Conservatives just don’t get it on taxes
Now that the Republicans have regained the control of the Senate that they lost in the 2006 midterm election, conservatives are salivating about the prospect of “real” or “genuine” tax reform.
Conservatives believe that reforming the tax code by making it more efficient, more coherent, more transparent, and more equitable; eliminating the double taxation that discourages saving and investment; eliminating the “rat’s nest” of deductions, credits, and exemptions; broadening the tax base; switching to a territorial tax system; decreasing the number of tax brackets; and lowering tax rates will lead to increased capital formation, entrepreneurship, family incomes, and economic growth.
They raise some valid and important points and make some perfectly logical and reasonable arguments to support them. But because conservatives believe that tax reform should be constrained by some dubious principles, and because they don’t oppose taxes on principle, it is no surprise that they just don’t get it on taxes.
The Heritage Foundation, a conservative think tank, “whose mission is to formulate and promote conservative public policies,” is out with a new summary of the four leading conservative tax-reform plans. According to the author, David R. Burton, a senior fellow in economic policy at Heritage,
The four leading conservative tax reform plans are the Hall-Rabushka flat tax, the new flat tax, a national sales tax, and a business transfer tax. Each is a consumption tax with an equivalent tax base. Except for secondary design choices and the choice of which taxes to replace, each would apply the same tax rate to raise a given amount of tax revenue. They would also have the same economic effects. The choice among them, therefore, rests on non-economic grounds.
The Hall-Rabushka flat tax is named after the two Hoover Institution economists who proposed it in their 1985 book titled The Flat Tax. It was also championed by former Republican presidential candidate Steve Forbes. Under a flat-tax scheme, everyone’s income would be taxed at the same rate; taxes on capital gains, estates, interest, and dividends would be abolished; and most credits and deductions would be eliminated.
Although the new flat tax was proposed by The Heritage Foundation in 2011, the idea supposedly goes back to John Stuart Mill in 1848. It imposes a flat tax on gross income, less outlays made to earn the income. Unlike the Hall-Rabushka flat tax, the new flat tax replaces payroll taxes as well.
A national sales tax taxes all final goods and services. It would eliminate the income tax, capital gains tax, estate tax, and payroll taxes. The most popular form of a national sales tax is the FairTax. A bill to implement the FairTax has been introduced in every Congress since 1995. For years it was heavily promoted on air and in books by radio talk-show host Neal Boortz.
A business-transfer tax is collected at the business level. The tax base is gross receipts from the sale of goods and services less all intermediate and capital goods. Interest and dividends are disregarded. Various incarnations of a business-transfer tax scheme have been advocated over the years and some have been introduced in Congress. Some proposals would replace just the individual and corporate income taxes while others would replace payroll taxes as well.
Burton believes that “in almost all cases, the four tax systems can be made to emulate one another” on a variety of issues. He concludes, “They would also have the same economic effects. The choice among them, therefore, rests on non-economic grounds, including political and administrative considerations and judgments about issues such as transparency and whether the reform can be sustained in the long run.”
Conservatives just don’t get it on taxes. Because their tax-reform plans are constrained by the need to be revenue and distributionally neutral, and because they have no philosophical objection to taxation, their reform proposals amount to nothing more than rearranging the deck chairs on the Titanic.
In another recent Heritage piece on tax reform, “How Tax Reform Would Help American Families,” Curtis Dubay writes that tax-reform efforts are constrained by revenue neutrality, “the requirement that the reformed tax system raise the same amount of revenue as the current system.” “Ideally,” he explains, “tax reform should cap revenue at its historic average measured as a share of the economy.”
Revenue-neutral tax reform is based on the suppositions that there is such a thing as a fair, just, or correct amount of taxation and that government revenue should not be decreased. The opposite, of course, is the case. Revenue-neutral tax reform masks the real problem — government spending. It shifts the debate from the amount of wealth the federal government confiscates from American taxpayers to the manner in which it confiscates such wealth.
Dubay also explains that “political realities will also likely require tax reform be distributionally neutral, which means it does not shift the tax burden as currently constituted up or down the income scale.” Practically, “this means that tax reform should not be used to lower taxes on a particular income group and raise them on another. This constraint would complicate matters because the top 50 percent of income earners pay almost all federal income tax.” After his description of the Hall-Rabushka flat tax, the Heritage flat tax, and a national sales tax, Burton remarks that they each contain provisions to make the plans progressive.
Progressive taxation, otherwise known as making “the rich” pay some arbitrary “fair share,” is right out of Marx’s Communist Manifesto — just after his call for the abolition of private property and the centralization of the means of production in the hands of the state. Why would conservatives even think of maintaining the progressivity of the tax code? And especially since many of “the poor” not only pay no federal income taxes, but get tax refunds from the government anyway by means of refundable tax credits.
And of course, the very fact that conservative focus is on tax reform instead of tax lowering or tax elimination shows that they have no philosophical objection to taxation. They don’t view taxation as government theft. They believe that the government has a claim to a certain percentage of every American’s income. They believe that a person’s acquiring someone’s property by force is wrong, but that the same action when done by government is legitimate.
A tax-reform plan that perpetuates the welfare/warfare state, immoral wealth-redistribution schemes and income-transfer programs, and unconstitutional government programs is tax reform we can do without. From a libertarian perspective, the only tax reform worthy of the name is tax reform that keeps more money in the pockets, purses, and bank accounts of Americans and out of the hands of Uncle Sam.
Laurence M. Vance is a columnist and policy adviser for the Future of Freedom Foundation, an associated scholar of the Ludwig von Mises Institute, and a columnist, blogger, and book reviewer at LewRockwell.com.
