote for representatives who pledge to lower them (and cut government programs commensurately). Or protest. Whatever. Not paying taxes you are legally obligated to pay, of course, is rightly a crime. Anarchy is fun for vacations but you don't want to live in a permanent state of it.

  • Death Rock and Skull||

    Fuck "land value taxes" and property taxes. Asset taxes are the worst kind of tax.

  • ansible||

    only for rich people... you know, the guys with actual assets.

  • Rangga||

    It is good to see some detailed information on this topic which is very rarely discussed on the internet. Thanks for this pretty useful share.

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