No Flat, No Fair, No Taxes, NO HOW!

So far, we've learned the history of taxation in America. We've laid out the moral dilemma a Christian faces when the fruit of his labor is illegally confiscated by an "out of control" government that has to pay back the Federal Reserve.

Several alternatives to the federal income tax are on the table. Lawrence M. Vance wrote a great article comparing the popular Flat Tax and Fair Tax ideas, and he explains why both plans fall short of offering an acceptable, lasting solution to tax abuse:

"Two specific tax reform plans that some libertarians have fallen for are the Flat Tax and the FairTax. Both plans promise to invigorate the economy, increase employment, and raise everyone's standard of living. Neither one is true to its name; neither one is an incremental step toward overall lower taxes. Both are fraught with problems and contradictions; both are revenue-neutral plans that would fund the federal government at the same obscene level that it is now.

The Flat Tax

"Under a Flat Tax, everyone's income is taxed at the same rate (Forbes says 17 percent; Hall and Rabushka say 19 percent). And not only are there no tax brackets, there are generally no tax deductions other than personal and dependent allowances. Social Security and Medicare taxes would remain as they are now. The appeal of the Flat Tax is simplicity. You can do your taxes on a postcard-sized form says Forbes. Goodbye compliance costs.

"The problem with the Flat Tax is a simple one: the Flat Tax is not flat. And furthermore, no one actually pays 17 or 19 percent. In fact, taxpayers don't even pay the same percentage. The Flat Tax is actually a highly progressive tax. It is more progressive than our current system, and effectively has more tax brackets. Who said progressivity requires graduated tax rates?

"Under the Forbes plan, a family of four would pay no federal income tax on its first $46,165 of income; a family of six would owe nothing until its income exceeded $65,930. And those figures are sure to have increased since they were first proposed back in 2005. But not only would many families pay no income tax, they still might get a refund anyway because the Forbes plan includes a refundable child credit and earned-income credit.

"If you want an example of a real flat tax, look no further than the 2.9 percent Medicare tax. Everyone pays 2.9 percent (split between employer and employee), on every dollar earned, no matter one's marital status, number of dependents, or income level. I am in favor of neither the tax nor Medicare, but if you are looking for a genuine flat tax, then the Medicare tax is your tax.

The Fair Tax

"The FairTax is a national retail sales tax of 30 percent on the final sale of all new goods and services. All new goods – from cars and houses to prescription drugs and food; and all services – from operations and funerals to rent and haircuts. Because it would replace the personal income tax, there would also no longer be withholding tax, capital-gains tax, the alternative-minimum tax, or taxes on interest and dividends. Even your gambling winnings would no longer be taxed. Of course, there would be no tax deductions either.

"The FairTax would likewise eliminate corporate income tax, estate tax, gift tax, unemployment tax, Social Security tax, and Medicare tax. The appeal is obvious: no more complex tax code, no more taxes withheld from paychecks, no more 1040 forms, no more record keeping, no more compliance costs, no more IRS audits. And if that weren't enough, the FairTax also includes a monthly rebate to offset the taxes paid on basic necessities.

"But for a plan that promises such a utopia, the problems with the FairTax are legion. The stated rate of the FairTax is too low to achieve the promised revenue neutrality. The amount by which it is claimed that prices would fall under a FairTax system has been grossly exaggerated. There is nothing to prevent an income tax from being reinstituted, giving us a two-headed hydra of an income tax and a consumption tax. And not only would state and local governments have to pay a national sales tax to the federal government, the federal government would have to pay sales taxes to itself on all its new purchases. Since I have already written extensively about the problems with the FairTax, I will stop with its problems here and focus on why the FairTax, like the Flat Tax, is not true to its name.

So why is the FairTax not fair? Well, first of all, what's fair about a consumption tax? Why is it that people who rightly criticize the income tax are so quick to accept a national sales tax on consumption? The FairTax perpetuates the fallacy that the government has a right to confiscate a percentage of the value of each new good sold and every service rendered. This is no different than claiming that the government has a right to the portion of each American's income. As Murray Rothbard explained:

The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.

"The FairTax is also not fair because of the rate. What is fair about the government taking a 30 percent cut on every transaction? I know the FairTaxers claim that the rate is only 23 percent, but when I buy an item for $1.00 and end up paying $1.30, the basic math I learned in elementary school tells me that I paid a tax rate of 30 percent. But regardless of whether the rate is 23 or 30 percent, why should the bloated, pork-laden leviathan we call the US government get anywhere near this much of our income?

"Neither the Flat Tax nor the FairTax is a step toward the libertarian goal of substantially reducing or abolishing the income tax; neither tax-reform plan is an incremental step toward lower overall taxes. They could be, however, if their promoters recognized that the problem is taxation itself, not the tax code. All they have done is shift the debate from how much of the wealth of the American people the federal government confiscates to the manner in which the wealth is confiscated." Read the entire article.

Noted Libertarian Lew Rockwell has some additional insights into why a consumption tax would not end oppressive taxation:

"The tax shift is one of the great games of government. In the game, the government uses the prospect of lowering one tax in order to buy support for raising another. The proposal to move from an income tax to a consumption tax is a good example of the game.

"The essential key to understanding the trick is to realize that the government wants money and is going to get it one way or another. Zig zagging from one method to another does not change the reality. But it can fool the gullible. And it can raise a lot of money from affected groups during the transition period.

"One helpful way to understand this is to think of a robber who promises to stop coming through your front door if you promise to leave the back door open. So it is with the state that promises to stop taxing your income if you let it tax your consumption. The issue is not the method; it is the amount.

Far too much is made of the flat versus progressivity issue. Think of it this way. Would you rather pay a flat 40% tax, or finagle your way through a system with 20 different rates ranging from 1% to 39% (all else being equal)? If you knew that you would pay less under a progressive system, that is the one you would favor." More...

For over one hundred years in America, the federal government existed solely on revenue from tariffs. Economist Gary North lists ten reasons why he believes tariffs alone can support government operations:

First, tariffs are sales taxes imposed on imported goods. The key political fact about sales taxes is this: they are flat taxes. They cannot be used to extract more wealth from one taxpayer than another. This is what state-loving, envy-succumbing economists and politicians call a regressive tax. It sounds terrible; it in fact is quite wonderful. A regressive tax is a tax that is imposed equally on every taxpayer. Regression means that every proponent of the tax will pay the same percentage as the next guy. It keeps voters a bit more honest.

Second, tariffs are almost impossible to impose on services. A cross-border service is hard to trace. The main way that governments track them today is through corporate income tax returns. Imported services are deductible from corporate income taxes. But I am recommending a world with no income taxes. Anyone in such a world who reports a service purchased abroad is saying, "Come and get me!" to the tax collector. The experts say that we live in a service economy. I say: "Then let’s impose taxes on goods." As few as possible.

Third, tariffs are imposed on a narrow class of goods: imports. If we do not count services purchased from off-shore, imports account for well under 15% of the U.S. economy – probably under 10%. In a world of tariffs-only, most of the economy would get off Scot-free.

Fourth, tariffs are collected from commercial importers, not private citizens. In a world of tariffs, there would be no direct contact between me and a tax collector. Overnight, it would be 1912 again – America’s golden age: before the income tax and after indoor plumbing.

Fifth, tariffs on imported information would be almost impossible to collect. The Internet, coupled with encryption, would seal the doom for tariffs on imported information. We live in an information economy. This means that tariffs would apply to less and less of the productivity of most Americans.

Sixth, the U.S. is the richest free trade zone on earth. Geographically, China and Russia are larger, but not economically. Americans would prosper more than any other people in a tariff-only tax system.

Seventh, the U.S. Constitution prohibits internal tariffs: "No Tax or Duty shall be laid on Articles exported from any State" (Article I, Section 9, Paragraph 5). This means that national politicians would not be able to compensate for the loss of revenue by imposing internal tariffs. It would take a Constitutional amendment to legalize them.

Eighth, tariffs are not imposed equally on all goods. They are discriminatory. Some goods escape. This means greater freedom from taxes if we choose our imports well.

Ninth, because tariffs are never imposed equally on all imported goods, they would become a matter of intense political warfare. In a world where only tariffs generated revenues, this would keep politicians busy in allocating favors within a shrinking percentage of the economy. I call this the sandbox effect. Cats, toddlers, and politicians belong in sandboxes.

Tenth, hiking tariffs enough to increase revenues significantly would lead to consumer substitutions. Consumers would start looking for domestically produced goods. Unlike most taxes, tariffs are a tax that you can legally avoid paying, at some marginally higher price. Better to fill the coffers of some protected industry than to fill the coffers of the U.S. Treasury..." (source: The Case for Tariffs/Lew Rockwell.com)

The Fair and Flat concepts of taxation may bring short-term relief, but as we've discovered, any system of taxation is simply moving the same amount of money around--just less conspicuously. Both propositions remain wide open for increases and even greater abuse in the long run.

North's tariff proposal would at least allow Americans to "toss the tea overboard" if rates on imports increase beyond public tolerance; and, it affords them the freedom to purchase domestically generated alternatives.

But in truth, as long as our government has the power to tax, it will do so with increasing tyranny. That's the nature of a State.

Neither the Flat nor Fair tax is a viable solution. Only ending the income tax altogether stops unconstitutional tyranny.

Yet the people inevitably cry, "But how will the government survive?"

"Quite well!" is the answer.

“I want to abolish the income tax, but I don’t want to replace it with anything. About 45 percent of all federal revenue comes from the personal income tax. That means that about 55 percent — over half of all revenue — comes from other sources, like excise taxes, fees, and corporate taxes.

We could eliminate the income tax, replace it with nothing, and still fund the same level of big government we had in the late 1990s. We don’t need to “replace” the income tax at all. I see a consumption tax as being a little better than the personal income tax, and I would vote for the Fair-Tax if it came up in the House of Representatives, but it is not my goal. We can do better.” (Ron Paul)

I'm a big fan of the Articles of Confederation, which preceded the Constitution. The centralized government had only a few duties largely funded by voluntary contributions from each sovereign state. The States were like parents who gave allowances for well-performed chores. Conversely, the funds could be withheld for poor representation or usurpation.

An elite group of men, tantalized by the opportunity to seize power in a new nation, hastily drafted a new document that granted more centralized power. Although safeguards were ceremonially put into place, almost immediately these 'so-called restraints' were largely ignored or excused away by politicians and bankers.

Today, the roles are reversed; subjugated states pay homage to a federal government that monitors, regulates, and robs the citizens.

Do you suppose our government--much like a computer--has a restore point? Many who have seriously pondered this question say "no".

More liberty-loving Americans believe that ending the income tax is just the beginning of dismantling a gargantuan government. They're looking to return to a simpler way for free people to get along and prosper in peaceful communities and societies without federal interference.

As we've learned, the shadowy banking cartel actually "runs" the country, not politicians. One party--much less one man in the executive office--isn't going to clean up or bring lasting change to such a deeply rooted system.

Ideally, I'd like to step back prior to the Articles of Confederation into simple community charters that can network for mutual benefit. I probably won't see it in my lifetime, but that does not discourage me from educating the public about the reality of living as truly free, self-governing individuals within a community of reciprocal respect.

I don't deny that humanity is fallen by nature; therefore, there will always be a need for some type of community security. However, it should be provided by a private company that is authorized for direct encounters only when harm has been done to a person or property. Such a company should be strictly accountable--not to a state agency nor a union--but to the people. Also, justice can better be served through privatized courts, programs, and facilities.

When such services are removed from the State and returned to a free, competing market, quality will improve. The only "special interest" will be to make a profit, and that can only be achieved by providing excellent, yet cost effective service. If a company fails to meet their clients' expectations, they fail. It's that simple. The people that hire them can also fire them.

Wouldn't you love to fire some of the people in government? Well, although they technically work for you, you can't. Don't be fooled: voting the sorry rascals out of office is not the same as outright firing them. Politicians are only animated symbols of governing ideologies that compete with each other within a larger, centralized system. Both parties take turns being in charge, and a new "king" gets to sit on the hill every four to eight years.

The real problem is the State, not just the people that work for it. For Christians, an excellent analogy would be the story of Abraham and his wife's handmaiden, Hagar. (Genesis 16, 17, 18:1-15; 21:1-21)

God promised to give childless Abraham a natural heir; but as time progressed with no evidence that God was going to come through, the aging Abe and his wife, Sarah, took matters into their own hands.

Sarah gave the beautiful Hagar to Abraham as her surrogate. The plan worked, and the young slave woman gave birth to a male that legally qualified as an heir.

But to everyone's surprise, Sarah later became pregnant (just as God had promised), and at the age of ninety bore a miracle son for one-hundred-year-old Daddy Abe!

As the boys grew, so did the jealousy of the older brother who lived under the realization that he was not the child of promise. He was the result of works due to unbelief, the other child was birthed by faith--one came from the womb of slavery, the other from freedom. (Natural trumped legal, as do our rights today!)

The day came when God instructed Abraham to send Hagar and her son far away. God prospered them in another land, but it was clear that the two men could not live together and still accomplish God's purposes.

Many people over the years have been puzzled as to why Hagar also had to go; after all, Ishmael was a grown man at this time. But hers was the healthy womb that brought forth Ishmael in the first place. If she birthed one out of God's will, she could do it again.

Christian, a corrupt, centralized government--man-centered and driven by greed and a lust for power--is the prolific womb. Politicians and those that serve them are the "Ishmaels"--products that continue to mock and impede children born for freedom, not slavery.

Sending away Washington's devoted "children" is not enough. You must address what incubates and enables them!

How to do this? Well, most Americans are not against direct confrontation in town hall meetings and public rallies; they certainly call their representatives and write editorials.

Fewer support peaceful, civil disobedience, although I feel that number might change as our federal government becomes more oppressive. Perhaps re-instituting the draft will finally get grandparents, who once so freely protested ungodly wars in their youth, back into the streets.

Nonetheless, I want to introduce you to a quieter revolution that is taking place in ever-increasing numbers across the nation. Instead of a direct, frontal assault on the government, activists in this revolution simply withdraw their support and participation, primarily removing what the government needs to survive--money.

As a womb needs sustenance to produce, a government needs money. Without it, it will shrivel up...not right away, but a systematic reduction over time will either cripple its reproductive capacity (that's for you minarchists) or render it barren altogether ( that's for us anarchists).

Regardless of where you stand on the liberty perspective, either option is applauded over the system we now have in Washington that spits out compliant wards like rabbits!

If you've been investigating libertarianism, perhaps you've heard such terms as voluntaryism and agorism.

In my next post, I'll discuss how these lifestyle philosophies practically work in the various levels of society, and why more people every day embrace them as the logical course toward authentic freedom.