Why the Income Tax must Die

When the founding Fathers built this country, there was no such thing as income tax. Your earnings were yours to spend as you wish.

In fact, at the time, a tax on Income would actually have been illegal (under Article 1, section 2, Paragraph 3 of the constitution, if you were wondering)

Over the years, there were several attempts to introduce a Federal income tax, but every time it was ruled as unconstitutional. It wasn’t until the Seventeenth Amendment was ratified in 1913 that a tax on Income actually became legal. This is important because there is a school of thought that says “we’ve always had an income tax”. It is simply not so; in this country, income tax is a more modern invention than the electric light or the motor car.

What we do have now is Big Government, with expense to match. And it is getting bigger. Whether or not we agree about the size of Government, it has to get its money from somewhere, and some kind of taxation is required. The question is what kind?

I would favor a national sales/consumption tax such as the FairTax. Under the Fair Tax, you pay a National Sales Tax of 23% (30% if you calculate it as an inclusive tax) on all new goods purchased.

The main objections to the fair tax are as follows:

  • It is regressive” That is an economist’s way of saying that it punishes the poor. WRONG: A major component of the FairTax is the “prebate”, a rebate of the taxes for your basic needs. If done right, the poor will pay little or no tax.
  • It would cause massive inflation” True… sort of. Adding a 23% tax will push prices up, but that’s not the whole story. Imagine your business kissing goodbye to FICA, Social Security Tax and Income tax with no more Federal payroll paperwork; this would simplify payroll dramatically. Because of this, businesses would be able to convert the majority of their useless paper-pushers into productive personnel. John Stossel put it well: “If more energy and money is spent on accountants and lawyers instead of engineers and scientists, it’s not good for the stock market or for anybody, with the exception of the accountants and the lawyers“.
  • It would represent a massive upheaval“. So did World War II. There is no reason that it has to be done right away…
  • It would decimate the accountancy profession“. And whom would that inconvenience? Re-read the John Stossel quote above.
  • It would decimate the IRS” Ditto. While the rest of us jump for joy. This is a disadvantage how?
  • It’s not really fair” What is? Is Income Tax Fair? Is Life Fair?
  • It would punish retirees“. True. They paid income tax all their working life, now we raise their cost of living. Easy solution; given them a double or triple-prebate.
  • It would punish those with young children” The needs of a small child are many: I suggest doubling the prebate for those of pre-school age.
  • Some people would try to avoid paying taxes“. Last time I looked, tax avoidance was legal, tax evasion wasn’t. And evading a sales tax is more difficult than evading income tax; think of all of those illegal immigrants and others currently “flying under the radar” who are not paying taxes now, and imagine them paying sales taxes.
  • There would be a huge black market for tax-free goods” And there would also be a corresponding market for ex-IRS men in big black boots. Problem solved.
  • It would decimate the financial services industry“. No, just the part of the industry that tries to take advantage of tax loopholes.

Now let’s look at the advantages:

  • Less bureaucracy: With no income tax, employees wouldn’t have to muck about with payroll deduction, which would effectively cut their human resources/personnel requirements in half.
  • Less Paperwork: We, the People would not have to keep tax records all the days of our lives on the off-chance that we might get audited one day.
  • Privacy: Without an income tax, the Government loses it’s biggest reason to go poking it’s nose into the financial dealings of we, the people.
  • More incentive to frugality: The money you receive is not taxed. The money you spend is taxed. If you want to save taxes, you spend less.. This also removes one of the two great disincentives to saving (taxes and inflation). Your savings, incidentally, grow tax-free…
  • Everybody Pays: Illegal Immigrants, and those who work “off the books”, will be finally assets rather than liabilities.
  • Easier accounting: Corporations who sell stuff are already used to charging sales taxes; it is a lot less hassle for them than it is for we, the people.

To implement the FairTax requires more than just passing another law in Congress. It requires the repeal of the Sixteenth Amendment. If you don’t do this you will end up with both income and sales taxes and a double-whammy for we, the people.

The best solution I can think of would be to repeal the 16th at some point in the future – say 16-20 years away. This gives people ample time to manage their careers so that they are not “caught out” when the tax regime changes.

I would actually be worse off under the Fair Tax. But America really needs this.

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