Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 61
Flat Tax Or Flat Taxpayer?
Hosannas poured in from all parts of the academic
spectrum--left, right, and
center--hailing the Treasury's 1986 draft plan as
an approach to the ideal of the "flat tax." (Since
the plan calls for three classes of income tax rates, it has been
called a "flat tax with bumps.")
This near-unanimity should not be surprising,
because a flat tax appeals to the sort of
academic who, regardless of ideology, likes to push people around like
pawns on a chessboard.
The great 19th-century Swiss historian Jacob Burckhardt called such
intellectual social engineers
"terrible simplifiers." The label applies beautifully to the legion of
flat-taxers because one of
their prime arguments is that they would replace our bewildering mosaic
of tax laws by one of
limpid simplicity, one that "you could make out on a postcard."
Unfortunately, this proposed simplicity is more
child-like and naive than a great burst of
clarifying intelligence. For our Terrible Simplifiers fail to stop and
ask themselves why the tax
laws are so complicated. No one likes complexity for its own sake.
There is a good
reason for the current complexity: it is the result of a myriad of
individuals, groups, and
businesses trying their darndest to get out from under the crippling
income tax.
And, in contrast to the flat-tax academic who
sneers at all other groups than his own as
slaves of sinister special interests, there is nothing wrong
with this often messy process. For these
are people who, quite simply and even admirably, are trying to keep
some of their hard-earned
money from being snatched up in the maw of the tax-collector.
And these people have already found out what our
flat-tax academics seem not to have
cottoned to: there are things in this life worse than complexity, and
one of them is paying more
taxes. Complexity is good if it allows you to keep more of your own
money.
In the name of sacred simplicity, in fact, our
flat-taxers are cheerfully willing to impose
enormous losses on a very large number of individuals and businesses,
in the following ways:
RAISE the tax on capital gains to treat it like
income, thereby crippling saving and
investment, particularly in new and growing firms. One of the things
that has kept the English
economy from going totally down the tubes is that England, despite its
cripplingly high income
taxation, has no tax at all on capital gains.
ELIMINATE accelerated depreciation, thereby
destroying an excellent 1981 tax reform
that allowed businesses to depreciate rapidly and re-invest. This
change will particularly hurt
heavily capitalized "smokestack" industries, already in economic
trouble.
ELIMINATE OR RESTRICT income-tax deductions for
mortgage payments, plus treat
homeowners as having a taxable income from "imputed" rent, i.e. from
the rent they would
otherwise have paid if they had been tenants instead of homeowners.
This double blow to
homeowners is so politically explosive that it will probably not go
through--but such is the full
intention of the flat-taxers. Unfortunately, those who are taxed on
"imputed" income will not be
able to pay their taxes in "imputed" form. They
will have to pay Uncle Sam in money.
ELIMINATE oil depletion allowances, a neat way to
send the oil industry into a
depression. Flat-tax academics persist in regarding depreciation
payments and depletion
allowances as "subsidies" to
capitalists and oil or mining companies. They are not
subsidies, however, they are ways of permitting these firms to keep
more of their own money,
something which at least pro-free enterprise academics are supposed
to believe in. Furthermore,
only income is supposed to be taxed, and not accumulated wealth; taxing
"income" which is
merely the loss of capital value (either by depreciation or depletion)
is really a tax on capital or
wealth.
ELIMINATE tax deductions for uninsured medical
payments or losses due to accident or
fire. Does one get a glimmer of why economists are sometimes called
"heartless"?
Note that, unlike some welfare economists, I am in
no sense a slave to the ideal of
"Pareto-optimality" (the notion that no government action must impose a
loss on anyone). I am
willing to advocate radical measures that impose losses on some people,
but only to achieve a
substantial increase in freedom. But severe losses merely for the sake
of symmetry?!
We are left with the final Argument From
Simplicity: that the flat tax will enable all of us
to dispense with tax lawyers and accountants. A powerful lure, perhaps,
but fallacious and untrue
on many levels. In the first place, those taxpayers who want simplicity
can achieve it now: they
can fill out the simplified tax forms. Two-thirds of American taxpayers
do so now.
The rest of us who struggle with complex forms are
doing so for a good reason: to pay
less taxes. Second, those of us who have our own businesses, including
the business of writing
and lecturing, will enjoy no reduction in the complexity of our tasks;
we will still be struggling at
great length to see what our net business gain (or loss) might be. None
of this will change under
the reign of the Simplifiers.
And finally, there is, once again, a good reason
for our paying money to tax lawyers and
accountants. Spending money on them is no more a social waste that our
purchase of locks, safes,
or fences. If there were no crime, expenditure on
such safety measures would be a waste, but
there is crime. Similarly, we pay money to the lawyers and accountants
because, like fences or
locks, they are our defense, our shield and buckler, against the tax
man.
Many years ago, my friend and mentor Frank
Chodorov, during the midst of the
McCarthy era, wrote that "the way to get rid of
Communists in government jobs is to get
rid of the jobs." Similarly, the way to get rid of tax lawyers and
accountants is to abolish the
income tax. That would be Sweet Simplicity indeed!
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