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Discussions of Taxes

A discussion of taxes, including for Social Security and sales.

Copyright © Ari Armstrong
These articles originally were published in April 1999, and were ported here on September 30, 2025.

The Hidden Costs of Taxes

by Ari Armstrong, April 1999

The amount of income a person pays in taxes is fairly obvious, even though politicians have done much to disguise the overall tax rate by imposing a myriad of separate taxes, mandating withholdings, borrowing, inflating the money supply, and so forth. The tax system also imposes numerous costs that are less obvious but just as destructive. Here I detail some of the more significant hidden costs.

The Tax Code Induces a General State of Anxiety

Not even IRS agents understand the modern tax code. Even if an individual complies with the letter of the law, he or she may still be audited and subjected to the arbitrary power of the IRS. Much of the tax code is subjective -- you're guilty of a violation if the IRS says you're guilty. What does that say about American culture, that the common person is afraid of the government?

Much of the fear about taxes could be reduced if the modern code were replaced with a much simpler tax, one that didn't attempt social engineering, one that everybody could understand.

Taxes Encourage Frivolous Spending

Business expenses reduce the level of taxable income. Thus, marginal business purchases become more attractive because of their impact on taxes. The result is that businesses buy things they don't really need.

Any sort of income tax will encourage frivolity. A sales tax would create the opposite problem: the discouragement of purchasing. The best, most productive levels of spending and investment can only be determined in a free market. Taxes move behavior away from productivity, toward wastefulness.

Taxes Push Labor into Leisure and the Underground

If you earn a dollar, you get to keep about 50 cents. At some point, working more doesn't making sense. Some enjoy more leisure. Others work in the underground economy, thus creating a bifurcated society.

Taxes Foster Dependence

To experience independence, one must be able to choose how to spend the fruits of one's labor. Taxes take choice away from individuals and give it to politicians and bureaucrats. We become as children, incapable of living our own lives, able only to follow orders. Actually that analogy gives too much credit to taxation, for children grow into responsible adults, whereas taxation reduces adults to dependency. Taxpayers are obedient or beaten, always begging for another scrap. Only taxpayers create the wealth that the government confiscates and then doles back out.

If being human means anything, it means using one's mind to make decisions. Taxes rob the individual of choice.

Taxation Strains Morality

Taxes encourage people to blur the distinctions between business expenses and personal expenses. Eye-winking and re-defining terms become common. (It depends on what your definition of "business expense," is.)

Taxes also turn most people into plunderers. When the government takes around half of everyone's wealth, it's difficult to avoid taking government assistance all the time. Taxation is pervasive, mutual plunder. It turns self-reliance into mutual dependence. It stamps out voluntarism and makes force a way of life.

Taxation Weakens the Division of Labor

Why do people trade goods and services? Why doesn't everyone independently produce what he or she wants and needs? The obvious answer is that as individuals we don't have the time or ability to learn all the skills necessary to produce the goods and services we use. The more subtle but more important answer is that comparative advantage permits us to divide labor and produce more collectively than we could working only for ourselves.

There was some disagreement about the nature of comparative advantage at the March Austrian Economics Study Group, so perhaps an example would serve to demonstrate the nature and importance of the phenomenon. Let us say that Abe and Bert are stranded on an island. Abe is able to forage for 16 cups of berries in a day or catch 10 fish in a day. Bert is only able to forage for 10 cups of berries in a day or catch 2 fish in a day. Abe, then, has the absolute advantage in both foraging for berries and catching fish, relative to Bert. But it's still in Abe's interests to trade with Bert.

Let us suppose that both Abe and Bert at first work only for themselves and divide their time equally between foraging for berries and catching fish. That way, they will eat both Vitamin C and protein. Together, Abe and Bert collect 13 cups of berries and catch 6 fish. But then Bert gets smart and notices that, though Abe is a little better at foraging than catching fish, Bert is a lot better at foraging than he is at catching fish. Bert has a comparative advantage in foraging for berries. Thus, it's in Bert's interests to spend all of his time foraging for berries. Abe can catch 6 fish in three-fifths of a day, which leaves him two-fifths of a day in which he can still forage for over 6 cups of berries. Thus, collectively, Abe and Bert can now produce 16 cups of berries and 6 fish. Abe can trade a fish for three cups of berries, which gives Abe over 9 cups of berries and 5 fish, while Bert keeps 7 cups of berries and gets a fish. Both are better off.

What does this have to do with taxes? The work a person does for him or herself is not taxed. The work a person does for purposes of trade (which means, for money) is taxed. Thus, the tax code encourages people to do more work for themselves, which reduces the division of labor and makes the economy as a whole less prosperous. Instead of working more and hiring a mechanic, a person will take time off to fix the car. Instead of hiring a painter, a person will do the work alone. Everything from raising food to printing advertisements can offset the tax burden. While this reduces the damage done by taxes to the individual, it does so at the expense of full economic prosperity.

The socialist system of taxation is profoundly anti-social, then, while capitalism is the true system of social harmony and prosperity. But this should not seem paradoxical: socialism relies on the force of the State, whereas capitalism operates by the voluntaristic interactions of individuals.

Origins of the Socialist Insecurity Tax

by Ari Armstrong, April 1999

Too often, people lose their sense of history. This is true of government programs, particularly when they've been around since before most of us were born. The Social Security tax is for many a natural part of life. Where did this tax come from? What was its purpose? What should we do now to reform it? A reprint of the original notification introducing the program may serve to set the scene:

Notice: Deductions from Pay Start Jan. 1

Beginning January 1, 1937, your employer will be compelled by law to deduct a certain amount from your wages every payday. This is in compliance with the terms of the Social Security Act signed by President Franklin Delano Roosevelt, August 14, 1935.

The deduction begins with 1%, and increases until it reaches 3%.

To the amount taken from your wages, your employer is required to pay, in addition, either an equal or double amount. The combined taxes may total 9% of the whole payroll.

This is NOT a voluntary plan. Your employer MUST make this deduction. Regulations are published by SOCIAL SECURITY BOARD.

Why was this tax ever started? Perhaps it was to provide charitable assistance to the elderly poor. But if the purpose of the tax was to provide charity, why did it pay every elderly person a pension, rich or poor? Charity must not have been the reason for such a pervasive tax.

Perhaps the Social Security system was meant to compel people to save adequately for their retirement. However, Social Security has nothing to do with savings. Money is taken from the workers and paid directly to the elderly. There is not and never has been a "trust fund." If the view of the government officials was that people are too stupid or childish to save for their own retirements, thus requiring the guidance of "Daddy State," why didn't the government simply mandate a savings program? The transfer program merely dampens the economy by diverting funds away from real investment. The tax, then, does not seem to have been imposed to solve problems of savings, either.

The most likely explanation for the passage of the Social Security Act is that the country was in the midst the Great Depression, unemployment was high, and pushing the elderly workers out of the labor market made room for others to get jobs.

Perhaps the Social Security tax was also imposed merely to bring the United States closer to the socialist ideals of the communists in vogue at the time. (Similar policies also arose in the fascist countries.)

Social Security, then, was never a good idea. It was passed as a political expediency, with no view to the damage it would visit upon future generations.

Today's younger generations will bear the full burden of this socialistic system. The early recipients of the tax didn't have to pay a dime into the system. So long as each generation of workers grew larger and larger, those drawing the benefits made out pretty well. Unfortunately, the generation of Baby Boomers is quite large, whereas subsequent generations are relatively small. Thus, the children and grandchildren of the Boomers face a tremendous tax burden in the coming decades, with the amount of wages needed to fund the system projected to grow from the current level of around 15% to double or triple that amount.

So now what do we do? The best solution is the simplest: raise the age at which benefits are paid by three (or four) months every year, indefinitely into the future, until the system is phased out.

Some reformers, including Bill Clinton and many in the Republican Party, want to impose mandatory, regulated savings accounts on top of the Social Security system. Such accounts are frequently touted as a way of "saving" Social Security. This is political legerdemain. The Federal government has promised everyone that they can draw money from the Social Security system (which means from younger workers) at a certain age. This financial burden is not going to somehow go away simply because younger workers are also forced to invest more of their money in government-regulated accounts.

The only way to avoid the disastrous economic consequences of leaving the system intact is to cut somebody's expected benefits. The most feasible way to do this is to phase out the system over a period of decades. The younger generations will still bear the brunt of the hardship -- they've been caught at the base of the pyramid scheme. But at least they will lose a much smaller portion of their earnings, and they will remain free to spend what remains of their income as they see fit.

Call for Congress to PHASE-OUT Social Security

[Update September 30, 2025: I no longer thing this is a good idea, for reasons suggested in the next article.]

Please sign this document and mail it to your Senators and Representatives in the United States Congress. Please distribute copies of the text in paper and e-mail format to all those who may also be interested in signing.

WHEREAS the Social Security tax is regressive, largely taking from the less-wealthy in order to give to the more-wealthy, and,

WHEREAS the Social Security tax has always been a spend-as-you-go program rather than a true investment program, and,

WHEREAS the Social Security tax is a ponzi or pyramid type scheme in which the early recipients of the benefits received far more than they ever paid into the system, while the younger generations today will pay far more than they will ever receive, and,

WHEREAS the number of people who receive benefits from Social Security relative to the number of people who pay the tax is expected to increase drastically within the next few decades, creating an unbearable strain on the economy, and,

WHEREAS the Social Security tax was created more as a politically expedient way of pushing elderly workers out of the labor force during the Great Depression rather than because of any real need for charity, and,

WHEREAS the Social Security tax creates inter-generational strife, and,

WHEREAS nearly every individual in the United States, including me, is capable of making his or her own plans for savings and retirement, and,

WHEREAS any type of mandatory, regulated savings account would violate the freedom of the individual to decide how to spend his or her hard-earned money,

THEREFORE, I hereby solemnly swear to renounce any and all Social Security benefits for myself, refusing to partake of this ill-conceived transfer program, and,

FURTHERMORE, I call on the United States Congress to PHASE-OUT the Social Security tax by increasing the age at which benefits are paid by three months every year, into perpetuity, and to check increases in benefits of those who receive funds from Social Security.

Respectfully Signed,

Find the addresses of your representatives in Congress! [omitted]

If you agree that Social Security is a bad idea and should be PHASED-OUT, but you aren't ready to sign away your benefits, please sign the watered-down document that omits the renunciation of benefits. [omitted]

Several people have asked me to expand upon the ethics of renouncing Social Security benefits. Read my comments on the matter [below].

The Morality of Accepting Social Security Benefits

by Ari Armstrong, April, 1999

Recently I wrote a document entitled "Pledge to Renounce Social Security Benefits." In this document, I summarize the problems with the Social Security (S.S.) system in the United States, call for the renunciation of S.S. benefits, and call for the United States Congress to PHASE-OUT the S.S. tax by increasing the age at which benefits are paid by three months every year.

My two main purposes in writing and publicizing this document were to raise popular awareness of problems with the S.S. system and to offer a simple, libertarian way of phasing out the tax.

My purpose with the renunciation of benefits was to draw awareness to the moral repugnance of the system and to my document. Judging from the responses I've received on the issue, though, the bit about renunciation has stolen the show. To my mind, renunciating S.S. benefits is less important than educating the public about the problems of the system and about the PHASE-OUT reform. (Please note that I'm trying to make the label, "PHASE-OUT," stick in peoples' minds.)

I made a tactical, error, then, in over-emphasizing the renunciation of benefits. To compensate for this error, I have changed the title of the document to "Call for Congress to PHASE-OUT Social Security." I've also made available a new version of the document that doesn't include the paragraph renouncing benefits. I hope that those uncomfortable with renouncing their benefits will sign this alternative document and send it to their representatives in Congress. (It's linked from the page cited above.)

That said, the issue of whether one should renounce S.S. benefits is important. It is also difficult. I'll here attempt to deal with the many intricacies of the matter.

The most important reason I included the paragraph on renunciation in the original document was to draw public attention to the issue. It's a less extreme version of setting one's self on fire, standing in front of a tank, or starving one's self in protest. It gets publicity.

Further, it was the only way I could think of to express my deep, moral disgust with the S.S. system. Social(ized) (In)Security is fundamentally corrupt, fundamentally dirty, and I can no longer bear to hold my nose and pretend everything's rosy.

I hope that renouncing S.S. benefits is effective as a public protest. However, that doesn't mean others have an obligation to make such a public protest. The question of whether accepting S.S. benefits is moral must be answered on different grounds.

The common argument put forward in favor of accepting S.S. benefits can be stated, "Since the S.S. funds were taken from me by force, I have the right to take some of this money back from the system." This view was advocated by Ayn Rand, who wrote:

The victims [of government transfer programs] do not have to add self-inflicted martyrdom to the injury done to them by others; they do not have to let the looters profit doubly, by letting them distribute the money exclusively to the parasites who clamored for it. Whenever the welfare-state laws offer them some small restitution, the victims should take it . . . The same moral principles and considerations apply to the issue of accepting social security, unemployment insurance or other payments of that kind. It is obvious, in such cases, that a man receives his own money which was taken from him by force . . . (Ayn Rand Lexicon, page 194, reprinted from The Objectivist, June 1966, page 11)

But is it obvious that a person, by accepting S.S. benefits, receives his or her own money back? The proposition is far from obvious, and it is indeed false.

The "get my money back" argument relies on a reification of the State. Within this fallacious view, government is seen as a big bully who takes our money and keeps it. If we take money back from this big bully, we are simply getting back that which was taken from us.

But that's not what's really going on. In reality, the "government" is merely an organization of people who take S.S. money for other people. To truly take back one's money, one would have to collect it directly from the recipients of the S.S. benefits. Obviously, that's not going to happen.

Right now, the S.S. tax I pay goes directly into the pockets of those who receive S.S. benefits. The money is not kept by the big bully "government," such that I can take it back again from the government. If I took S.S. benefits when I retired, I would be taking money out of the pockets of the younger generations, not out of the (metaphorical) pockets of "government."

Let's use an analogy. Let us say that Allen steals $100 from Bob. Bob, to restore his wealth, could steal $100 from Carl, but would this be fair? Some might be prone to argue that two wrongs don't make a right. If we suppose that Allen is 70 years old, Bob is 45 years old, and Carl is 20 years old, the applicability of this analogy to Social Security becomes readily apparent.

Saying "the government takes money for Social Security" is merely short hand for saying, "the government takes money for Social Security on behalf of those who receive Social Security benefits." If we want to call Social Security legalized theft, then the government is merely the intermediary, the hired gun.

To extend our little analogy, let us suppose that Allen hires Gary to steal $100 from Bob. Bob, understandably miffed, asks Gary for the money back. Gary replies, "I can't get the $100 back from Allen. However, I can steal $100 from Carl and give that money to you. Deal?" That's Social Security.

I think I've made the case that accepting Social Security benefits is morally questionable at best, at least for libertarians. Are there any exceptions to the rule?

Ayn Rand accurately described some transfer programs: one can actually receive the same moneys one paid in as taxes through some programs. In such cases, her arguments for taking the benefits remain sound.

There's a possible way that one might even justify taking Social Security benefits on the grounds of getting one's money back. If one's children pay, say, $12,000 to the tax every year, would it be acceptable to take $12,000 worth of benefits so long as one had the permission of one's children? Then, in effect, the children would be getting some of their money back in a limited way. (It would even be possible to give the money directly back to one's kids.) This argument might be sturdy enough to hold up; I'm not really sure. I can only counsel each individual to weigh the arguments and make a real effort to make a principled decision, even though doing so is all but impossible under the corruptive State.

I can add a separate argument that might justify taking government benefits, regardless of whether or not one paid into the particular system. If a particular amount of funds is to be paid out, these funds would do the most good in libertarian hands, who will work toward the eventual elimination of the government program. The hazard here is that, by taking the funds, the libertarian might increase the demand for government transfers, thus putting expansive pressure on the program.

While in college I accepted a small amount of grant money from the government as well as government-guaranteed loans. I accepted these funds on the grounds that my parents paid into the system, so they might as well get some of this money back in the form of my education. Further, I thought to myself, "If I don't take this money, somebody else will. By not accepting the money, I wouldn't be reducing the over-all tax burden. Plus, at least I'll work for the eventual abolition of the coercive programs."

Still, I have a lingering guilt over the matter, because I am not sure that my arguments are sound. Could I have renounced the grant money and thereby reduce the overall tax burden? I'm not sure. I don't know if grants for education are limited to a particular total amount or given without limit. If they are given without limit, then it would seem my reasoning was faulty on the point. The point about my parents' contributions to the tax would still stand, though.

In terms of Social Security, now the tax takes in more than is paid out in benefits. (This will change dramatically as the Baby Boomers retire, when the system is projected to run huge deficits.) This excess revenue goes directly into the general treasury. By taking Social Security benefits, one is reducing the amount of the tax that is used to subsidize general expenses, thereby increases the amount of bonds the Federal government borrows. Bonds are merely future taxes. As soon as the S.S. system starts to run a deficit, taking S.S. benefits will more directly add to the present tax burden.

The question of renouncing benefits does raise the problem of the "free rider." If a few libertarians renounce benefits, it's not really going to affect the system. Everyone else will "free ride" on the efforts of the few to renounce the system. My only reply to this is that sometimes the only moral course is to bite the bullet and not be a free rider. Martyrdom, as Rand calls it, can be an excellent way to earn publicity and take a stand for one's principles.

But let's be realistic: for me, renouncing S.S. benefits doesn't mean a whole lot. I place the odds of the S.S. system surviving into my old age at less than 50-50. I might just as well pledge, "I will not ride any unicorn that walks into my yard." Social Security is a pyramid scheme, and today's younger generations are at the bottom. When the Baby Boomers bulge the pyramid at the top, it's going to topple.

Besides, I don't plan on letting myself be dependent on Social Security. I'm going to save for my own retirement -- the S.S. tax be damned.

What if I were not able to save for my own retirement, though? To return to our analogy, what if Gary stole all of Bob's wealth in order to give it to Allen? Further, imagine if Gary said to Bob, "Listen, you're not going to survive as things stand. But I'll steal some of Carl's wealth for you so that you can continue living." What's Bob going to do? Today, government takes almost half of everyone's wealth. At some point, a person is forced to rely on government handouts, because he or she is otherwise left with too little to get by. I can't blame someone for taking government handouts to alleviate dire need.

After writing the initial draft of this essay, I heard the argument that one should take S.S. benefits simply to hasten the fall of the system. But this rationale borders on rationalization. What does it really mean to hasten the fall of the system? It seems to mean little other than to incite the youth to political revolution. Again, we mustn't reify: "the system" is not some monolithic evil that we can physically attack and topple. "The system" is just a social structure in which the agents of the State force the youth to transfer money to the elderly. In terms of our analogy, the strategy might be stated, from Allen's point of view, "I know it's wrong to rob Bob, but all of my peers are robbing all of Bob's peers, so maybe if I rob Bob to the utmost I'll incite him and his peers to overthrow the entire system." Hmm. It seems to me that there are better ways to advance political change.

However, what if one took the money and used it directly to advocate the free market? If it's possible to sustain this line of argument, taking government money from any program might be justified.

To summarize,

Note that I have not proven any of the arguments that favor taking government benefits. I have merely put them forward as possibilities. I have shown that some of the arguments cannot apply to Social Security, though.

Beyond the arguments of moral permissibility are considerations of the value of public protest. Even if an action is morally permissible, sometimes not taking the action creates valuable public awareness. That's the main reason I'm renouncing my (future) benefits now: to raise public awareness about the issue, and in particular about the PHASE-OUT reform.

Coloradans Push for a National Sales Tax

by Ari Armstrong

On April 14 and 15, Sam Carrubba and Tom Stockman of Colorado Springs will join a national demonstration in Washington, D.C. to call for the income tax code to be dumped and replaced with a national sales tax.

Carrubba is the co-founder and former director of the Colorado Springs chapter of the national Citizens for an Alternative Tax System (CATS). (There is no state-wide association.) Currently Marsha Bartholomew heads the Colorado Springs chapter, leaving Carrubba to handle publicity and other projects.

For the past two years, CATS has organized a protest in Boston in which the national tax code was dumped into the harbor. "We had to post high-tide warnings because the code is so big," joked Carrubba. This year, CATS will rally on the steps of the Capitol in D.C., host a symposium on the issue, and lobby in support of legislation that would impose a sales tax.

Carrubba is also working with State Representative Ron May on a resolution in which Colorado legislators would call on Federal lawmakers to enact a sales tax. Last year, the state legislature passed a resolution laying out the broad requirements for national tax reform. Carrubba believes a sales tax would meet the conditions of the earlier resolution.

Former Colorado Congressman Dan Schaefer sponsored legislation in 1997 to replace the national income tax with a sales tax. His bill, H.R. 2001, is cited by CATS as the benchmark legislation which the organization hopes to revive for a future vote.

Points of Analysis

Real Tax Reform Means Cutting Spending!

The Federal government currently spends around a third of everyone's income. Government as a whole spends around half of everyone's income. The sheer magnitude of taxation is what makes it so devastating to individual lives and the economy as a whole. Unless government spending is radically reduced, no tax reform will take the unpleasantness out of taxes. The higher the tax rate, the harder people work to avoid the tax burden, through both legal and illegal channels, and the more productive effort is wasted. Talking about tax reform without focusing on how to reduce State spending is like worrying about the paint job of the gallows, or like removing a splinter from the eye while a 2x4 remains. To put it another way, the debate over the "flat" tax and the sales tax is peripheral at best.

On the other hand, changing the hue of the colors is about all that looks immediately viable in Federal politics. So, keeping the broader context in mind, let's get out our color wheels for a few moments.

Life Without the IRS?

Those who support the sales tax are disingenuous when they suggest the tax collectors will disappear with the imposition of the new tax. Somebody's going to have to collect the sales tax. Under Schaefer's legislation, the Department of Treasury would open a new agency to collect the tax. I suppose that the new agency will just hire former IRS agents. Would it belabor the obvious to mention that a dung hill by any other name smells just as foul?

Of course, all those who work only on a regular pay-roll would not have to bother directly with the new tax collection agency. This group constitutes the majority of the populace. However, the sales tax would compel every person to seek ways to avoid the tax. The incentive for the average person to participate in the underground economy would increase dramatically. Why pay Joe Fed $100 to mow your yard (or whatever) when you could pay Sam Free $87? The burden of paying taxes is on the seller of goods or services, according to the proposed legislation.

There are also perfectly legal ways to evade the sales tax, though these methods waste productive effort. With a 15% sales tax, fixing one's own car, patching one's clothes, painting one's own house, raising one's own food, etc., become much more appealing. Services you do for others are taxed, services you do for yourself are not taxed. As noted in The Hidden Costs of Taxes (taxeshiddencosts.html), taxation reduces the level of trade, which reduces the benefits of the division of labor, thus making the economy poorer.

Schaefer's legislation would also permit state governments to collect the sales tax for the Federal government. States would get to keep 1% of the collections as a reward. However, I fail to see why a neo-IRS in Denver would be more desirable than a neo-IRS in Washington, D.C.

Indeed, there's something revolting about rewarding state governments to be the goons for Federal politicians. It is conceivable, indeed probable, that we can maintain a higher standard of morality in the State Capitol than in the Federal Capitol. We should leave Federal corruption to Federal agents, not spread it to state agents.

Furthermore, letting Colorado keep a percentage of all taxes collected would create perverse incentives to collect taxes in an over-zealous manner. We have the same problem today with police agencies that are able to seize property absent a trial and spend the proceeds for themselves.

Presumably, the rationale for using state governments to collect the sales tax is that most states already collect their own sales taxes and thus have a base system already in place. However, if the Federal sales tax were collected solely by Federal agencies, the states could then piggy-back on the collection efforts of the Feds, much as they piggy-back on the efforts of the IRS in their income tax systems today. Probably most states would drop their income taxes, as they would be too costly to collect absent the Federal program, and the Federal sales tax would become the model system.

Compliance Costs

The modern, monstrous tax code wastes about FIVE BILLION hours of time every year in compliance alone (in the estimation of Sheldon Richman). The code's endless complexity necessitates a professional class devoted only to feeding it. In addition, with all the deductions and loopholes, people waste enormous effort trying to figure out how to avoid the tax burden.

Any reformed tax code should be radically simplified. No deductions, no twists, no loopholes, no complexity. The entire code, plus all additional regulations, should fill no more than a couple dozen pages. No one should have to spend more than a few minutes filling out the tax forms. (Of course, recording revenues and expenses would still take up time.)

In terms of compliance costs, a "flat" tax such as Steve Forbes has popularized would work at least as well as a sales tax. Schaefer disagrees. He wrote in The Wall Street Journal March 11, 1996, "[T]he notion that we can have a 'flat' income tax over the long term is the triumph of hope over experience. Since the 1986 tax reform -- which started as a flat tax -- the federal income tax code has been amended by 40 different acts of Congress. As long as the income tax exists in any form, it can and will grow back."

Schaefer is probably right about the income tax. But the same thing would happen to the sales tax. A summary of Schaefer's legislation distributed by CATS says, "A supermajority vote of 2/3 of both Houses of Congress is necessary to raise the sales tax rate or to create any exemptions to the sales tax." But Congress can, with a simply majority, revoke the supermajority requirement. The desire to exempt certain goods and services from taxation in order to appease special interest groups will, I fear, prove overwhelming to today's politicians. A simplified income tax will fare just as well (which is probably to say, very poorly indeed).

The Question of Progressivity

Congress will never pass a non-progressive general tax. Nor should it. Many Austrian economists argue that marginal utility theory doesn't apply to wealth. However, the general point remains that taking $1,000 from a person earning $10,000 a year is more damaging than taking $10,000 from a person earning $100,000. Thus, beyond the issue of today's political reality, there is an issue of fairness that libertarians can note. All taxes are unfair and unjust, but moderately progressive taxes are less unfair.

Of course, the "flat" income tax is anything but flat. It is highly progressive. To see why, let's take an example. Let's say the tax charges 20% of all income above $10,000. Thus, someone making $10,000 pays a tax rate of 0%. Someone making $20,000 would pay 20% on $10,000, or $2,000 annually, which is an effective 10% tax rate. Someone making $100,000 would pay $18,000 in taxes, which is a net 18% tax rate. The virtue of the "flat" tax is not its (non-existent) flatness, but its radical simplicity. It might fly politically simply because it is progressive.

Already there are calls to make the national sales tax progressive. Steven L. Hayes as President of CATS wrote approvingly in A National Sales Tax -- America's Salvation?, "Congressman [Sam] Gibbons suggests that we ensure that the impact of the National Sales Tax is equitable [read: 'unequitable'] by giving monthly cash rebates. If each member of a family received a rebate of $50 per month, a family of four would receive $2,400 per year in cash rebates which would equal the amount of tax on the first $14,500 of the family's expenditures for the year."

It nearly goes without saying that adding progressivity to the sales tax would add a great deal of paperwork and compliance cost to the system. The "flat" income tax seems to have the advantage on this score.

Neutrality

There is nothing inherently more neutral about a sales tax than about an income tax. A tax is neutral to the extent that it doesn't alter economic behavior. As Murray Rothbard argued, no tax can be completely neutral, but some taxes are more neutral than others. A simple sales tax would be more neutral than the current form of the income tax, but it would still be non-neutral in that it would spur tax avoidance and it would shift purchasing to those goods and services not taxed, such as nominal business expenses, education purchases, and "casual" sales.

The Impact on Businesses

The single greatest problem with the national sales tax (as proposed) is that it would NOT END INCOME TAXES! One gigantic tax on income would remain: the Social(ist) (In)Security tax. This tax would be collected by the Social Security Board. Presumably, individuals on pay-roll would not have to deal with the paperwork, as the employer could do it.

As Schaefer points out, a sales tax that included funds for Social Security would have to double -- from about 15% to about 30%. A sales tax of 30% would radically increase the level of tax avoidance, so the call is to separate the Social Security tax from the sales tax.

However, look what this does to the self-employed! In Colorado, services are not taxed under the state sales tax. Those who are self-employed in the service industries only have to keep track of their income for the IRS. Under the sales tax proposal, they would have to continue keeping income records for the Social Security Board, but would ALSO have to start keeping sales tax records for the Treasury! This may not mean much to those on pay-roll, but I am self-employed in a service industry, so this looks like the coming of the four horsemen to me.

This single point is enough to strongly oppose the sales tax. If it can be fixed to totally do away with all income taxes, it might be acceptable. But if it's only going to add a sales tax on top of the income tax system, then forget it. If Congress can wreak havoc with one type of tax, imagine what it can do with two!

How Democracies Tax Themselves to Death

by Alexander Tyler, 18th Century Scottish Economist and Historian

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on the majority always votes for the candidate promising the most from the public treasury with the results that a democracy always collapses over loose fiscal policy, always followed by dictatorship.

The average age of the world's greatest civilizations has been 200 years. These nations have progressed through the following sequence:

From bondage to spiritual faith, From spiritual faith to great courage, From courage to liberty, From liberty to abundance, From abundance to selfishness, From selfishness to complacency, From complacency to apathy, From apathy to dependency, From dependency back again into bondage.

The editor wishes to thank Sam Carrubba for sending along this piece of wisdom, along with a folder full of information about the sales tax.

Do You Think You Are Free?

by Sandra Davies Johnson, April 1999

Taxes Versus Freedom

Are you free? To be free means not to be under the control or power of another.

Who controls how you spend and save your money? If you were free, YOU would make your own decisions about how to spend your earnings. Why should others decide how to spend what you earn?

Slaves work for their masters. Free people work for themselves. If the master told a slave he could have Sundays off, would that make him free? Suppose the master said he could have Saturdays AND Sundays off -- would that make him free? What about three days a week off? At what point are you a slave?

In this supposedly "free country," we are forced, at gunpoint if necessary, to pay the State half of our income. Someone else decides what to do with half our earnings. We spend half of our time working as slaves for our masters. The average American works 20 years of his life just to pay for government.

The power of government comes from money -- YOUR money. The more money government agents take, the more power they have over your life and the less freedom you have. The higher the tax burden, the more you are a slave.

In Colorado, after we pay all our federal taxes, we pay $5.5 BILLION dollars more in state income taxes; state, local, and special district sales taxes; property taxes; taxes on vehicles; license fees to drive; fees to be permitted to work; fees on businesses; and taxes on alcohol, tobacco, gasoline, propane, telephones, pagers, ad nauseam.

We pay more in taxes than we do for food, shelter, and clothing combined.

Taxes Versus Prosperity

Do You Want Economic Prosperity? People stop producing when they know they will not benefit from their labor. The higher the tax burden climbs, the less prosperity we enjoy. Would you work at all if the State took 100% of what you earn? What if they took 90%, 75%, 50%? At what point would you refuse to work? Socialism's confiscatory taxes destroy incentive, morality, prosperity, and productivity, resulting in human misery. More and more individuals have decided that they would rather enjoy more free time instead of working harder and keeping less.

The result is less prosperity for all.

Taxes Versus Customer Satisfaction

Are You Getting Your Money's Worth? Are you getting the services you want and would voluntarily pay for? If you had a choice, would you select:

What can I do if I'm not satisfied with the quality, quantity, or choice of services forced on me by governments? If I am displeased with a government service can I withhold my money and take my business elsewhere? Private companies eventually go out of business if they do not please enough customers. But full funding for bad government schools continues, regardless of customer dissatisfaction. Spending for government schools has increased four times over what it was in 1950 (adjusted for inflation). Yet the quality, by almost any measurement, has eroded.

The Colorado budget has more than doubled in the last 10 years from under $5 billion in 1989 to over $10 billion in 1999. Have your services doubled in the last 10 years? Has your satisfaction with state government doubled in the last 10 years? Would you pay double for the services you get today versus what you got from government 10 years ago?

Spending on the state and Federal levels is out of control. Would you willingly spend your money to buy:

What Can Be Done?

If we desire freedom, prosperity, and customer satisfaction, we must reduce government to its proper functions. We must vote for smaller government and allow people to create prosperity by giving them back their individual freedom. When people realize that their freedom is in jeopardy from the high tax burden, when they realize that taxes reduce prosperity, and when they realize they are not getting their money's worth from the taxes they pay, then they should vote for more freedom.

People will do whatever they can to avoid pernicious tax burdens. Taxes change the ways people invest and earn their livings. Some work less to pay lower taxes. Some join the booming underground market -- estimated to be nearly 25% of the economy!

The tired old parties continue to reduce your freedoms through ever-increasing tax burdens and more forced services and regulations. The Libertarian Party is the only party to consistently stand up for your liberty by fighting for smaller government.

Sandra Johnson was the Libertarian Party candidate for governor in 1998. The Colorado Freedom Report is not affiliated with the Libertarian Party, though it publishes opinions from its members and reports on its activities

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