It’s tax day again, for many a last minute drive to the Post Office to grudgingly submit to our annual inquisition by the IRS. The Income Tax stands for all that is wrong in America, and is the primary cause for the downfall of our nation, being responsible for much that is wrong in Congress, the decline of the US as a manufacturing giant, and worst of all, setting Americans against each other with the politics of envy.
But this should be no surprise, after all, the father of the modern income tax is none other than Karl Marx.
The Framers of our Constitution knew better. Our Constitution originally forbade ‘direct’ taxes, which is what economists of the day called taxes on production and labor. The idea of an income tax was a dead issue until 1848 when the idea was revived by Karl Marx as one of the ten essential steps to bring a country to socialism. It was not until the early 1900’s, when socialism was the rage of intellectuals worldwide that the 16th Amendment to our Constitution was passed permitting taxation of income. Even then, it was only 3% of high incomes. It was not until World War 2 that the income tax as we know it became a significant factor in our lives. Not coincidentally, it was shortly after WW2 that the decline of the US manufacturing sector took hold.
Though income taxes swept the entire Western World in that time period, other developed nations, perhaps being better students of economics than Americans, soon turned instead to consumption taxes (VAT’s) as their primary form of taxation, leaving the United States as the only developed country which relies almost entirely on Karl Marx’s tax.
There is a solution to this problem, and it is the FairTax, a retail consumption tax offset by a progressive rebate of taxes on subsistence level spending.
There are whole books on the benefits of the FairTax, but some of the key advantages are:
- Transparency – With our current system of payroll taxes and personal and corporate income taxes, our true tax burden is mostly hidden, embedded in the price of goods and services. 22.4% of the price of US goods and services, on average, is embedded tax. To understand the concept of embedded taxes, see “Who Paid the Baker’s Taxes” This difference between the reality of our tax burden and its appearance divides us politically and sets Americans against each other even though their true interests coincide.
- Competitiveness – The nations with which we compete domestically and abroad rely mostly on border adjustable VAT taxes, reducing their embedded tax component, while international law prohibits border adjustment of “direct” taxes in income. The result is that American products are at a 10 to 20% price disadvantage due to our method of collecting taxes alone. Without this disadvantage, the United States would dominate the world in production of heavy equipment, aircraft, automobiles and most other heavy manufacturing, bringing back millions of high paying manufacturing jobs.
- Simplicity and privacy- The current system costs American businesses and individuals half a trillion dollars every year just for the costs of compliance and lost opportunity. That money is lost to the taxpayers, but it doesn’t equip a single soldier, or build a road, or pat a pension. It is totally wasted. The IRS code has grown to over 60,000 pages and no one understands it all. It is filled with special interest giveaways and penalties, the pursuit of which corrupts our Congress. The FairTax eliminates nearly all of this record keeping and confusion. Other than registering for the prebate, which is voluntary, but gets you your tax money back on your subsistence spending, most Americans will not have a single tax form to fill and mail in, and April 15th will be just another pleasant Spring day.