Posted: Jun 05, 2005 By: Robert G. Zimmerman

Subject: Fair Tax

Comment: . I feel that this is no longer the land of liberty that it once was for a number of reasons. I also feel that we are losing more and more of our liberty as a consequence of a number of ill-considered actions in the early part of the 20th century which are now coming to full fruition. One of these actions was the passage of the 16th Amendment to the Constitution. It introduced several internal contradictions into one of the best-considered and soundest governing documents ever to come from the minds of men.

If one is going to levy a tax, this presupposes that the taxing authority has access to the information that they need to determine the tax owed. The 4th Amendment supposedly guarantees my right to be secure against unreasonable search and seizure of my papers and personal effects among other things. I could probably succeed in an argument with any reasonable person that asking me to account for the financial outcome of every activity in which I engage in the hope of a favorable financial consequence is an unreasonable request. Nowhere is this more true than mutual funds or blocks of stock that have been held for a long time with dividend reinvestment over an extended period. It would follow from this that the activity necessary to determine this sort of tax base constitutes an unreasonable search. The language in both the Fourth Amendment and my argument makes them something less than bullet-proof on their own, but I feel that they are part of a good case against the income tax.

It seems to me that stronger objections to the 16th Amendment can be made on the basis of seeing how it stands the test of measurement against the provisions of the 13th and 14th Amendments. One could define a slave as one who is not in control of the fruit of his labor. To the extent that I am directly taxed, I am deprived of the fruit of my labor without my consent, which would certainly constitute involuntary servitude. To the extent that this tax is progressive, I am not getting equal treatment under the law. I am being discriminated against on the basis of my income. The treatment that my income receives depends on how it is measured by a tax code in excess of 10,000 pages. This is wrong. We are all born with the same rights under the law and do in fact possess the fundamental rights required to fashion a decent life. The fact that some do more with their opportunities than others is not a sound reason for the government to take more than the basic cost of providing the opportunity from each citizen. Nor is it a reason to take action that is contrary to the clear intent of its founding fathers. To borrow from another source, Bruce Bartlett notes: "Throughout most of American history, taxes were levied principally on consumption, rather than income.... In the Federalist Papers, Alexander Hamilton had this to say, 'It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. ... If duties are too high, they lessen the consumption; the collection is eluded; and the product to the Treasury is not so great as when they are confined within proper and moderate bounds'."

In addition to constitutional objections, there are a number of other perverse side effects of an income tax. Jack Kemp said with considerable accuracy that if you want more of something you subsidize it and if you want less of something you tax it. Does it make any sense to tax income if this is so? Why would we want less of that? For that matter, how do a lot of things that are done with funds from the public purse fare when measured against this thought?

There seems to be a good deal of anxiety in some quarters about the fact that we are no longer a nation of savers. We may be among the most profligate spenders in the first world. We might be inclined to save more if we were permitted to say what constituted the rainy day that we were saving for. It might be more attractive to save and invest if any favorable outcome of an attempt at saving did not face such a stiff headwind in the form of adverse tax treatment. And on the flip side, large investment disasters get written off over decades. IRAs are a great idea as are expanded uses of the concept such as educational savings accounts or medical IRAs. But why should someone else decide what we are allowed to save for? What sense does it make to give someone any leftover money in a medical savings account on an annual basis to spend as they see fit? I have seen that described as a potential benefit of such a system. What I understand about the costs of treating the diseases brought on as part of the aging process screams that this approach is the height of stupidity. If you save money to meet medical expenses when you are young, there is an excellent chance that you will have sufficient funds for any care that you may require by the time that you require it. You might also have more incentive to take the little steps every day that minimize the likelihood that you will require expensive care, or at least postpone that day. Bad tax policy can indirectly obscure these sorts of moral hazards.

Another perversity that bad tax policy introduces into a society is the idea that you can get something for nothing. Government should provide secure borders and large infrastructure such as an air traffic control system or an interstate highway system. It should write and administer a comprehensible set of laws. These are things that the entire society needs and uses to fashion a civilized life. This is true of both rich and poor alike. But once government wanders into the area of insuring that the individual citizens have what individual citizens define as a decent life, the potential adverse impact on the social order over time is immense. Once an individual can say that he is entitled to something whether or not he is able to pay for it, there is no end to the demand for more. As Frederic Bastiat said, “What is so fair about taking what someone has earned and giving it to someone who has not earned it?” The idea that it would be possible for the government to do all sorts of desirable things for the citizenry if only “the rich paid their fair share” is execrable and just plain wrong-headed.

Perhaps the greatest perversity that an income tax introduces into a society is the idea that you can have government paid for by “the rich.” The rich are almost always someone else, and the demand for more of someone else’s earnings is limitless. It leads to a demand for an unhealthy amount of government paid for by increasing intrusion into areas of every citizen’s life that can reasonably be regarded as private. Indeed our founding fathers regarded them as private and wrote a Constitution that reflected this belief. Everyone needs to have a stake in the cost of government programs. This will tend to produce clearer thinking about what we really need and can reasonably expect from our government.

One thing that I am most definitely not objecting to is the basic idea that we need government and that it must be paid for. But I do feel very strongly that indirect taxation systems are the best and fairest and most compatible with the idea of liberty. I think that H.R.25 represents a step in the very desirable direction of increasing liberty and a wiser and far less intrusive system for meeting the cost of necessary government. And I think that if every citizen understands that they get to help pay for everything that they think the government should provide, it will tend to temper some of the unreasonable demands that are made on our system of government. It would also represent a typically American solution to the problem of how best to secure the funding for necessary government functions in a manner that is most protective of the rights and privileges of all citizens.