Political and Moral Aspects of Taxation

 

In the last post (Economics of Taxation 101) we looked at the subject of taxes with the emphasis on the economic effects of the various taxation schemes.  There are also some fundamental considerations of Liberty and Property rights that are relevant to taxation mechanisms.

As was desirable in the previous post, we will divide the taxation types into direct taxes and indirect taxes.  The latter are primarily use taxes or consumption taxes, and as such can in many cases be avoided with some inconvenience by not using or consuming from the markets.  The direct taxes are imposed on the individual or his property and usually cannot be avoided.  These latter are a direct affront to the freedom of those that are taxed, in that failure to pay such taxes will subject the individual to loss of property or liberty by the taxing authorities.  Thus direct taxes are in principle a declaration by the government involved that some or all of each person is the property of the government.  The extreme example of this is the conscription of individuals for military service, where even the life of the taxed is the property of the government.

Aside from conscription, the worst example of direct taxation is the Income Tax, where some portion of the labors of the individual and any return on his savings and investment is declared the property of the taxing government.  Thus any person that contributes to the economy in labor or in capital is in fact no less a serf than the medieval peasant.  The claim that Americans are ‘free’ is merely a fiction useful for keeping the peasants in line. 

Retail consumption taxes are the best example of indirect taxes that can be avoided, and as such are defensible to the extent that they are fees for maintaining the convenience and privilege of a free market.  The infrastructure and legal system that is necessary for a properly functioning free market economy is not without costs, and sales taxes are entirely justifiable on that basis.  This does not, however, apply to taxes that are designed to distort the market in favor of products or producers that are preferred by the taxing agencies, or to tax revenues that are used for unrelated purposes.

Any taxes that end up affecting the prices of goods and services are indirect in that one can avoid them by producing for one’s own consumption rather than consuming from the markets.  However, the justification for any such taxes is murky at best, in that money is fungible and is very likely to be diverted from justifiable maintenance of the market environment to ‘fraud, waste and abuse’.  The typical government is usually the source rather than the solution to this problem.

Real estate taxes are a second major source of abuse of direct taxation.  They can be justified to some extent by the ‘user fees’ argument, in that there is a certain amount of burden to the infrastructure of every piece of real property.  The costs of maintaining services used by the property owner such as water, sewer, electricity, communication, and transportation are reasonable to consider as due from the property owner.  To the extent that these costs, such as for roads, are necessarily provided by the government they justify some use taxes.  Real estate related costs may even be in part determined by the area or the road frontage.  In particular, parameters such as resident population, transient population and transient traffic loads are appropriate in determining the proper level of taxation to provide necessary government support for the property.  On the other hand, taxation based on market value and improvements is a classic example of the state declaring that the property is really state owned and that the ‘owner’ has only an exclusive lease on it as long as the ‘rent’ (tax) is paid.  Again, any property that is unused and presents no burden to the local infrastructure should be essentially tax free, and any real estate taxes should only be imposed as user fees.

A final affront to the taxpayer is the loss of privacy.  Direct taxes are the perfect excuse for the government to pry into every nook and cranny of the citizen’s existence.  The Income Tax, as usual, is the worst offender, where the government has its nose into your bank accounts, your employer’s records, etc., purported to make sure that no one is hiding taxable income.  Real estate taxes based on market value gives the local busybodies an excuse to case your home and even peer into your windows to make sure that you haven’t improved (heaven forbid) your abode.  Personal property taxes can be carried to the extreme of (in West Virginia) requiring the resident to list not only virtually every asset but even dogs and horses, and in years past sheep.

The bottom line is that, as was pointed out above, the American citizen is far from ‘free’, in spite much rhetoric to the contrary.  The government owns your liberty, your butt, your income and your property, and will relieve you of any or all of it at any sign of a lack of genuflection.  It might be possible to improve or even correct this situation with a knowledgeable citizenry and some major additions to the Constitution, but it’s very unlikely.

 

 

FUNDAMENTALS OF TAXATION 101

 

This essay will examine the various taxation schemes governments have devised to fund their parasitic existence, and to fund their operations, both desirable and undesirable. In addition we will examine who pays for this largess, and show that with little exception all taxes are paid by the consumer.

To begin with it is desirable to categorize taxes into two groups, direct and visible taxes, and indirect and invisible taxes. The first group includes, among others, point of sale taxes, title taxes, excise taxes, real estate taxes, property taxes in general, and of course income and payroll taxes. The second group includes inflating the currency, tariffs, sales taxes that are embedded in the price, and oddly also all of the direct taxes, including income taxes. This latter point is little appreciated and the major impetus for this essay.

The fact that virtually all of group one taxes directly affect the price of goods and services purchased in the market leaves little doubt that these taxes are paid by the consumer. They either reduce the amount of money that the consumer has to spend in the market place, or they increase the price of the goods and services the consumer buys. The direct taxes are plainly visible and can be understood by every consumer that is affected.

On the other hand the indirect and invisible taxes require considerably more time and thinking to appreciate how much is paid and by whom. These taxes deserve a more thorough discussion.

Inflation of the money supply is only possible in the case of fiat currencies. Unfortunately virtually all of the major currencies in the world are now fiat currencies and can be increased at will by the controlling governments. In the case of the U. S. and the dollar, this is accomplished by the Federal Reserve, which is supposed to be independent of the government but is in fact a creation of the Federal Government and therefore ultimately under its control. Thus creation of more money by the U. S. government is not only possible but has been used more and more to cover deficits between income and spending. This is a tax on everyone that uses dollars in that the extra money created and spent by the government drives up dollar prices for everyone else.

President Trump has reintroduced tariffs, i.e. taxes on imported goods, both for income for the government and as a economic weapon against foreign countries. Tariffs can increase prices of imported goods to compensate for the increased prices of domestically produced goods due to various taxes paid by domestic producers, but in that case tariffs are paid by the U. S. consumer. However, if the foreign importer has enjoyed a windfall profit by pricing his goods the same as the domestic producer, he can eat some or all of the tariff. Unfortunately the American consumer still pays the same elevated price, but in a real sense the importer is paying the tariff.

In the U. S. most sales taxes are only applied on final retail sales, so the embedded sales tax is mostly irrelevant here. However, ALL the direct taxes – real estate taxes, retail sales taxes on capital expenditures, income and payroll taxes, etc. – that are paid by every U. S. entity involved in getting the goods and services to the consumer are also embedded in the price and are therefore paid by the consumer both in and out of the country.

This last point is the main takeaway from this essay. Every American that contributes to making goods and services available to the market has to include all the taxes he pays in his price for his contribution to net a desired or necessary profit to support his existence. Thus the fundamental fact is that the consumer pays virtually all the taxes, not the worker making the product, not the corporation he works for, not the rich ;individual who owns the corporation that the socialist claims will pay, not even the trucker who delivers and the retailer who sells the product. All of these pay taxes only to the extent that each of these consumes the goods in the marketplace. The consumer pays either by sales, excise, tariffs, etc. taxes embedded in the prices of the goods and services he buys, or by losing buying power with the income, real estate, personal property, etc. direct taxes he pays. Even the parasitic welfarite that lives off of government largess has his or her consumption reduced by the price increases representing the taxes added.

The principle presented in the last paragraph is why the Income Tax is such a bad idea, and why replacing it with a National Sales Tax is greatly preferred. Even if such a tax would be at a rate to replace the Income Tax revenue to the government, the consumer would not be paying more that he does now since he pays it all anyway. In fact, by eliminating the gargantuan IRS empire and the indirect costs to business of complying with the insanity of the Income Tax code, one would expect that effectively the consumer would pay less. It is almost impossible to put a number on the indirect costs referred to here, especially since currently every business decision is made worrying about the tax considerations. No wonder Marx listed a graduated income tax as a major tool in destroying a country.

One last consideration as to why the Income Tax is a terrible idea. The contribution of the Income Tax to the price of all goods manufactured in this country makes a major contribution to why American exports are non-competitive in world markets. This burden cannot be offset with tariffs or the like, and the elimination of such would go much further than tariffs to make the U. S. a dominant economic player in the world markets.

Years ago Milton Friedman stated the principle that the total taxes that a government takes in must equal the total expenditures. The U. S. government does not really operate with a 'deficit'; it just collects that part of its income from the indirect and invisible taxes. This author would add the principle discussed above that all taxes are ultimately paid by the consumer. These two principles should allow taxes to be understood in spite of all the noise surrounding the subject.

THE LEFT AND CHARLIE KIRK

In 'Language and Human Development' (1), I argued that the child from age 2 to about 12 is in an information absorption state, or in more modern jargon, is programmable. Even though, as I then argued, the adolescent teenager becomes somewhat rebellious and a know-it-all, what he or she thinks they know is mostly what has been programmed during the learning period. In mature homogeneous societies this programming of the religious and cultural mores, and the general knowledge of the society, plays a major role in its stability.

Unfortunately, this programmable aspect of the human child plays a negative role in the current battle between the political Left and Western Civilization. In a democracy the majority of voters determine what the government does. Since by definition a half of all voters are below the median in intelligence, co opting the support of the lower half can be a winning strategy for controlling the government. This is the bread and butter of the Left, which these days is the Democrat Party.

The founders of our government knew this and alluded to 'Qualifications' to vote for the only direct representatives of the people – the House of Representatives. Presumably they hoped that even the lower half of the qualified voters would be intelligent and knowledgeable enough to make reasonable choices for their representatives. But inexplicably they left it up to the States to determine these 'Qualifications' for even the Federal elections. This is the Achilles Heel of our Constitution. In the last two centuries Constitutional Amendments have not only resulted in the Senate and even the Presidency determined by the popular vote (with a minor peculiarity resulting from the Electoral College), but in addition the States have eliminated any semblance of qualifications for voting. The current crop of elected Democrat politicians leave little doubt that, without 'Qualifications', the lower half of the electorate is not competent to vote for their government, or even their representatives.

The Left's Marxist movement is now over a century old. Its strategy at first was to co-opt the blue-collar workers by infiltrating the labor unions. This was less successful than they had hoped, perhaps because Western Civilization workers were reluctant to cede total control to the government. It helped that the rate of collapse of communist experiments across the globe woke up too many 'low information voters' (Rush Limbaugh's favorite term).

During the mid 20^th century the success of several despots in co-opting the youth – Hitler's Brown Shirts, Mao's Red Guard, etc. – led the Left to change their focus to the educational systems. This approach has the advantage that, as described above, the child is innately programmable until puberty, and that programming is almost impossible to undo.

Using the educational systems to program the youth is almost perfect, but a problem remained. The nuclear family can, if aware of the problem, block the ideological programming of the schools. Thus the Left launched a parallel effort to augment the takeover of the educational systems with the destruction of the nuclear family. Feminism pushed the married female to get a job and let professional baby sitters raise the young. This effectively blocked most efforts by the family to interfere with the programming of the young by the Left. The degree of support of socialism by the younger generations is testimony to the effectiveness of the Left's current game plan.

Charlie Kirk was a serious threat to the Left's indoctrination of the young. Charlie had to go. However, assassinating Charlie may have been the wrong strategy for nullifying his efforts. By making him a martyr they have lost significantly more ground with the young than they have gained. Fortunately, intelligence has never been the long suit of the Left. 

 (1)   Musings and Rants - 1985-2016,  Marcus Everett,   CKCPC3 Publishing, Nowata OK 

Income Tax Burden

     

The fact that a large number of current jobs are directly the result of the Income Tax is NOT a good reason to retain it. The argument that it provides work for these people is the same as the 'broken window' theory - that it is advantageous economically to have windows broken because it makes work for glaziers. Although a work force repairing windows that are accidentally broken is necessary, breaking windows to create more repair jobs is obviously insane. But that in effect is the Income Tax. There are several alternatives to the Income Tax to finance necessary government, and the gargantuan army of 'window repairmen' servicing the Income Tax monstrosity could be employed in much more productive efforts. The deleterious burden on business of the Income Tax is so great that putting the Federal Bureaucrats, lawyers, CPAs, bookkeepers, etc. that are required by the Income Tax on welfare and eliminating the Income Tax would be an economic gain for the country.

The total effect of the Income Tax on the economy is virtually impossible to determine. The word insidious is defined as working or spreading harmfully, subtle but treacherous, gradually but secretly causing harm. This describes the Income Tax, in that a graduated Income Tax appeals to the lower classes because it looks like it can tax the rich and not them. This is the sinister aspect of the Income Tax, in that the cost to the consumer of all the Income Tax paid by every worker and business in this country that is involved in bringing the product to the American consumer is included in the final price of the product. This includes not only the workers and businesses that contribute to the production and delivery of all goods and services bought by the consumer but also all those parasites that are required to do all the necessary bookkeeping and other paperwork involved in determining and remitting the Income Tax. In addition there is the completely indeterminate cost of the many economically negative decisions that are made because of the arcane Income Tax rules.

A word in passing on a related subject. There are morality aspects to the many forms of taxation that seem to be given little consideration in modern America. In particular, Income Taxs are essentially a statement that an American citizen is in fact a serf of the Governments, Local, State and Federal, that he/she lives under. The situation is no different than that of the King in medieval times requiring a percentage of the productivity of each peasant to support his opulent living style.

Replacing (absolutely NOT in addition to) the Income Tax with tariffs, sales taxes, excise taxes, etc., should be a no-brainer. The problem is to educate the public to the total cost of the Income Tax, direct and hidden, and thus to the resulting loss of competitiveness of American made goods in both domestic and foreign markets. Adding tariffs on imports to offset the embedded cost of the Income Tax may help domestic producers for sales in this country (mostly paid by the American consumer), but it does nothing to make American goods more competitive in foreign markets.

Lastly, the fact that citizens of the U.S. are no more free than the medieval peasant should be galling to every hard working American. We fought the Revolutionary War in part over a tea tax. Let's hope we don't have to repeat over a serf tax.