How to Do Away With the Income Tax

It's the end of the tax season again and, as usual, many are touting proposals to make the U.S. income tax fairer and easier to comply with. However, fairness is impossible as the whole system has been designed to give breaks to politically favored groups at the expense of other groups – give a recognizable break to one group and make it up by incrementally increasing the tax burden on everyone else. Thanks to the multi-volume nature of the tax law, everyone benefits by receiving some type of breaks and everyone loses by having to pay for the whole thing. Throw in the cost of administering this monster and the cost to the average taxpayer far outweighs any benefits obtained. As for simplification, well there is no way to manage such a complex system with a few simple rules. Further, even simplicity would hurt many thousands of people – think of the vast army of clerks and agents employed by the IRS to manage an enforce the rules of the system as well as the many more thousands employed in the private sector assisting people with preparing their taxes and defending them against abuse by the IRS.

What is really needed, is to reform government spending and cut it drastically. Just as individuals cannot spend with abandon and then expect their employers to fund their out of control spending with raises every few weeks, neither should government be allowed unlimited access to our paychecks to finance their addiction to spending.

In an April 16, 2007 article on the Mises.org blog, Laurence M. Vance, a freelance writer and adjunct accounting instructor at Pensacola Junior College in Pensacola, FL, makes this very point by pointing out that the fatal flaw in every proposal advanced so far for tax reform is that they all start with the idea of revenue neutrality whereby government spending is taken as a given and the reform is limited to a simple reshuffling of the burden of paying for the spending. Just as a magician chatters and jokes with his audience so that their attention is on his face while his hands quickly slip under the table to grab the rabbit he is about to pull out of the hat, so too, do the politicians distract us with talk of reform while cleverly keeping our minds off of the real problem which is their uncontrolled spending.

Mr. Vance makes a modest proposal that would cut spending somewhat and eliminate the need for the personal income tax. He begins by citing the Congressional Budget Office's revenue figures for fiscal year 2006 in which Federal Government revenue from ALL tax sources was 2.406 TRILLION DOLLARS. Of this amount $1.043 trillion came from individual income taxes. The remaining $1.363 trillion came from corporate income taxes (which are passed on to individuals in the form of higher prices for products and/or lower returns on their investments – investments which include retirement savings, college savings for children, etc.), social insurance taxes (Social Security and Medicare taxes which, for lower income people, take a bigger bite of income than the income tax), excise taxes (these are included in the price of things like liquor, perfume, gasoline, etc. - state and local governments then add a sales tax to these items which results in the consumer paying a tax on both the cost of the product and on the federal tax built into the product's price), estate and gift taxes (the infamous death tax), customs duties (tariffs and other taxes on goods coming into the country – again these federal taxes are built into the price of your foreign car – or foreign made parts in your American car – and other foreign made goods and then state and local governments slap their sales taxes on both the federal tax amount and real cost of the good at time of purchase) and other miscellaneous revenue sources.

According to Vance, the $1.363 trillion dollars raised by the Federal Government from sources other than the individual income tax in 2006 turns out to be about the same as total Federal Spending in 1992 at the start of the Clinton Administration. In other words, in a mere 14 years the Federal Government has about doubled its spending. To put it bluntly, the money taken from our pay checks every payday for income taxes is needed simply to pay for the pork our Congressmen have dished out in the last 14 years. In essence, putting Congress on a low fat fiscal diet would result in an immediate increase in take home pay for every American as well as freeing them from the burden of complying with the personal income tax.

Click here to read the full article in which Laurence M. Vance puts forth this modest reform proposal.