So, Lovely Wife Asked A Question... (Taxation)

From time to time, since we share most but not all of our views, Lovely Wife will ask me to explain why I see things the way I do.

She asked me last night why I despise so many forms of taxation, and what I support instead.

So, here goes. Please note that this is about taxation, and not intended to be an exploration of overreach of government.

First, there are currently three primary forms of taxation, and three secondary forms of taxation, used by the government of the United States to fund its operations.

Those are, individual and corporate income taxes, property taxes, fees for specific functions, fees for regulatory compliance certifications, and sales taxes, respectively.

While I primarily want to talk about the federal level, since the differences at a state level are notable, I will annotate those as I go.

First, there is a base premise that gets misunderstood a lot, or is something of which most citizens are simply ignorant, which is that in order for a tax to be justifiable, regardless of any other factor, all entities paying the tax must derive benefit from its use. This is important when it comes to state and local taxes specifically, because the argument can be made that all federal taxes benefit all citizens, thanks to the use of a general fund for all expenditures.

I personally find that argument a bit disingenuous, since the federal government routinely gives out money from that general fund in favor of things that don't benefit anywhere near everyone, but the argument itself isn't totally unsound, if the government actually operated as it was intended to.

With states and localities, however, this premise becomes more crucially important. An example of a justifiable secondary tax would be charging a fee for a dog license, which is then used to provide veterinary care for local dogs. Everyone who pays it benefits from it; nobody is required to participate. Note here that I am not suggesting such a program; merely using it as a hypothetical example.

But forging ahead, there are some major problems with each of the primary methods of taxation used in the United States. And the arguments used to justify those taxes are annoyingly, frustratingly persistent, despite being entirely specious and without merit.

Primary among those being the so-called "social contract" theory, which states that since all the things you have are things that exist in part due to the society, the fact that you live in the society means you enter your life in debt to that society for permitting you to exist.

This argument falls apart on the grounds of volition; in order for a debt to be valid, there must be a means of avoiding incurring that debt, and there must be a way to pay it off. Neither of those exists in our current system. You cannot leave the country and simply emigrate elsewhere without great difficulty and expense, which is simply beyond the means of most citizens; without means of escape, or the ability to reject the contract, the contract itself is inherently null and void. Coercion cannot carry moral authority.

As it stands, as well, there is no means by which a citizen may give such great service to the country that they are deemed to have paid their debt to society; nobody is entirely exempt from taxation, and there is no means in place to permit citizens to become so. A sane means of doing this would be to trade a period of service - military or civil, but with a risk-based premium for hazardous duty - for tax-exempt status; no such system exists in our society.

The social contract theory is invalid in its entirety, simply because it is the age-old argument of original sin revamped; because you are born, it says, you owe a debt from the moment you draw breath, through no fault of you own; that debt can never be retired, can never be relieved, except for the benevolent if condescending gesture of a higher power, and for most citizens, there is no means of escape from it.

...In other words, involuntary, uncompensated labor...

So.

Property taxes and income taxes suffer from the same flaw, and corporate income taxes do as well, but at one level removed. That being, all three primary methods of taxation assume total ownership by the government of all assets, real or intellectual, in the United States.

This directly contradicts the base premise upon which our government is founded; your right to your life. Without the right to own property - and by "own," I mean "can dispose of or use in any way which doesn't directly harm others or infringe on their rights without interference," - you cannot sustain your life. Without the right to own property, the right to life is meaningless.

So. Income taxes, whether individual or corporate, and property taxes, all assume that property, and money, belong to the government first; you have "earned," on payday, only the right to keep what the government permits you to keep.

...Otherwise known as involuntary, uncompensated labor...

Corporate taxes are a bit trickier to explain for most people, but I will cut through the morass.

Corporations do not pay taxes. Their customers and shareholders do. All of those people - those individuals - are the ones paying any tax levied on corporations; those taxes are only "corporate" in name. In actual effect they come directly out of your wallet, as a consumer, in the form of increased prices - effectively a second, sneakier income tax on you.

This, incidentally, is also the reason I hate it so much when people crow about one candidate running a budget surplus, and lambast another for running a deficit. In a free society, where you have the right to own property, a budget surplus cannot be morally justified; if the government has more money than they need, it is their bound duty to return it to the citizens from whom they took it. You will note that this, in fact, does not happen; instead, each year the budget grows, until it consumes any surplus. I'd far rather have a government run at a slight deficit (although the current deficit unquestionably does not qualify under any definition of the word "slight,") than one in which the government steals too much of my money and then finds things to spend it on.

Now, regulatory fees are a whole different ballgame. It is actually fair for the government to require a fee for an inspector to verify that regulations have been followed; however, most of those regulations are absurdly specific for the simple reason that it allows for higher fees, and for no other meaningful reason. This is actually a means for a smaller body of government to fund itself, provided that the fees are not unreasonable and the regulations not unnecessary. (Delving further into this, however, calls for an entirely separate blog post.)

Fees for specific functions are risky. A good example is driver licensing; at heart, it is a simple regulatory compliance inspection. Can you drive well enough to be permitted to join other drivers, or are you a huge danger to all and sundry? However, the immense machinery that has grown up around it has turned renewing your license into a much more expensive proposition than it should be, which makes it unduly expensive for many citizens.

As well, the ever-growing insistence on using it as a means of primary identification makes the growing price of that identification a risk of disfranchisement; a voter cannot be prevented from coming to the polls by means of a mandatory fee, or the entire idea of representative democracy is false. (This is the flaw in most voter ID plans; they propose a series of good ideas, and then want to charge a prohibitively high fee. The only way it's justifiable is if it's available to everyone eligible to vote.)

And then we get to sales taxes.

Sales taxes are entirely justifiable, and come in two forms: the classic "sales" tax, or the European-style "Value-added Tax," or VAT.

You may be a bit on your heels after seeing my flat statement that these taxes are justifiable. So I will add one more comment, and then explain both.

Sales taxes are justifiable but stupid.

One of the primary functions of any duly constituted and morally legitimate government is that it protects its citizens against - what's that phrase - "all enemies, both foreign and domestic."

That seems oddly familiar, somehow.

*Ahem*

So, the government, by performing its primary task, has provided a venue for commerce that could otherwise not exist. As a free citizen, you are protected both from foreign invaders, and from robbers, con artists, fraudsters, and other such predators. (Granted, the government's performance in that regard has not been all that stellar. But it hasn't crossed the line into illegitimacy on that front yet.)

Accordingly, you are able to engage in trade. Sales and VAT taxes are, effectively, paying the government directly for having provided that protection; as such they are justifiable.

Sales taxes and VAT taxes, however, differ widely in the burden they place on the economy.

A sales tax, applied fairly, adds a certain percentage to the price of every transaction full stop.

As a product moves through its development stages to the market, this application happens repeatedly, and causes the total cost of that product to balloon beyond measure, until it simply becomes unaffordable.

This is one of the primary drawbacks of the so-called "FairTax Initiative," which purports to be a flat, fair, across the board tax, until the authors of the plan figure out that the way they designed it absolutely destroys any hope the poor have of ever escaping poverty, and probably of staying alive; at that point they devolve into ever-stranger methods to contort their tax plan around so that it doesn't do exactly what it's designed to do, ultimately finishing in a form that is ruthlessly unfair, lays a gargantuan burden on the rich while allowing the poor to evade it entirely, and demolishes the economy through massive cost inflation (or, in an alternate version, doesn't, but also doesn't provide enough revenue for the government to stay even marginally solvent.)

VAT taxes, however, add a fixed percentage to the full cost on the first transaction, but on subsequent transactions only tax the difference in value. In other words, selling copper ore to the smelter gets taxed; selling the ingots of copper to the wire factory taxes only the increase in value; selling wire to the ISP taxes only the increase in value. Accordingly, its impact on price inflation is much less dramatic than a sales tax, and it can be applied easily across the board without being unfair to anyone.

In fact, a VAT tax is inherently, voluntarily progressive. Luxury goods go through far more stages of improvement than do common ones; accordingly, they are far more heavily taxed, and yet...

...

...And yet, nobody is required to buy a sports car. 

Fresh produce, for example, goes through hardly any taxable stages between the farmer and the supermarket; food ingredients in general are much less developed and refined than more recreational property. A VAT tax would greatly impact the poor, by making fresh produce and less-refined, more healthy foods actually less expensive, just through the process of development and refinement, than today's endlessly processed junk foods.

And on any product, the more steps taken to improve it, the higher the tax burden becomes, while remaining entirely voluntary. Nobody is required to spend the extra money; nobody is statutorily required to undertake a higher share of the tax burden, and yet...

...

...And yet, because rich people have the ability to do so, they will tend to buy luxury goods anyway; thus voluntarily assuming a higher share of the tax burden of the nation, which both satisfies the angry poor (or it would if they thought their way through it, anyway,) and lends the tax the force of moral authority.

Another plan that has been offered, and is quite popular, is a flat tax. This type of thing is typically accompanied with a great outcry about fairness; "everybody pays the same!"

Riiiiight. Except for the fact that poor people use a far higher percentage of their income on subsistence than rich people do, which means that a flat tax has a needlessly, disproportionately high effect on poor people. Rich people love the idea of flat taxes, by the way; it means they can shrug and say "I paid the same as you, what's the problem?" and then fly away in their private jet, secure in their moral justification, while their poorer neighbors still struggle to put food on the table.

I do not support income, property, flat, or sales taxes as a means of financially supporting a government.

I do, however, support a system of primary VAT taxation supplemented with regulatory compliance certification fees limited by some sort of separate blog post about how to set that up, and direct fees for optional  services.

I do not believe in involuntary, uncompensated labor, guys.

And you may have noted my use of that specific phrase.

That's because it is the definition of slavery. And that's what most taxes are: a means of reducing your population into slavery.

Calling someone "slave" in the bedroom is hot.

Calling someone slave when you mean it is as far from hot as you can get and still be in our galaxy.

Instead of trying to justify systems of taxation that have been used for hundreds if not thousands of years as a means of controlling the population, let's think about the concept of a tax permitting voluntary association and commerce to fund the government.

Imagine a social contract in which the government provides you a safe place to exist, and in exchange, you are asked to participate only so far as you want to.

I would sign that.