The question of taxation is critical in shaping a free society. Taxation is necessary to fund public services and infrastructure. But not all forms of taxation are compatible with the principles of freedom and fairness. The most contentious among these, is the income tax. And here is why.
Income tax discourages industriousness. It places a disproportionate financial burden on the builders. This model arguably saps the incentive for productivity. And can be counterproductive to collective well-being.
The government's approach to tax enforcement targets those who are least able to defend themselves. It's more cost-effective for the IRS to collect from numerous low-income individuals. Going after a millionaire in court is more expensive and time-consuming. The millionaire can afford the lawyers, where the poor feel the threat most.¹
The current tax laws place the highest effective tax burden on middle-income earners. While high-income individuals frequently benefit from loopholes and tax strategies. And low-income individuals receive tax breaks and rebates. The middle class finds itself shouldering a disproportionately heavy tax burden.
The IRS budget request for 2024 is an eye-watering $43.2 billion. This raises questions about the efficiency and purpose of such a large and increasingly armed agency.
The existing income tax structure has spawned a maze-like tax code accompanied by voluminous case law. This complexity creates a headache for taxpayers. It also paves the way for political favors and loopholes.²
A consumption tax provides a more equitable solution. This system would fairly tax everyone, irrespective of their social or economic status. However, essential services like healthcare, education, and healthy food would be exempt. This allows the taxation to be both humane and moral.³
A supplemental luxury tax could apply to imports and environmentally detrimental products. Vehicles, for example, could be evaluated on:
Yet another advantage of a consumption tax is reduced administrative cost. Potentially saving the proposed $43.2 billion for IRS upkeep in 2024. Such a system would encourage citizens to support local businesses and limit corruption. Such as politicians trading policy for campaign donations.
A well-designed consumption tax could also include more transparency. Maybe public voting on rate-setting, thus enhancing societal engagement and fairness.² Involving the public in decision-making processes often results in more equitable and transparent systems.
The last obstacle to a fair consumption tax is the spread of misinformation. Often perpetuated by media entities with vested interests. Contrary to what some reports suggest, this tax would replace, not supplement, the existing income tax system. Certain corrupt politicians fearful of loosing power, came out punching and screaming that this would increase tax burdens. Making the false claim this tax was in addition to income tax.
Transitioning to a fair consumption tax could streamline tax administration. It could create a more equitable system. It offers a viable alternative that aligns better with the principles of a free society.
The next logical step would be to introduce budget reforms. Reforms that enable public participation and focus on deficit reduction. It would be subject to full public scrutiny. No more financial deals behind closed doors. No more threats of shutting down the government if they do not get their way.