Federal Taxes Revisited
In a recent post on taxes, I suggested that an “equal tax”, or what is commonly called a head tax would be better than the income tax, to the extent taxes are an advisable tool to use for managing a financial asset that directs a spectrum of political programs. I was wrong about many things in that post, including the idea that the U.S. and similar nations could levy a head tax, much less use it as a foundation for political operations and financial systems.
Income as a concept needs to be critiqued and explored. The political relationships that define our nation-state center on this concept. We should be informed about how this concept developed, and the history that shaped its development.
From the Wikipedia article, “Taxation history of the United States”
The history of taxation in the United States begins with the colonial protest against British taxation policy in the 1760s, leading to the American Revolution. The independent nation collected taxes on imports (“tariffs”), whiskey, and (for a while) on glass windows. States and localities collected poll taxes on voters and property taxes on land and commercial buildings. There are state and federal excise taxes. State and federal inheritance taxes began after 1900, while the states (but not the federal government) began collecting sales taxes in the 1930s. The United States imposed income taxes briefly during the Civil War and the 1890s, and on a permanent basis from 1913. There have been no export taxes, taxes on trade between states, or taxes on charities and religious bodies, and no value added tax.
As that excerpt highlights, taxes are an important part of the cultural identity of the U.S. as a nation-state. The inception of our nation state was centered on political critique of the design of taxes! That’s an important legacy to recognize!
I will let you explore that history on your own. If you’re inclined to take a non U.S.-centric approach, that’s cool too! I live in the U.S., and I usually start by exploring how topics apply to the U.S., because it’s familiar and relevant to me.
What we will focus on now, is the concept of income. My inclination is to call this concept “rubbish” and move on, but that would be both lazy and a mistake(and also, “rubbish” is not a very American word(nothing is originally American, actually)).
I claim that requirements to organize ourselves around the concept of income create significant obstacles for effective resource management. I expect that I will continue addressing this more in future posts and discussions. While these obstacles are not insurmountable, they are neither politically or financially ideal.
For now, let’s discuss “What is income?”
What is Income?
I have vague recollections, when my Dad first became self-employed, and the word “deduction” started getting thrown around the house.
Deductions were a magic trick to pay fewer taxes. It wasn’t too long before I learned that deductions weren’t actually subtracted from your taxes, they were merely subtracted from your income which was taxed. I asked myself “Why even bother then?” (At that time, I mentally compared taxes to the 10% religious tithing my family observed. I didn’t know the actual tax rates, so it didn’t seem very worthwhile to track deductions!)
Why indeed!
In my last post I talked about resource blocks and bottlenecks. Deductions facilitate resource use that is not subject to these kind of bottlenecks and blocks. The “spending multiplier” can theoretically propagate ‘ad infinitum’.
That’s what these financial tactics come down to, being able to develop, use, and engage resources without having to wait around for someone else’s money all the time!
My claim, in my post critiquing the income tax, is that the way this distinction is applied leads to busy work, speculative business investment, and financial debts, instead of allowing us to address our personal needs directly. While this critique has merit, there is more to the story!
Is Income an Arbitrary Cultural Construction?
Income is a cultural distinction that comes with complex legal definitions and complicated legal processes, but it is anything but arbitrary. It arises from the weird internal conflict between the public and the private in the U.S.
We value our privacy, but at the same time, we wish we knew everybody else’s business!
At the very least we want certain assurances.
What we want isn’t always consistent. Business operations are subject to certain political and legal scrutiny, but still in a private-ish kind of way.
The way we have constructed our financial system, business “expenses” are not taxed. “Profits” and “income” are taxed. I would be inclined to call this “merely” an accounting distinction, but that’s all that money and prices are in the first place: accounting distinctions.
This particular distinction is very non-intuitive to me, but also deeply embedded in the social, business, and financial cultures of the U.S.
It was in questioning this distinction that I was considering radical alternatives. These alternative tax schemes might have merit for novel or disruptive political vehicles, which if use prudently can contribute positively to democratic processes, but they aren’t reasonable suggestions for the U.S. federal government itself.
Thus I’ll defer attempting to answer how to improve our tax system, to those for whom these distinctions are more intuitive and important.
Note: I could be misunderstanding basic details of how the tax code works in the U.S. Any feedback or corrections would be appreciated!
