This discussion is a continuation of Direct taxation kills freedom, indirect taxation does not.
So, if I understand correctly, you would support green taxes that charge for resource use, such as water taxes, oil taxes, pollution taxes, land taxes, food taxes, etc? To me that seems realistically achievable in our lifetimes.
Suppose there are three countries: one has no taxes at all, another has indirect taxes, such as “water taxes, oil taxes, pollution taxes, land taxes, food taxes, etc.,” and the third one has only income tax. I guess we both, you and I, would have preferred the first country. But suppose furthermore that the first country does not exist and the only choice we have is between the remaining two countries, equal in all aspects except that one has only income tax and the other has indirect taxes. Let’s say the other has the food tax. It makes it harder to argue against this indirect tax, as opposed to, say, tariffs, because it eliminates right away one of the main reasons why indirect taxation is better than direct taxation: you can avoid activity that leads to indirect taxation. With the food tax, you can’t.
There are still at least five other reasons why income tax is worse than the food tax.
1. With the food tax, I am anonymous to the government; they only see my activity at the time of my purchasing the food. They know nothing else about me, and once I have bought the food and paid taxes, I disappear. I become inseparable from the rest of the people. The Feds don’t have my social security number. They only point their guns at me, from their point of view a completely unknown person, each time when I show up to buy the food again. With income tax, they have a pointer to me, my Social Security Number, at all times. And they watch over my shoulder at any work that I am doing and at any activity that might be related to my income, such as gambling, education, marrying, having dependants in my household, buying computers, meeting customers in my house and so on. So the difference is between driving a highway with occasional toll booths, or driving the entire highway cuffed in a back seat of a police car.
2. What adds insult to the injury of the income tax is the fact that you yourself have to collect the necessary information that the government needs to collect taxes from you and potentially to prosecute you. Not only the tips you received. You had a lunch with your customer – you are supposed to keep the receipt until the filing time, to show it as a proof to uncle Sam when you beg to be allowed to deduct a part of the cost from the money you earned – disgusting.
3. Income tax is a substantial loss of freedom for everybody. Suppose your combined Federal, state income tax, and FICA bring you to 25% bracket. To simplify my argument, I am intentionally on a conservative side here. The real bracket could be about 50%. I am convinced that state income taxes will disappear once the Federal income tax is abolished because of the competition between states and because of the complexity of tax collection. I also consider FICA to be a part of the federal income tax because it is.
FICA is 7.65%, (forget about another 7.65% paid by your employer) and let’s say the state tax is 4% (NY state income tax is 4.0-6.85%). Therefore your federal income tax rate comes to is 13.35%, which is less than the rate of 15%, which is the minimum rate that everybody (people making more than $8,025) pays.
So, suppose you are in the 25% bracket. It means that with every dollar you earned, you are left with 75 cents and you pay in income tax 25 cents, a clear third of the money you keep. Think about it. The government takes from you forcefully as much as the third of your money. Think hard what you got for this third: Iraq? A military base in Japan?
Also, think about this way. Suppose you need to work thirty years before you retire in the food-tax country. It means you have to work forty years in the income-tax-country. Ten years of slave labor when you are not getting a penny for your work! This is true for most of the citizens of the income-tax-country. How can anyone call such a country free?
4. Also the risks are different. People are known to end up in prison or dead because of the difference of opinion on how much they owe the government in income tax. It’s also possible that the government comes to you and says you made a mistake two years ago, and therefore that’s how much you have to pay. Or the government decided that you intentionally avoided paying your taxes and this is your jail term. Such a risk is a very unrealistic remote possibility with food tax.
5. Another reason is social. With the food tax, all people are on the same side against the government. It’s the pain that everybody feels. Therefore, there are greater chances that this tax will be kept at modest levels and possibly abolished. Also there is a greater chance that charitable services will spread out helping the folks who suffer the most. The income tax, on the other hand, glorifies victimization of the people and corrupts people into lobbying for the benefits of their particular group against other groups.
So the food-tax country is freer than the income-tax country.
P.S. And as always, freedom brings prosperity. Given the chance, entrepreneurs and capital will flow to the food-tax country from the income-tax country, which will make the food-tax country not only freer but much more prosperous as well.