The Way to Argue About Taxes

Doctor Zero, CK MacLeod, and Mark Steyn have all weighed in on the topic of income taxes, and with respect to their exceptional skills in argumentation and communication, I think they’ve all skirted the important issue.  There is an especially useful way to discuss income taxes – and taxes in general – and it’s to make these two points:

1.  Virtually all the tax-induced ills we suffer today were ushered in with the percentage-based, payroll-deducted income tax.

2.  What we pay for the cost of government – all taxes and regulation – is putting a substantial bite on our standard of living and economic prospects today.

The percentage-based income tax has been by far the greatest accelerator of big government in the United States.  This is because it guarantees government a vast steady income independent of the government’s policies or plans to spend the money.  Payroll deduction, meanwhile, makes employers the tax collectors, and eliminates key elements of the natural “friction” that used to attend the collection of taxes.  Your income taxes are collected from you without any exertion, decision, or conscious act of compliance on your part.  You don’t even have to go buy something, as you do to pay sales tax or property tax.  You just have to be doing what most people want to do anyway:  working for your daily bread and the roof over your head.

The percentage-based income tax is also the readiest conceivable source of economic invidiousness.  Its original institution was based on the argument that the richest 1% ought to have a special responsibility to subsidize the government that gave them law and order.  But the tax’s reach quickly spread to the entire working population, and we have been merrily bashing each other over the percentage by which people are taxed ever since.  It isn’t actually necessary to run things the way we do today; we’re not in a closed-loop system from which there can be no voluntary exit.  But the institution we have serves as a perpetual agitation machine, keeping us riled up against each other as if there is no alternative.

Leftists get agitated if Congress wants to lighten the load on higher-income taxpayers, who are the principal source of investment to create new business.  Rightists see systemic moral portents in the shifting of the federal tax load to higher-income earners, particularly when 47% of earners pay no federal income tax.  Some segments of the population figure single people without dependents should pay more of the taxes; the single filers themselves point out, with justification, that they use a lot less of the public services than family households do, and why should their tax load be effectively heavier?

Moreover, it becomes illegal to not report income to the government.  Think about that for a minute.  Why should it be?  Why should government, or you or I, know what anyone’s income is – other than the incomes of government employees?  What valid purpose of government is served by pursuing that information?  Can you see how the destructive political purposes of agitators are served by our current system, without achieving any legitimate goal of governance?  Consider that if government didn’t account for everyone’s income as if knowing it were a public entitlement, we would have a much harder time mentally classifying ourselves in the politically divisive manner we are now so accustomed to.

There is no option of finding the perfect, universally despised constituency on which to inflict all the taxes with minimum economic impact.  This is a fantasy people too often unconsciously harbor.  But there is an option of lightening the load on everyone by having the government spend, and regulate, less.  What government is spending that could and should be cut is a separate topic for another time.  The second main point above – that taxes, spending, and regulation are undermining our standard of living – is what I want to address here.

Average Americans, according to the Tax Foundation, worked to pay taxes to the government until 9 April this year.  That includes taxes of all kinds and at all levels.  But it’s also just an average.  Higher-income earners work for the government longer.

Furthermore, this calculation considers only outright taxes – additional, explicit levies – and not the costs of regulation that are incorporated in the prices we pay for goods and services.  So, for example, the Tax Foundation includes the federal and state gasoline taxes in its reckoning, but not the cost to the consumer of our national and state policies that prevent drilling, and refinery upgrades – measures that would increase the global supply of gasoline and push its price downward.  The tax calculation also doesn’t consider the cost of refining fuel to specific mixtures to meet local and seasonal emission mandates.  Spring is a time when gas prices always go up because refineries are shifting to seasonal (warm-weather) mixtures.

We may be all for these requirements because they help keep auto emissions under control, but being in favor of them doesn’t make them cost-free.  This rule applies to every kind of regulation, mandate, and entitlement.  Everything government taxes or regulates becomes more expensive.  Over time, new technology and economies of scale may counter the upward pressure of government intervention on prices, but government’s pressure is always upward.

Here is one way of looking at the concepts I’m talking about here.  There was a time, when I was on active duty, that I was paying as much in federal taxes (not state, just federal: FITW and FICA) as the amount of my mortgage payment each month.  This was the case for most of my last 10 years on active duty.  The state taxes and real property taxes were on top of that.  Then there were the 8% or so sales taxes, but also the fact that everything I bought was priced higher because of employer taxes and fees, employer mandates, worker entitlements, and a host of other federal and state regulations.  What this did in my life, as it does for all of us, is put a lower lid on what I could afford than my income by itself would have dictated.

That is inherently the effect of taxes and regulation, of course, and some of both are always necessary.  But a whole lot of people now can either save, or pay their rent and buy health insurance.  They can’t do both.  There are also a lot of people who can either pay rent or buy health insurance, but not both.  And the point to take away is that the constraint on them is not imposed by nature or uncontrollable circumstance:  it’s imposed largely by the actions of government.

This hits America’s younger workers the hardest, at least right now.  People in their 20s and early 30s are finding it harder and harder to live on their own, because the cost of living has been constrained to increase beyond their entry point.  We are rapidly reaching the point at which the weight of government on all of us is great enough to genuinely interfere with our options.  There are people today who, if they never get relief from the cost of government, may not be able to buy homes because they’ll never be able to save a downpayment.

This is emphatically not the same thing as people in a less-regulated, less-taxed economy going for a lifetime unable to purchase a home.  That condition wasn’t caused by government.  Today’s condition is.  That is the travesty of it.

Our level of social cooperation, professional differentiation, economies of scale, and enablement through technology has advanced to the point in 2010 that far more people today should be able to live with some level of ease on what they earn, and save and invest at the same time.  It takes considerably less human effort just to feed ourselves now than it took 100 years ago.  There is nothing wrong with expectations rising.  There is a great deal wrong, however, with government claiming first dibs on the product of our labor to the extent that we end up having substantially less than we are actually working for – particularly in terms of economic and financial choice.

If the average American hadn’t had to work until 9 April to pay taxes, he could afford to buy his own health insurance much better. Indeed, if government didn’t levy various constraints on health insurance, it would cost a lot less to begin with. More people would be able to stay in the homes that are being foreclosed, if every transaction we all concluded weren’t subject to both taxes and regulation.  More could have bought in the first place without being overextended.  More people would still have their jobs today.  Young people would have an easier time breaking into the work force.  More people would save more, if they started working for themselves earlier in the year.  Seriously, why should government make our labor worth less to us – arbitrarily – at the level of interference it has currently achieved?  Why should it go for more?

That is the way to talk about taxes.

Cross-posted at The Optimistic Conservative.

This post was promoted from GreenRoom to HotAir.com.
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