Eliminate the Income Tax Without Adding a Sales Tax

I’ve been reading Ron Paul’s The Revolution, and have already mentioned what it says about gold. Today I’d like to quote a bit about what Paul says regarding the income tax. Essentially, he believes we should completely abolish it, and replace it with nothing, not even a sales tax– and after reading his argument, I fully agree. It would eliminate about 40% of government revenue . . . which would make the government’s budget about the same as it was in 1997! Think about that.

The income tax implies the “government owns you, and graciously allows you to keep whatever percentage of th fruits of your labor it chooses. Such an idea is incompatible with the principles of a free society” (78). As Frank Chodorov puts it: “It is like saying that the slave is free because he is allowed to do anything he wants to do (even vote, if you wish) except to own what he produces” (79).

Ron Paul does not sit around and vote “No” on everything. Although he wants to eliminate the income tax completely, that is currently impossible, so he tries to at least “make dents in the edifice in the meantime.” Thus, he makes lots of proposals, such as the proposal that, “for all those whose income consists largely of tips, that income in the form of tips be exempt from income taxation. I have proposed that America’s teachers be granted tax credits, thereby increasing their salaries. I have proposed that people with terminal illnesses be exempt from Social Security taxes while they struggle for their lives. (There is surely no moral justification for taxing people who are trying to maintain their very lives.)”

These are moral and sensible tax breaks, unlike the subsidies specific business interests currently receive from the government. It’s a complex issue, and Paul is careful never to make overarching generalizations. The ideal, however, would be to abolish the income tax and replace it “not with a national income tax, but with nothing.” The federal government is currently funded by:

• Excise taxes
• Corporate income taxes
• Payroll taxes
• The individual income tax
• Miscellaneous other sources

Abolishing the individual income tax “would cut government revenue by about 40 percent. I have heard the breathless claims about how radical that is– and compared to the trivial changes we are accustomed to seeing in government, I suppose it is.” I love that line: compared to the trivial changes we are accustomed to seeing in government, abolishing the income tax would be radical. “But in absolute terms, is it really so radical? In order to imagine what it would be like to live in a country with a federal budget 40 percent lower than the federal budget of 2007, it would be necessary to go all the way back to . . . 1997” (80). Paul continues:

How, by the way, did we ever let ourselves be talked into such a thing? The income tax was first proposed for several reasons. The tariff, from which the federal government received most of its funding, was for a variety of reasons bringing in a decreased revenue. At the same time, federal expenditures were going up, thanks in part to an increase in the military budget.

An alternative had to be found. At the time, many Americans viewed the tariff as an unfair tax that burdened them as consumers and benefited big business by sheltering it from foreign competition. A tax on incomes, the argument went, would at last force the rich to pay their share. And that’s just how the income tax was pitched to the people: tax relief for you, in the form of lower tariffs, and a tax increase for the rich. Do not worry, people were told. Only the richest of the rich will ever pay the income tax.

That phony promise didn’t last long. Within a few years, tax rates had shot through the roof, and classes of people who had thought they would never be taxed found themselves paying as well. And by the 1920s the tariff was raised again anyway, so the people wound up getting the worst of both worlds.

Ah, so that’s how the government manages to grow without getting stopped by sensible opposition. Those tricky bastards. The worst part is, it’s done with the best of intentions. I’d bet many of those congressmen didn’t really know what was happening.

Next time I’ll post about what Ron Paul thinks about decreasing spending.

By the way, I took a look at the book on Amazon.com recently, and it has an amazing rating: 5 out of 5 stars based on 73 customer reviews. I’m glad to see there are still smart readers in the world :)