“All taxes ultimately—the consumer pays the taxes. Nobody else pays the taxes. Corporations don’t pay taxes. They collect them, but they don’t pay them.”
— Dr. Milton Friedman, Nobel Prize-winning economist
“Whatever you tax, you get less of.”
—Alan Greenspan
“…in this world nothing can be said to be certain, except death and taxes.”
—Benjamin Franklin
The video below gives a brief description of our current system as well as a strategy to achieve real tax reform.
Taxes must be paid. They are a necessity if we are going to enjoy the structure and protection that a government provides. However, there are many different methods and levels of taxation. Originally, the US government primarily collected taxes in the form of tariffs and excise taxes. However, in 1913 the US Constitution was amended to allow the government to tax income, specifically through a “progressive” income tax system. Until that point, all taxes were levied at the point of consumption or importation. The income tax however, imposes taxes at the point where the money is earned. This system effectively penalizes production. Further, the progressive component penalizes higher degrees of productivity by increasing the rate of taxation for a higher wage earned. So, a person who makes $30,000 per year is taxed at a rate of approximately 15%. However, a person making $200,000 per year falls in the 33% tax bracket. It is understandable that a person who makes more would pay more in taxes in absolute terms. But, to require them to pay more as a percentage of their income is an ‘unequitable’ system. It is no mystery why a “progressive or graduated income tax” is the second plank in the communist manifesto.
The current system is also too cumbersome. The current tax code sits at approximately 55,000 pages. That is 55,000 pages of rules, regulations and loopholes. The system is too complex for the average American and even for the average politician who writes the tax code to understand. The complexity in the tax code forces companies and individuals to spend millions of dollars each year to ‘try’ to figure out how to comply. This money is essentially wasted on a non-productive task. If the tax code was simplified, this money could be put back into the economy for more productive uses. As said before, the complexity also allows for loopholes in the tax system, which are mainly created by special interest groups through lobbyist in order for a select few to receive special treatment and tax breaks under the current system.
A more “fair” and “equitable” method of taxation is either through a “flat tax” or “The Fair Tax”. A flat tax would impose a flat percentage rate for all wages earned. In this case the higher wage earners still pay more in absolute terms, but they are not subject to an additional tax penalty for a higher production rate. It also simplifies the tax code to what could possibly fit into a single line, because it would just be a flat rate, which would be applied to all income levels and it would close all loopholes if appropriately enacted.
The fair tax would abolish all income tax and payroll taxes and replace it with a consumption tax that works much like a state sales tax. This method is further explained in the book- FairTax: The Truth . You can also find more information at FairTax.org. Both the flat tax and fair tax fix many of the problems with the current tax system. However, the fair tax goes much further to alleviate these problems as well as providing better solutions.
It is important however, that the ultimate end goal should be to restrict the amount of money that is sent directly to DC. Therefore, we should push to get rid of the idea of a vast Federal tax system. That is the only way to realize a Constitutionally limited Federal government.
