Sunday, March 8, 2015

Government Based Upon Natural Law - (Part 3) - The Income Tax is Bad Idea

Unintended Consequences of the Income Tax 

Ever since the IRS was established, people have complained about its abuses. Many bills have been passed in Congress in the hope they will correct some of these abuses. Unfortunately, any fix is doomed to fail.

It is not the IRS but Congress that has established a tax on income. (At least they even did it the right way – we passed a Constitutional Amendment that allowed Congress to tax income. Sadly, this was the one of the worst amendments ever passed). It was Congress that has modified a tax code that initially levied a 1% tax on those with above-average income to a tax code that is over a million words in length and that literally no one understands. The IRS is authorized by Congress to enforce this code and to collect such taxes. Since some people will try to hide income in order to avoid paying income tax, the IRS naturally tries to find these people. Is it a surprise that the IRS has a computer database that stores information about us? Or that they can use this database to check to see if someone's purchases correspond to his or her reported income? Or that they monitor cash deposits over $10,000? Most of us don't like this, and we shouldn't. But it's not the fault of the IRS. The problem is the income tax itself.

Taxing income is bad for a large variety of reasons. It has been estimated that it costs the American people between $200 - $600 billion dollars each year for the tax attorneys, accountants, record keeping, books, software, etc., just to comply with the tax code and minimize their taxes. This does not include the millions of hours we waste each year in tax related activities.

The income tax is arbitrary and frequently counterproductive as far as what deductions are allowed. For instance, you can deduct day care expenses from your income tax, but if a mother chooses to not work outside the home, no deduction is available. Congress uses deductions as a way to encumber us to them and they are loathe to make major changes. There are so many deductions we think we depend on, that we'll vote for whoever will maintain or increase them. Woe is he who runs for office and who wants to eliminate popular deductions. Furthermore, many prosperous individuals pay very little income taxes.

Another issue is that having to report income to the government is an invasion of privacy. Should it really be the government's business how much money we earn, where we earn it, or how far we drive while earning it?

Because of the complexity of the tax code, taxpayers must concern themselves with taxable events, such as selling stock or property. The economy is distorted and less efficient when we make decisions based upon whether or not a taxable event will occur rather than what we think would be a good use for our money.

Income tax law is even at fault for abridging freedom of speech. How can that be? Section 501(c)(3) of the IRS code grants certain not-for-profit organizations, including churches, a status that allows them not to pay income tax. However, it also prohibits such organizations from making political endorsements, and it stipulates that nonprofits should spend no substantial part of their activities in carrying on propaganda, or otherwise attempting to influence legislation. Such organizations may not participate in, or intervene in any political campaign on behalf of or in opposition to any candidate for public office. The IRS has investigated and is still investing churches who they think might be violating 501(c)(3) code. This is frightening to those of us who believe in free speech. The point here is that if there was no income tax, there would be no such IRS code controlling the free speech of non-profit organizations.

Unjustness of the Income Tax

But the biggest reason against a tax on income is that it is unjust.

An income tax is unjust because it has nothing to do with fees charged for services provided by the government. What government service does a person use just because he or she is earning money? To clarify this point, imagine two people who have the same job and earn the same salary during the day. At night, one of them watches TV and the other does marriage counseling out of his home. Is there any rational reason that the second person should pay more taxes that the first? No, because the counselor is certainly not benefiting any more than the TV watcher from government services. Taxing the counselor more than the TV watcher is tantamount to discouraging him or her from counseling. As a matter of fact, the income tax is unjust for the same reasons that the tax on polluters is just. We should tax polluters because of the harm they cause; and this tax discourages them from polluting. We should not tax people for working, since people who work are clearly benefiting our country. Taxing their productivity is precisely the wrong thing to do for such taxes discourage work! 

So let's replace the income tax (and FICA taxes, too). No more tax on wages and salary, no more wasting time, money and human intelligence trying to minimize or avoid paying income taxes and complying with an impossible-to-understand tax code. No more intrusion into our personal lives. No more taxing productivity. No more tax forms to fill out or tax audits to go to.

Of course, the government has many legitimate needs, and there will have to be some kinds of taxes to pay for them. What taxes are fair and just?

You can find out in my next blog entry, "Government based upon Natural Law - (Part 4) -The Natural Resource Tax".


Tim Farage is a Senior Lecturer in the Computer Science Department at The University of Texas at Dallas. The views expressed here are those of the author. You are welcome to comment upon this blog entry and/or to contact him at


Anonymous said...

As you say, "We should not tax people for working, since people who work are clearly benefitting our country".
First, I'm surprised that you didn't mention that over half the people in the U.S. do not pay taxes anyway, since they do not owe.
Second, I'm struggling with the "clearly" benefitting part. Do all salary employees in the country really add to GDP (assuming that is the benefit to the county's bottom line)? I'm thinking there are many professions and jobs that detract from GDP or at least cut into productivity (lawyers and admins come to mind). Maybe taxes should remain on those incomes--and I include CEOs with that group, since they don't actually produce anything, they are basically overhead to production.
It may be interesting to look into education as well, since it is sort of a "second order" work, maybe a "productivity booster", but I'm not sure that it directly adds to the bottom line productivity that makes our country competitive. I'm not saying that teachers and professors "should" be taxed, just that it may be worth defining how [all] work clearly benefits the country. (Also for example, WPA projects were work, did they benefit the country?)

Tim Farage said...

I'd say that 95% of those who work add value. Good Lawyers, admins, and teachers certainly do. Of course, some workers can do things that lower productivity, but that will always be the case.

It is not worth keeping the income tax, for a few outliers.

There are some prosperous people who don't pay income taxes because of loopholes. My next post will end this without an income tax.

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