Publicani

Here are my comments on Jacob Hornberger’s article The Ultimate Tax Cut published on LewRockwell.com.

First, let me list the points, as I understood them, with which I wholeheartedly agree.

AGREE:

Income tax kills freedom.

People cannot be free in a society in which the government has the power to levy taxes on income. To put it another way, people are free only when they have the ability to keep everything they earn and decide for themselves what to do with their own money.

Income tax makes a citizen a slave.

Prior to the income tax, the citizen was sovereign by virtue of the fact that he was free to earn unlimited amounts of money and there was nothing the government could do about it. Like it or not, it was his money, to do with as he pleased.

With the adoption of income taxation, all that changed. In effect, the income tax nationalized income. While many people would undoubtedly prefer not to think about it in this way, under the federal income tax everyone’s income belongs to the government or, if you prefer, to “society.” The power to set the tax rate is essentially the power to decide how much of their income people are going to be permitted to keep.

Thus, the income tax has converted the relationship between government and citizen into one akin to parent and child.

The “Less Income Tax” goal is not important.

The portion of their income that the citizenry are permitted to retain has effectively become an allowance. Sometimes the government is good to the citizenry and lets them keep more of their income. Sometimes the government is not so nice and lets the citizenry keep less of their income. But what’s important here, in terms of freedom, is not the percentage that is being levied but rather the fact that it is the government making the determination. That’s obviously a far cry from a society in which there is no income taxation at all.

The main difference between the government and the private sector is that the government uses force to get money.

Microsoft, for example, depends on offering products that induce people to voluntarily trade their money for a particular piece of software. If people decide to hold on to their money instead of buying the software, there is nothing that Microsoft can do about it. That is, Microsoft cannot force anyone to hand over his money.

It’s different with the government. Its revenues do depend on force. If someone doesn’t like a particular service that the government is providing (e.g., waging the drug war, providing people with welfare, torturing detainees, or killing people in Iraq), he can’t do what he does with Microsoft. He must pay his income taxes anyway, on pain of fine and imprisonment or even death upon steadfast refusal to do so.

Now we are at the “do not agree” section.

DISAGREE:

What I don’t agree with, is, implied by the article, an equivalence, in essence, between the income tax which is a direct tax, and indirect taxes, such as tariffs, national sales tax, and Fed-printed money.

As Milton Friedman pointed out, the true level of taxation is not what is being collected in taxes but rather the level of government expenses. Why is this so? Because if the government is spending more than it is receiving in tax revenues, it is doing it in one of two ways – borrowing or printing the money.

Ultimately, the issue of income taxation cannot be divorced from the things on which the federal government is spending its money. As we have seen, the money that government is spending must be collected, either directly through taxes, through borrowing (which must be repaid through taxes or inflation), or inflation. The burden of government expenditures must ultimately be borne by the citizenry.

Thus, while the abolition of the income tax and the IRS are necessary prerequisites to a free society, if the financial burden of other taxes is equal to the same amount that the income taxes were collecting, how much better off are people financially if they’re having to pay the same amount of money through an alternative tax that they were previously paying though the income tax?

Friedman or no Friedman, I don’t agree. Yes, the amount of money collected might be the same, but with the direct taxes the money is collected by force and with indirect taxation it is collected without force and in cases such as National Lottery, for example, it is collected voluntarily.

An argument can be made, that some if not most indirect taxes are collected by force as well. For example, if one person purchases a product or service from another person, the government, funded by indirect taxation, may show up with conceptual guns and force one or both of them to pay a sales tax. Yet I believe that taxing products or services does not make a person a slave. It may indicate that the society has problems, and may serve as a measure of freedom, but without direct taxation the society is basically free, and with direct taxation, the society is not free.

So I think that abolishing the federal income tax should be the cornerstone of any real movement for freedom. And thus I have a problem with the following statement:

That’s why, ultimately, the only protection that people have is a constitutional prohibition on all taxation (the ideal) or, alternatively, a constitutional limitation on the overall level of indirect taxation.

I agree with this goal, but I’ll be happy if only the federal income tax is abolished. The day it happens this country will be free regardless of the amount or the levels of indirect taxation.