What is your fair share in taxes?

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President Obama is running around the country talking about people paying their “fair  share”. I think we all know what he means: He wants to take money from the rich and give it to the poor.

But let’s think for a moment: What is the most truly fair system of taxes we can imagine?

If we consider that in our country, no person is above another, then we could conclude that every person should pay the same amount. It doesn’t matter, rich or poor, you are equal in the eyes of the government. The government doesn’t protect the rich more than the poor, or vice-versa, or at least it shouldn’t.

This is a per-capita tax. It’s a very rare tax in the United States but it is the first tax recorded in the nation of Israel. In order to raise funds to build the tabernacle, Moses was ordered to collect the same amount of money from every child of Israel. The rich were not allowed to pay for the poor.

Imagine what such a system would look like. Anything you earned beyond a certain minimum amount was yours to keep. There is no reason why a smart or talented person shouldn’t go on to earn millions, billions, or trillions. Of course, we know that in order to make a buck, a businessman needs to help the people he helps make at least a buck back, if not more. Consider what it took Bill Gates to convince millions of people to give him billions of dollars: he had to give them back something worth much more than the money they paid. So when Bill Gates goes home at night, with billions left over after paying all of the costs it took to make that money in the first place, what he actually kept was a fraction of the wealth he created for other people.

The surplus from these enormous wealth earners ends up in the hands of the laborers. No money goes into Mother Nature or into any other piece of the economic puzzle. Every dollar spent is a dollar earned by someone, whether it is the lumberjack who cut the tree down or the technician who keeps his chainsaw running, or the man working the mining equipment that was used to extract the ore and fuel needed to make the chainsaw in the first place.

Of course, we feel bad because no matter how small of a sum we set for the per capita tax, there are going to be a lot of people who, today, cannot make enough money to pay it. Well, there’s a rather simple solution to the problem. Disregarding those who have no economic worth to our society (and who are usually under the care and supervision of someone who is competent to provide for themselves), there are a great number of people who could work in the most menial job and make some degree of earning. Even in their case, a per capita tax would be inspiration to work a little extra hard for a few dollars extra at the end of the day. They would have a dramatic invitation to make much more of themselves than they currently do. It could be argued that those people who cannot make even a small amount of net profit in a year probably don’t belong as an independent and equal citizen in our ranks, and like those who are physically and mentally incapable of work, should be put under the care of someone who is responsible.

A per capita tax is the most fair tax system imaginable. It reinforces the concept that no person in our society is better or more important than another, and no one is more or less deserving of their one share of ownership of our government.

Of course, the likelihood of implementing such a tax in my lifetime are nil. I propose, instead, the negative tax policy.

The way it works is as follows. Congress retains for itself the power to issue currency and coin. Then congress look at the economic growth of America and issue just enough currency to ensure that the total money available is roughly stable, so that there is no inflation or deflation. They should err on the side of caution, and perhaps program in a 1% or 1/10% inflation year-to-year as a baseline. This leaves Congress with vast sums of money.

How much money? I would imagine that with no taxes whatsoever, the United States would grow anywhere from 5% in a year to 20% in a year. With our current GDP at about $15 trillion, that equates to about $750 billion to $3 trillion in new cash that Congress must issue into general circulation. This is enough to cover the cost of government if you completely eliminate all entitlement and retirement programs, and work on a cash-only basis, that is, never making a promise to spend in the future, but paying all balances in full immediately.

Of course, with the economy growing at such a rate, in 20 years time, we would have even more vast fortunes that must be spent, just to keep the currency stable. That means that $20 20 years from now would buy about as much labor as $20 today. It is foreseeable that congress simply runs out of things to spend the money on, and simply writes a check of the surplus to each American alive.

Would such a system work? Absolutely. It’s worked in the past, and it will work today. It sounds crazy, but that’s only because you’ve been programmed to live with debt as your constant companion. For most of our history, debt was an evil that no one dared court if they could avoid it. The only reason banks exist today is because they, not the government, are allowed to print money and spend it as they see fit. We call this “fractional reserve banking”, and it means that banks get to clone the money in their vaults and pretend it is theirs to loan out. What a stupid system we live under! Why not allow the government to benefit from the increases in the economy, and divide the spoils first on those things that benefit everyone equally, and then to reward all Americans for their hard work?

A good instance of this working is the issuance of Greenbacks in Lincoln’s day. Lincoln simply invented a currency, had Congress print it, and then bought what supplies he needed to fund the Civil War with it. That’s all it took—no borrowing of any sort required.

The trouble is that the rich tend to want to see deflation, since deflation drives coins and bills into the hands of the rich, who can wait out lean times. So the rich encourage congress not to print enough money to match economic growth. The solution is rather simply: Make the House of Representatives the people’s house by giving every 30,000 people their own representative. No rich person or group of rich people could ever hope to sway 10,000 congressional races, where every voter in the race either knew the candidate personally or knew someone who knew the candidate personally. Instead, they would have to focus their time and attention to buying up the senate and state legislatures, which is the way it was intended to be from the beginning: the rich oligarchs run the senate, while the people at large run the house, and never the twain should meet.

Anyway, these are radical ideas, ideas enshrined even today within our constitution, ideas that made America the greatest country on God’s earth long before the rest of the world realized how powerful America really was. America became a super-power long before World War I. World War II was simply America flexing its muscles for the first time the in its history, and the entire world shook at our might. It was not our rise to power, it was simply the rest of the world realizing what had already been true for over a hundred years.

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3 Responses to “What is your fair share in taxes?”

  1. The Observer Says:

    Per-capita taxation is a novel idea that levels the equity of contributions to the treasury relative to the uniform power of the vote to determine how expenditures are appropriated. I have long advocated for suffrage and taxation, at least as it applies to government spending, to be tied together more justly.
    One way I can see a per-capita tax being practically instituted at the federal level is in the form of a federal sales tax, where everyone naturally pays the same amount of quantitative taxes per given product, regardless of their respective net worth.

    If government is a necessary evil instituted for ethical reasons, then the taxation necessary to facilitate that government must be ethical as well. As such, federal sales taxes are not just a practical per-capita approach to introduce equitable taxation across all stakeholders and constituents but are also the ethical answer. I have long said that income taxes – that is, taxation on the fruits of one’s labor – is nothing more than a legalized form of slavery in which the taxed must work for the state plantation for a certain portion of the tax year to fulfill his/her prorated “obligation” before they can enjoy the fruits of their labor for themselves. This approach to taxation is clearly antithetical to the Natural Law and the progressive way in which they are administered further compounds this.

    Sales taxes, on the other hand, are rooted in the fundamental concepts of Natural Law economics (the free market), government (the willing consent of the governed), and property rights (volunteerism). Sales taxes are based not on the fruits of an individual’s labor but on that individual’s consumer choice, which is inherently voluntary and empowers the citizen consumer. Now this approach should not be confused with a European-style Value-Added Tax (VAT), in which taxation occurs at each independent stage of product development in which value is added (in the business model sense). Under such systems, a 5% VAT for a loaf of bread might actually equate to 20% of the final cost to the consumer, because the rate is applied independently on the farmer who grows the wheat and threshes the grain, the baker who converts the grain to bread, the packager who makes the bread presentable and movable, and the distributer who finally sells it. The system I am discussing is a flat sales rate on the final cost to the consumer.

    The pickle is that like most overtaxed, limited government advocates I will never support an additional form of taxation to what is already in place, so as you pointed out this would have to be a complete transplantation of systems in order to satisfy both practicality and ethics – but I agree it can (and should) be done.

    On a separate note, to introduce the relative stability of currency that you are looking for we must do away with fiat currency and return to a commodity standard, along with the elimination of central banking. Without these two fundamental changes that drive monetary policy, there is no way to mitigate inflationism or currency debasement. Inflationism is the key causal monetary factor to entitlement programs, perpetual individual and collective debt, oversized government programs, and economic manipulation (i.e., selling economic growth in terms of GDP when actual productivity has not improved or in fact may have declined). Fractional reserve banking – at least to the degree that we see in modern times (roughly 10% reserves are legally required to be on hand across the industry) – is merely a side effect of central banking; the former cannot exist without the “lender of last resort” in place first because of the obvious moral hazard that is introduced. The functional key to returning the commodity standard to the hands of government is that money – coins or paper that are either composed of or directly represent a commodity (e.g., gold or silver) – should not be issued with quantitative values assigned to them (i.e., x number of dollars or cents). The key is instead to issue these fiduciary media with regulated weights and purities and allow the free market to determine their relative value from there.

    Although I agree with your overall point here – and enthusiastically applaud your tackling such an important issue that often goes overlooked in the political blogosphere – I disagree that the rich tend to want deflation as a rule. The opposite is true in a fiat currency system such as ours of late, in which the rich – by virtue of their receiving the fresh infusions of cash first from the central loaning apparatus (e.g., the banks, executives pulling capital, high-end investment mechanisms, etc.) – are permitted to spend the new currency first before its diminished exchange value catches up to the newly printed note, ultimately leaving it to those who receive the new money last , typically the poorer classes, to feel the drastic effects of currency diminution. By this time the price adjustments have caught up and s/he who has received the new money last through labor or credit have not received new purchasing power to balance the difference.

    At any rate, stability of currency is the ultimate goal here and the most ethical, historically proven, and effective way to accomplish this is to return the money to a commodity standard, thereby making the business cycle and subsequent economy real in terms of exchange values and overall production. This was an excellent read – I enjoyed the thought-provoking ideas you put forth.

    If interested, check out a portion of my own take on this very broad topic: http://giftoffreedom.wordpress.com/2011/10/15/eat-the-rich/

    • Jonathan Gardner Says:

      I think this shows the relative agreement we have on many issues: (1) Our current tax code is grossly unfair, (2) Our current monetary policy is broken.

      I have often thought of which tax is most fair. All taxes have some problem, since all of them cause real economic harm to the people the government is supposed to be protecting.

      A sales tax is attractive because it is the closest thing to a voluntary tax we can have. If the tax rates are too high, people stop buying and selling, and simply trade in basic economic goods and provide the labor and expertise required to build what they want for themselves, or they’ll trade on the black market. If the rates are reasonable, then people will happily trade out in the open and freely. Nevertheless, even a modest sales tax is a strong disincentive to trade. Without trade, we lose our national integrity and society, because no longer do our economic interests align. A high sales tax could destroy the fabric of our economy and society.

      A property tax punishes people who own, and rewards people who do not. Owners are slaves to the government under a property tax.

      An income tax punishes people for earning money. You don’t have to look far to see people who earned millions deferring their earnings. Think of how much that is costing the economy when people refuse to take their earnings home and spend them on their neighbors.

      A tariff hurts our foreign trade, often cutting us off of the same markets that would bring untold wealth into our own borders. With high tariffs, we’d be in the same economic boat as North Korea.

      Among all the taxes, only the per-capita tax seems and feels fair. Perhaps we can make it easier to pay by offering a lifetime per-capita tax, say, $100,000, that if you have the money you can pay off right away. People may choose to make the lower payments, say $2,000 a year, or, if rates are affordable, choose to borrow the $100k and pay incrementally to a bank instead. But there is no economic harm with the per-capita tax. There is a powerful incentive to be as productive as possible, to trade with your neighbor as much as possible, to import and export as much as possible, and otherwise to make out of life as much as you want to make of it. The only disincentive is to sloth and ignorance, which provide no advantage whatsoever as they would for all other taxes.

      I’d love to continue the debate about monetary policy. I’d love to show you the nations, ours included, that settled on a commodity standard, and the damage that occurs when the commodity doesn’t match the economy in growth. There is one and only one compelling reason I can see to tag our currency to a commodity, and that is if we trust God to provide exactly as much of the commodity as we need for our economic circumstances. I can’t imagine that argument having any serious weight in today’s environment. But that’s a different debate for a different time.

  2. The Observer Says:

    I can see the per-capita tax as I think you are describing it functioning quite well, provided it is not a withholding from the weekly paychecks and subsequently tied directly to income wages. It may be a semantic difference but it fits more ethically with my own perspective if the taxpayer must pay a lump sum at the end of the year as we technically do now in some cases (or on a payment plan of some sort), and it is left to the taxpayer to determine how that obligation is accounted for in their finances.

    And I agree that the monetary policy portion is, in itself, a separate and potentially lengthy discussion on its own, but I will leave you with these two thoughts to ponder while you further consider our current monetary issues: a commodity standard in no way must be limited to a single commodity, which if it were I agree might not quantitatively match up with the corresponding demand; and the demand (in the economic sense) that drives monetary need is not the same thing as want/need in the consumer sense.

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