Taxes: I Have a Dream
Let us not wallow in the valley of despair, my friends. We shall overcome. We will not be satisfied until justice rolls down like waters and righteousness like a mighty stream.
I have a dream that one day, as part of a small, regional experiment, the people of my own little county will be declared exempt from the federal income tax. We few will be able to join hands and sing: "Free at last, free at last. Thank God Almighty, we are free at last!"
And we will still be defended by the United States, because even today the feds have enough revenue to support the Pentagon without the income tax. But almost all other federal "social services," those created by the New Deal and the Great Society, will be curtailed.
What would be the immediate economic impact on you, if you were among the subjects of the experiment? Well, that depends. How much income tax do you pay to the feds? $5,000? $10,000? $20,000? More? That much of your earnings would then be yours to keep—in addition to your usual "take-home" pay.
Roughly speaking, personal income would increase by 20 percent to 25 percent. Profound changes would be wrought in our community. Some residents would leave, preferring to dwell in that part of the country that still provided "normal" government services, while we, the readers of REASON, would remain to participate in the grand experiment. It would be an exhilarating time.
Because of the sudden increase in personal incomes, some spouses would elect to drop out of the work force. Many wouldn't, of course, but for the first time in their lives, they would have a choice. How many working couples have ever stopped to think that their "second income" (after taxes) is devoted almost entirely to paying the tax on the "first income"?
Savings would increase dramatically. Within a few years, you could make a substantial down payment on that home you've always wanted. Demand for houses would therefore increase, as would new construction.
Or you could save up enough to start that business you've always thought about. So would other people. There would be new jobs, new products, new services. Before long, we would notice a labor shortage, and wage rates would begin to rise.
People would come from near and far to participate in our booming economy. Poverty would largely be a thing of the past, and those who were still somehow unable to support themselves would be helped by their families, friends, or voluntary charities, generously supported by a now-prosperous population.
Welfare programs sponsored by local government could be phased out, and local taxes would be cut. The cycle of save-and-invest, grow-and-prosper would repeat itself.
The earnings from new enterprises would also be tax free, and the savings thus generated would be available to start yet another cycle of investment, and then another. We would have growth without end, compounding forever.
There would be certain dislocations. Federally assisted businesses would fold, but new institutions, relying on integrity instead of political connections, would replace them. Those who make their living preparing income tax returns would move elsewhere, or learn another trade. Social workers would find that their clientele didn't need them any more, as once-dependent souls began to thrive in their newly created jobs. Local government employees would be let go, to sink or swim in the dynamic voluntary economy.
But fear not for the bureaucrats. In a genuine boom-created labor shortage, even they would find useful work to do—if they cared to stay.
As people saw their opportunities multiplying, confidence in the future would grow. School dropouts would diminish; ambition would soar. Prosperity would sustain increased leisure. There would be a renewed emphasis on the arts, voluntarily financed by citizens, not by politicians using conscripted funds.
As word of the economic "miracle" became widespread, productive people would cross oceans to get here, just for a chance to participate in the newly emerging wonderland.
Ah, you in the back row…you have a question? "But wouldn't the rich get richer?" Of course! And the poor would get richer too.
Another question? "Who would come to a place so utterly lacking in social services?" Let me ask you one. Who wouldn't come?
Consider this: The four states in the United States with the fastest-growing populations are Alaska, Florida, Nevada, and Texas. Is it an accident that those four are among only seven states that impose no personal income tax?
Yes indeed, it may be far in the future, but I believe that one day we'll reach the Promised Land. Why? Because once upon a time, against all odds, the grand experiment was tried before, and it worked—just as in my dream. So it can happen again.
And where was that mythical place? My economic Camelot? Oh, not very far away, and less than four score years ago…it was called the United States of America.
Warren Salomon is an attorney and tax specialist practicing in Miami.
This article originally appeared in print under the headline "Taxes: I Have a Dream".