by Russell Longcore
In this article, let’s chew over the methods a new nation might use to collect revenue. Taxation is supposed to just collect revenue to fund government operation. Customarily governments use taxation to encourage or discourage certain types of behavior within the jurisdiction of that government. Inherent in that type of misuse of taxation is the desire of certain persons to avoid taxation at the expense of the remaining population. But who could blame them? Hence bad tax policy creates lobbyists.
The Gross Domestic Product for Texas in 2008 was $1.245 trillion dollars. The 2008-2009 Texas tax revenue totaled $167.8 Billion from all sources. The State of Texas spends an enormous amount of money annually on social welfare programs and myriad services that are mirror images of its daddy in Washington. I figure about half of the budget could be entirely eliminated in a New Texas.
Most taxation allows a government to set a budget and then use all their methods of taxation to collect what they need. A sales tax forces a government to formulate a budget based on revenue received. Over time the government can more accurately predict expected revenue, but cannot just tax more heavily to make up shortfalls. A properly crafted constitution would prevent the State from coining money and regulating its value, which would also prohibit printing money to make up a tax shortfall.
This seems to me to be the most equitable form of taxation. But that even-handedness works best when it is tied to a monetary system of 100% gold and silver as money. Even if the new nation still chooses to inflate the currency through monetary policy and fractional reserve banking, and assesses taxes through inflation, the sales tax could still provide a useful governor on the engine of the State.
In an economy where sound money existed, every person within the boundaries of the nation would pay sales taxes on goods and services for personal consumption. The citizen, non-citizen resident and the visitor would all pay sales tax. I am not in favor of exemptions for anyone.
There are some folks in America that are promoting a national sales tax as the “Fair Tax.” But is it fair? Fairness is always open to interpretation. And I’ve always heard that “Fair” is a place you take your pig to win a blue ribbon. The fair tax would be levied once at the point of purchase on all new goods and services for personal consumption. Their proposal also calls for a monthly payment, made by the US Treasury, to all family households of lawful U.S. residents as an advance rebate of tax on purchases up to the poverty level. Seems unduly confusing and complicated and still exempts certain persons from paying tax. The present aberration promoted by radio talk host Neal Boortz , Rep. John Linder and Senator Saxby Chambliss is anything but fair.
My complaints about their “fair tax” are:
• That it seems to do nothing to curb Federal spending.
• They set their sales tax at 23%. I believe the rate should not exceed 10% and should be set in stone in the Constitution.
• The concept of the rebate and exemption for people who fall under a certain amount of income. Those people use government services, and should pay for them like everyone else.
Counties and cities could assess a maximum total sales tax burden of 5%. Even if it were 10%, it would be workable. Once again, the sales tax should be etched in stone in the Constitution, not changeable without a constitutional convention.
Don’t freak out about my percentages. I’m not an accountant or a state budget wonk. Even if the total national and local sales tax burden ended up at 20%, it would mean massive tax relief for Texas citizens, visitors, non-citizens and property owners. It would also mean strict spending limits for the New Texas.
There is also another sales tax that can be utilized. A SPLOST is a Special Purpose Local Option Sales Tax. This is a way that a tax can be levied by any county, for the purpose of funding the building and maintenance of parks, schools, roads, and other public facilities. A SPLOST has a time limit and the tax is customarily decided by a public referendum.
Happily, Texas has no personal income tax. Income taxes are universally hated by individuals, but loved by governments. The governments use income taxes to reward some and penalize others. They use it to create class conflict and class envy. And they use it to punish highly compensated individuals. In the US, normal due process is inverted and individuals are presumed guilty of alleged tax crimes. Countries with an income tax own the citizens and own their incomes. Individual liberty and income tax are not compatible in any way.
A tariff is a duty imposed on goods when they are moved across a political boundary. Tariffs, or lack of tariffs, encourage or discourage imports inside a nation. Tariffs encourage protectionism.
There are various types of tariffs:
Ad Valorem, or value added, is a set percentage of the value of the good being imported. It can be manipulated by the importer by declaring low values. Tariffs rise or fall based upon prices.
Specific tariffs that doesn’t vary with prices.
Revenue tariffs can be used against importers by countries that do not produce the good imported. For example, Iceland could slap a tariff on Columbian coffee, since it doesn’t grow coffee.
Prohibitive tariffs are set so high that almost no one imports that particular good.
Protective tariffs artificially inflate prices on imports and protect domestic industries. These are sources of enormous corruption and bribery.
Environmental tariffs are recent additions, assessed to punish the importers of other countries for perceived sub-standard environmental standards.
All of the tariffs are penalties against others. When there are penalties, it affects competition and the free market. Seems to me that a nation without tariffs would enjoy the lowest prices for goods, both imported and domestically produced. All producers would have to compete on a worldwide basis.
Property taxes on real and personal property are confiscatory. If you own a piece of property, and you have to pay property taxes each year, you are in essence leasing the property from the State. Don’t believe it? Think that you own the property free and clear? Just stop paying your property tax. Eventually, the State will confiscate your property under threat of death. Don’t believe it? When the Sheriff comes to confiscate your property, resist with armed force. When you sell your real property, you are essentially transferring a lease obligation to the new property owner.
Property taxes have to be assessed based upon property value. The state or county assessor’s office sets the property values and is not that concerned with accuracy. It is in their interest to overvalue your property and force you to challenge it. It’s also in their interests to bestow tax exemptions as favors.
Property tax revenues also benefit from currency inflation. That’s one reason why governments like inflation. Property taxes are customarily assessed by local governments, such as counties and cities, to fund their operations. But they could also fund operations through sales taxes.
Excise tax is a tax on the production or sale of a good produced within the country. Typical examples of excise duties are taxes on gasoline, tobacco and alcohol. The producer pays the tax directly to the government, but the consumer pays the cost of it, as it is included in the sale price of the product. The excise tax can account for as much as half the retail price of the goods, and sometimes more.
Excise taxes are often assessed to discourage the consumption of goods and services that the State determines to be harmful to our health and morals. So, they tax things like gambling or smoking. This is the Nanny State at its worst.
Estate tax is a tax on the total value of the money and property of a person who has died. There is a difference between “estate” and “inheritance” tax. Inheritance taxes seek to tax the beneficiary of the estate. This is another confiscatory tax imposed by the Feds and the state. An estate is the accumulated assets of a person, and most assets have already been taxed repeatedly during the accumulation period of a lifetime. This tax simply shows the rapacious appetite of the State.
Historically, there have been three estate taxes enacted, in 1797, 1862 and 1898 and each was repealed after a short time. The most recent estate tax was enacted in 1916 and has escalated ever since.
There is no good reason why estate or inheritance taxes should be assessed. They only redistribute wealth and are a disincentive to wealth accumulation and entrepreneurship.
User fees could be assessed in three categories:
* fees that fund necessary services, such as for utilities;
* fees that fund services that add to the quality of life, such as for parks and recreation; and
* fees that fund regulatory and administrative processes, such as for licenses and permits. (Don’t get me started on licensure…another state ripoff)
But no government should be permitted to charge these fees unless voters agree. That way, citizens decide what services they want and are willing to pay for.
There are probably methods of taxation that I’ve missed, since there are so many methods that government uses to steal money from its citizens at the point of a gun. But I believe that the best method of collecting tax revenue is the sales tax. It seems to be the method that is most equitable to all individuals. It also seems to be the tax that most binds the government against acts of tyranny. But the sales tax should also provide the government with abundant revenue. Not all they want, but all they need.
During the Reagan administration, nominal income tax rates were lowered. Tax revenues went up significantly as this spurred a surge in entrepreneurship and investment. People had more of their money, and used some of it to make more money. Unfortunately, Reagan did not clamp down on spending, so his tax rate slash and runaway spending still made for bigger government.
I believe that a New Texas with a single sales tax as its source of revenue would be such a magnet for capital that nothing like it would exist on the planet, and nothing like it would have ever existed in the history of the human civilization. People from all over the earth would be emigrating to, and investing in, the New Texas.
Think about the freedom you’d feel if the sales tax was the only source of tax revenue assessed against you, the citizen. No income tax, no excise tax on gasoline or smokes, no tax on your investment income or savings, no property tax on your real and personal property, low prices on imported goods since there are no tariffs, and when you die, 100% of your assets go to whomever you choose.
Want to live in a nation like that? I know I do.
Remember that this sales tax solution must be inexorably linked to a sound money system for it to work as well as it should. But if the State enacts monetary law and banking law that facilitates inflation and the fractional reserve banking system, the sales tax as the single tax source for government revenue could still provide a useful governor on the engine of the State.
Also remember that I could be wrong about all of this. Check it out for yourself.
DumpDC. Six Letters That Can Change History.
© Copyright 2009, Russell D. Longcore. Permission to reprint in whole or in part is gladly granted, provided full credit is given.