Wednesday, May 27, 2009

Taxation - It's the Principle of the Matter

My primary job today is simple. I aim to convince you what the primary cause of most all the ills we see with the Federal Government today is.

And what are these ills I speak of. Let’s see; excessive government spending, or I should say excessive deficit spending; non-uniform taxation that is really pure wealth redistribution; out-of-control illegal immigration; Socialized Health-Care; and explicit Federal encouragement of criminal activities against Americans.

It pains me to hear enraged Americans complaining about issues such as these under the misguided assumption that they are somehow separate problems that can somehow be solved separately.

These are symptoms, not problems in and of themselves. And like any symptom, they won’t go away unless the underlying problem is taken care of. The symptoms may linger a bit and need to be addressed, but to do so while the underlying problem still persists is total futility.

So, what is the underlying problem?

It is money, which in terms of the Federal Government means taxation.

Now any form of government must have money to exist, and it is also a fact that the only way a government can get money is to confiscate it from its citizens. The trick, of course, is that a good form of government only confiscates as much money from its citizens as it needs to perform legitimate functions that only a Government can provide.

That definition of legitimate functions that only Government can provide was laid out for us in the late 1780s by a group of wise men in Philadelphia. The means of taxation to pay for those legitimate functions was also laid out. Our Founders explicitly forbid methods of collecting taxes that would allow the U.S. Government to even have enough money to think beyond those legitimate Constitutional functions they spelled out.

When taxation is boiled down to its simplest forms there are only two types; direct and indirect.

Direct taxation is, as it sounds, confiscation based on the fact that the citizen exists. That is not to say that all citizens have taxes directly taken, but those that are taxed are done so with no regard for choices they make but rather based on the fact that he or she actually lives.

Indirect taxation is, as it sounds, confiscation based on choices that the citizen makes. In all practicality, this means a usage tax or a sales tax.

If you have the slightest doubt which is preferable to freedom and success, please review the history of mankind. Direct taxation always ends badly, as in citizen revolt, totalitarianism, cronyism, economic collapse, etc. Indirect taxation, however, is always linked with freedom, economic growth and stable societies.

Our wise Founders knew history as well as common sense; Article I, Section IX of the U.S. Constitution says explicitly that NO direct tax could be imposed. They did, however, provide a caveat whereby direct taxation could be imposed (one must assume they meant for temporary emergencies) but ONLY if all citizens were required to pay the exact same amount.

Why do indirect taxes work whereas direct taxation always fails?

Indirect taxation is confiscation based on economic freedom. The tax system is self-regulating; if the taxes (ie usage tax, sales tax) are perceived to be onerous citizens exercise their free choice to curtail the activities subject to the tax. Thus, indirect taxes result in low taxes and efficient governments. Indirect taxation goes hand-in-hand with free market Capitalism.

Direct taxation is confiscation by violence. Citizens subject to these taxes (usually decided based on politics rather than fairness or equality) have no say over the amount taken from them unless you make the silly argument that they could CHOOSE to starve and/or die to escape the taxes. The government imposing such taxation has little incentive to limit taxes for any reason other than to try and stave off rebellion. Direct taxes result in high taxes and inefficient governments. Direct taxation goes hand-in-hand with Totalitarianism.

The United States was established as a Federal system with a small, limited central government with most governmental powers being reserved for its individual States. The national Government was never to have many powers and thus was purposely limited in the types of taxation it could impose. At the time that meant tariffs and excise taxes, effectively meaning sales taxes on luxury items.

And then along came the Progressive movement of the late 1800s and early 1900s.

Many attempts were made during this period to expand the Federal (or national) Government’s reach into areas that constitutionally they had no business getting involved in. The two forces holding back these early Progressive forces were the Supreme Court (back when they actually seemed to take their jobs seriously) and the U.S. Treasury (which had nowhere near the money to fund all the attempted Federal expansion).

Enter the 16th Amendment, ratified in 1913, whereby Congress obtained the keys to the confiscatory kingdom (ie direct taxation authority) in exchange for a promise never to impose such taxes over more than the richest 1% who would never pay more than a 1% income tax rate.

That deal worked out real well for one of the parties involved, didn’t it?

So since then we have allowed the existence, and ever-growing expansion, of Federal Income Taxes; individual income taxes, corporate income taxes, capital gains taxes, Social Security taxes, Medicare taxes, etc. And during that exact same period we have allowed the existence, and ever-growing expansion, of the United States Government.

ANY tax based off income or wealth is a direct tax. Contrary to what many Democrats and Republicans, from Joe Six-Pack voter to Congressmen to talk-radio hosts, will tell you, the name of the tax does not have to include the word Income for it to be a direct income-based tax.
I will allow some definition leeway in the most convoluted, strange Federal tax we have; the Corporate Tax. It is a direct tax in that it is based off of income made by a corporation, but 100% of such taxes are really collected indirectly from consumers (both domestic and foreign) as the corporations have to factor U.S. corporate taxes into the prices charged for their products. As such, U.S. Corporate Taxes are really indirect taxes on consumers elaborately hidden to appear to be direct taxes on non-living, legal entities known as corporations.

ANY direct tax enables an inefficient, totalitarian, run-away Government.

ANY call for keeping, but reforming, a direct taxation system will at best result in prolonged acceptance of an inefficient, totalitarian, run-away Government.

Here is a handy rule of thumb; if the 16th Amendment is required for ANY so-called tax reform then the person or group championing such tax reform is championing the un-American, historically-failed concept of DIRECT TAXATION.

Let me be blunt. Most Democrats, Progressives and Socialists support direct taxation. They don’t try very well to hide it. The vast majority of Republicans and so-called Conservatives support direct taxation. They con themselves and others, either through malice or ignorance, by claiming they want LOWER INCOME TAXES.

There is NO acceptable reform of direct taxation. To coin a phrase from old Western movies; the only good direct tax is a dead direct tax.

If we, as a Nation, REFORM the U.S tax system rather than REPLACE the U.S. tax system then all we are doing is validating direct taxation and dooming the United States to bigger Government, greater taxation and less freedom.

The so-called Conservative answer, more often than not, to tax reform is The Flat Income Tax plan made famous over the last several decades by Steve Forbes, Dick Armey and Arlen Specter. This Flat Income Tax has never had any other form than a 100% direct tax. It was never worded in any way, either unofficially or as a bill before Congress, to even suggest that it would be anything other than a direct tax on income.

I will readily admit that the vast majority of people who have told me they support a flat tax either can’t tell me what they mean by a flat tax or they tell me some made up plan that has little semblance to the Armey Flat Income Tax that was actually before Congress for more than a decade. That plan has always been 100% dependant on the 16th Amendment because it is a 100% direct tax. It ‘flattens’ tax rates only for personal income taxes, not for corporate taxes or payroll taxes.

How hard is it to at least do a little homework before jumping on the bandwagon of the moment?

This brings us back to my original thesis which is that Americans who actually want to address the concerns of this country need to focus on the systemic, underlying problems and not just shotgun out words that they have sort of heard but haven’t really thought through.
Still don’t see the relationship between the systemic problem of direct taxation and those Federal Government ills I spoke of earlier? Well, let’s spell those relationships out.

Ill number one was excessive government spending.

If we do not assume a relationship between Government spending and Government tax revenues, then even talking about solving this ill is just silly. So I am going to make the admittedly crazy (but responsible) assumption that deficit spending would not occur.

Direct taxation is imposed not via any sort of market forces but by Government decree. Citizens cannot adjust their actions in response to the taxes and thus do not enjoy the self-limiting benefits of an indirect tax. Replace income-based taxation with consistent usage and sales taxes and when taxes get too high the folks slow down the usage and buying which lowers the taxes collected. Taxes must be lowered to get the usage and purchasing to pick up again.

If everyone was taxed on economic activity rather than political affiliation or income level then everyone would feel the pain of Federal taxation and everyone would have a stake in pressuring Government to be more frugal in its spending.

Ill number two is wealth redistribution. Direct taxation encourages this evil because direct taxation is always applied and manipulated to achieve political goals, with segments of the society exempted from the direct taxation based mainly on political expediency. In this way, governments use direct taxation to manipulate the public into allowing them the most political power.

What I am saying there is that the very acts of exempting some segments from direct taxation while still providing them Governmental benefits is nothing more than redistribution of wealth. Those who pay the taxes are paying their share as well as the share of all those who are exempted fully or partially. Their wealth is being forced to pay their tax bills as well as the bills of others. That is wealth redistribution the same as any other sort of theft.

As with the excessive spending solution, shifting to an indirect taxation system and thus stopping this wealth redistribution would also cut down on Federal spending as the moochers would have no incentive to support a lot of the Federal spending that they now see as an unpaid-for benefit.

Ill number three is illegal immigration. If the direct taxation is based on income, as in the U.S., then only reported income can be taxed. Illegal aliens do not report their incomes for the same reason criminals don’t – THE INCOME IS ILLEGAL. Thus, any illegal alien effectively receives a tax-free income by Congressional decree.

How many of our illustrious Congressmen will admit to that piece of genius?

Replace the U.S. Income Tax with an indirect usage/sales tax and illegal aliens who participate in the taxed activities (as in eating, housing, shopping, etc) will pay Federal taxes exactly the same as every legal American.

Ill number four is Socialized Health-Care. Socialized anything will be inefficient, but when I say Socialized Health-Care I don’t just mean any of the future national healthcare scenarios floated lately by Progressives. Contrary to Republican propaganda, Socialized Medicine is alive and well and HUGE in the U.S. today and its name is Medicare. They just don’t want to make a big deal out of that one because they helped fully in its expansion over the decades.

Let me tell you one highlight that would come from replacing our illustrious Income Tax with an indirect sales/usage tax. We’ll assume that Medicare remains supported, though personally I’d rather it got unplugged. The same Medicare program that today will be bankrupt within 10 years could remain fully funded far into the future simply because indirect taxation would widen the tax base and escape the demographic impossibility we currently face.

Ill number five is explicit Federal encouragement of criminal activities against Americans. Harsh words and a serious accusation, but it is without a doubt a true statement. Everything I said earlier regarding illegal immigration applies here. All criminal activities are essentially tax-exempt because our U.S. Income Tax Code can ONLY tax income that is reported. I doubt seriously that any criminal is stupid enough to report their loot as income. Could be the case but I am doubting it happens too often.

And what is more, by thus making every illegally-gained dollar 20% to 30% more valuable than a legally-gained-and-reported dollar our Federal Government is economically encouraging young entrepreneurs to try their hand at crime. Which seems ironic to me, because I see suburban teenagers at BurgerBiggie who appear barely able to make change but inner-city dope pushers who have no problem figuring out how to game the system by taking advantage of U.S. tax laws.

Replace the outrageously offensive direct taxes with indirect sales/usage taxes and dealers, prostitutes and common thieves have to pay taxes same as anybody else. Would stop the legal folks from having to subsidize the crooks and maybe cause would-be criminals to reassess the profitability of crime.

I definitely want to talk to you about what I think is the only viable indirect taxation plan that exists. However, to argue the merits of replacement plans without first reaching agreement that we need to completely replace what we have suffered under for last 96 years is to play right into the Socialist and Statist hands that want to preserve this direct taxation legacy left by the likes of Woodrow Wilson and Franklin Roosevelt.

I am a FairTax advocate. Also known as the National Retail Sales Tax. Also known as House Resolution 25. In no way would I ever hide this.

However, I also believe rational people can dicker over details of this replacement tax plan.

It is just that I also know that only irrational people can support direct taxation, be it an Income Tax or Head Tax or a Poll Tax. I say also that only irrational people can support direct taxation reform, whether it’s called lowering tax rates or reducing tax brackets.

Please choose the right principles. We can always argue the best ways to follow those principles, but if you don’t understand which is the underlying principles to fight for (ie freedom, indirect taxes, personal responsibility) then you are really only supporting the wrong principles (ie tyranny, direct taxes, enslavement).


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