Tax Resisters, Tax Reformers, and Conservation – the Common Ground
Get involved in libertarian or hardcore conservative politics, and you will encounter tax resisters: people who believe that the 16th Amendment was never properly passed, that the federal income tax is thus illegal.
So, how do you fund the federal government without an income tax? The old answers were:
Selling off federal land.
Most of the good farmland has already been sold. Many clamor for the federal government to hold onto remaining wildnerness lands for recreation and habitat for wild creatures. Some even suggest that we should give some of that land back to the natives. So we are left mainly with tariffs and excises.
What kind of excise taxes can come anywhere close to funding today’s federal government?
Scratch that. What kind of excise taxes can come close to simply making up the trillion dolar deficits we were running while the economy was humming along nicely?
Answer: carbon taxes. That is, excise taxes on fossil fuels. Fossil fuels make up a huge portion of our economy, yet fossil fuel taxes can be collected at a small number of chokepoints. It is very hard to hide a power plant, oil refinery, supertanker or pipeline. A carbon tax could bring in enormous amounts of revenue while gathering very little information on typical businesses and residents.
There would also need to be similar tariffs on fossil fuel imports for this to work. Also, there would need to be tariffs on goods made out of fossil fuels else you end up with subsidized outsourcing.
“But Carbon Taxes Are Regressive!”
A common objection to carbon taxes is that they would fall mostly heavily on the poor. A certain amount of energy is needed to get to work, keep warm in the winter, and keep cool enough to think in the summer.
A couple of solutions present themselves. One is to use a carbon tax to replace payroll taxes, which are likewise regressive. The other option is some sort of “prebate,” an idea presented as part of the Fair Tax, a proposal to replace both payroll taxes and the federal income tax with a national sales tax. The Fair Tax has some very interesting features:
Sales are easier to compute than income.
A national sales tax would fall equally on foreign and domestic goods. (Currently, domestically made goods are taxed at roughly ten times the rate of imports.)
The prebate could be limited to citizens, thus limiting the progressive nature of our tax system to citizens.
A sales tax is an automatic IRA. You don’t pay taxes on money you save until you spend it. You can save and invest without Wall St. and expensive financial advisors by doing things like paying down your mortgage.
But, alas, there are downsides:
Sales taxes are easy to cheat. (Income taxes work as a “voluntary” system because one taxpayer’s deduction is another taxpayer’s income.)
Sales taxes are collected at a large number of collection points. This and the previous downside means lot’s of government monitoring.
A sales only tax system would be a gigantic loophole for the extremely rich.
A carbon tax meets the first two objections. For the third, we probably need to continue to have an income tax, alas. (But we could make the rate low and flat for 98% of taxpayers. Withholding computations could be made trivial.)
Other Useful Excises
There are many toxins being made that are too useful to eliminate, but we could reduce the quantity significantly. Unleashing an army of bureaucrats to do cost/benefit analyses is the path to regulatory nightmare.
Excise taxes on the manufacture of said toxic chemicals would enlist the economy itself to do the cost/benefit analyses. Where the case is compelling to use pesticides, herbicides, estrogen mimics, etc., continue as before. But where said chemicals are being used merely to shave labor expenses marginally, go non toxic.
The solution is imperfect, but it is fast and relatively painless.
Remember, such excises are a replacement for existing taxes – or for deficit spending.
A Foot in the Door for Real Tax Reform
Eliminating the income tax is, alas, not a viable goal in the forseeable future. We have an enormous national debt to pay down, and collossal retirement obligations to pay.
But a move towards taxing pollution instead in lieu of taxing labor could be the foot in the door for some really nifty tax reform. Such taxes make a compelling case for some kind of prebate. (We prefer the term Citizen Dividend.) With a Citizen Dividend in place, you can make the income tax flat for all but the truly rich.
Employer withholding could be the same rate for everyone. Executives, movies stars, and the like can get a separate bill from the IRS.
In theory, you could eliminate the income tax for all but the truly rich – which was the original intent of the income tax. In practice you need to tax everyone at least a little bit in order for the income tax to be self-checking.
Such pollution taxes could also be a foot in the door for humane welfare reform. Bump the Citizen Dividend up a bit and you create an easier to cross welfare-to-work bridge. This has many pleasant implications for conservatives.