Why Tax?

We’re told taxes fund otherwise unavailable services and equalize well-being to some extent. But is that true? No. Our system is unfair and breaking fast.

Is there a fair method for taxation? Many say progressive taxes are fair. People with more should be taxed more because they can easily part with more. But this view ignores the Fifth Amendment takings clause, which bars illegally confiscating property. Everyone must be taxed at the same percentage rate to avoid this. Only a flat tax accomplishes this; for example, 10% per household.

Should corporations pay taxes? No, since that’s double taxation. It takes the same income twice to tax both the corporation and its owners when they receive dividends. The same is true for inheritance taxes.

Should government pay the poor to be poor? Few would argue against helping the poor but there may be some unintended consequences. First, if payments are offered not to work, some will choose not to work, especially if the payment is close to what work pays. This is basic economics. Of course, some are poor due to circumstances beyond their control and deserve our help.

Second, a voting group attracted to poverty payments has an incentive to demand more payments in cash and in kind (e.g., medical benefits, which are in-kind payments). If everyone can vote, at some point the system may be overwhelmed with votes for more and more payments.

That’s why not every adult citizen should be allowed to vote, which is a path to the government becoming fiscally overwhelmed and, eventually, insolvent. The simplest and most effective restriction would be that, to vote, a citizen must own some minimum amount of property. Property owners, having skin in the game, will have less incentive to take property through taxation.

Additionally, people would have an incentive to acquire property so that they could vote. This would generate support for the market system and teach people how America works and should continue to work. This would offset attempts to undermine capitalism in the schools and elsewhere.

What is the correct level of taxation? At present levels, taxes are orders of magnitude too high, making proposed higher rates unconscionable.

Consider the following question: Why is it impossible for the Feds to cut the budget by even one dollar? Can it be that politicians misunderstand both government’s purpose and the built-in incentives to continue misdirecting government’s functions?

Taxation was meant to support a government that provides only for personal safety and national security, property protection, a court system, and a reasonable approach to rules of the market game. But don’t we need taxes so government can help the poor, build roads, support the schools, provide medical care, and so forth? No. There are reasonable, effective, and efficient alternatives!

We don’t need taxes to help the poor. Charitable organizations would fill that space in a much more effective and caring way for those truly in need.

We don’t need taxes for roads. Private toll roads will suffice.

We don’t need taxes for schools. Families should pay directly for their children’s education. While families may wish to help other families pay tuition (see charitable organizations above), there is no reason that they should be forced to pay for others. Obviously, families paying directly for education would have much more to say about how the schools they support perform—and teachers would answer directly to their customers.

We don’t need taxes for medical care. Doctors and hospitals would do just fine as totally private entities. In fact, they would innovate to provide better care at a lower cost.

The list goes on, but the basic point is that we only need taxes to support the very limited but important functions that government was originally designed to do. We don’t need a government that does anything and everything that a lobbyist can think up. Even if that lobbyist is your lobbyist!

A little over one hundred years ago, all government spending in America was about 2% of GDP. That was enough to support the government services the Founders designed.

The Founders recognized that democracy in America would fail, so they formed a republic designed to last. Unfortunately, they did not take into account how the Civil War made possible central government’s growth at the federal and state levels, augmented by those who claimed government was the answer to alleged market failure. That begat D.C. and state government centralizations.

Growing tax levels, complemented by debt, have fueled the government’s amazing growth. In 2020, the government spending level was above 60% of GDP; larger than at the height of WWII (45.7%). There is no analysis showing that such spending is an improvement on the period when 2% was the norm.

The evidence shows that failure of mandated government far outruns free-market failure Freedom and government require balance. America is unbalanced to the point of disintegration.

Christopher Garbacz is an economist who lives in Madison County, Mississippi.

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