Why a “fixed tax” or “equal tax” might be better than the income tax
What I am calling a“fixed tax” is simply charging every citizen and resident, who enjoys the benefits of living in the country, the same amount each year, say somewhere in the range of 0 to 5,000 dollars. (This is also called a “head tax”)
On paper, this is perhaps the most regressive tax ever suggested. Poor or rich, black or white, male or female, all pay the same amount.
To understand why a fixed tax would work better than income taxes, we’ll start with an overview of how money works. After that we’ll explore the purpose of taxes and important design issues.
Money Overview
Contrary to popular perception, the purpose of taxes is not to secure money for the federal government to spend. In fact, it is quite the opposite. The purpose of taxes is to force the citizenry to participate in civic duties, to work for the government’s money. Government has the sole authority to issue sovereign currency. In order to pay taxes or other costs, we all need to get money from the government somehow, whether directly or indirectly.
There are 2 ways “money” comes into existence. Traditionally, in economics, a distinction is drawn between “endogenous” and “exogenous” money.
In this explanation, “endogenous” money comes from private bank loans, while “exogenous” money comes from the central bank.
However, this explanation hides the most important distinction. Technically, the central bank and private banks follow different legal rules, but each operate according to similar paradigms: making loans and swapping assets to manage balance sheets.
Instead, the important distinction lies outside of the banking system, in how the rest of us interact with currency, whether it is physical tokens or virtual balances. Specifically, the most important distinction is between the issuer of currency, and users of that currency. Government is the currency issuer, the rest of us are currency users.
When government spends money, and more specifically, when it creates new money, it carries completely different legal implications than when the rest of us do likewise. When we create money “endogenously”, we necessarily enter a contract of debt.
But because government is the creator and of enforcer of law, to which all debts are subject, and to which all of us, as subjects, are perpetually “endebted”, it can’t be an unwilling subject of a debt collection imposed on it. Nor would it want to be. Nor does it need to be. The government doesn’t “pay back” debts. It lets you redeem hard earned currency so YOU can pay off your tax debts. Many activities portrayed as “monetary operations”, are simply swaps between fed dollars(cash) and treasury dollars(bonds). Treasury bonds grant savers handouts arbitrarily for saving their money. These benefit payments are called “interest”. Cash allows currency holders to spend their money with anyone subject to the political authority of the tax collector.
Most taxes are just lazy or bad accounting
To understand why a fixed or equal tax would work much better than the federal income tax, we will now discuss the design of taxes.
We have described how the purpose of taxes is to essentially control the money supply. Taxes are where money goes to die!
From this perspective, it would sound like you just need to tax the right amount, so that at the end of the day, the right amount of money is left over.
Let me let you in on a secret. There is no right amount of money! It’s not the supply of money that increases or decreases its value, but how it is applied. The supply of money only has an indirect effect on this social phenomenon!
So we must look at the effect of taxes on people’s actions, and less so its effect on their bank accounts.
The progressive tax norm leads to incredible inequality. Instead of counteracting inequality, it directly motivates us to create a system with huge inequality!
The real form of inequality we should be concerned about, is not people’s bank accounts, but rather actions performed. At the end of the day, unequal bank accounts reflect this more important form of inequality.
The crux of the issue, comes down to property rights. Who owns property? Why do they own the property? What benefits do they enjoy as property owners?
Property is a convention supported and enforced by government. You don’t own property without government recognition. But really, it is culture that determines how we buy and sell, count and measure, give and take. Our culture adapts to government rules.
Most taxes are designed wrong! People are looking at the effect of the tax on money, and not its effect on actions and culture.
If you tax people, the natural response is for them to secure the assets necessary to pay that tax. If they can’t, they will run afoul of the law, or be forced into impoverishment. With a “progressive” income tax, people have to increase their pretax income much more, for each incremental increase in wealth and consumption.
This leads to an endless game where all of us are futilely competing to control property rights. It even creates social stigmas that lead us to physically divide ourselves into partitioned communities based on income level.
Thanks progressive taxes!
Our tax code creates busy work, and when combined with the banking system, it creates debt
In our tax code, “income” is taxed. The problem we must ask is: “What is income?” This is actually impossible to define in an objective way.
You see, creating wealth is not a simple matter of “Do X. Get Y.” You must be continually engaged in resource management. You must adapt your resource use to changing conditions. Finally, you must use your existing resources to develop new resources.
The tax code recognizes how this works, but only in the context of businesses. When a business buys materials to develop a product, that’s an expense. It’s not profit or income. But when you eat a hamburger to give your brain caloric energy to study for a test, that’s consumption.
You may protest, that the rich spend more than they need to. In many cases, much of this difference, is spending more money to get a premium version of a product instead of a basic version. Progressive income taxes are a major reason we have stratospheric-ally different consumer pricing tiers. Not only does it create a gradient of accomplishment, giving people resistance to make the goal of absurd financial wealth worthwhile, but it also leads businesses to focus more of their effort on premium customers.
Trying to identify arbitrary distinctions that constitute “income”, creates a headache of a tax code with deductions, write-offs, and other pains. But it gets worse. This isn’t just a colossal waste of time and mental effort, it’s also an opportunity for rich people to manipulate the tax code to their further advantage. Most taxes are accounting systems explicitly designed without regard to how they affect people’s actions. Somehow we thought this was a good idea.
When you combine this arbitrary advantage given to businesses over people(they even dare to call us consumers!), with our debt-based banking system, you get a nightmare. Businesses have the tax advantage, so they must lead and speculate on what people want to buy, and pay their workers, by borrowing money, and only then do people have money to buy what they actually wanted in the first place. But it turns out, that what people really wanted to buy was different than what the “busy”-ness predicted, so we are stuck with people without a job, investors with lost savings, and a business with “net” worth less than zero because of its debts.
Thanks progressive taxes!
To the extent we need taxes to manage the growth of the money supply, an equal tax, combined with progressive fiscal programs, like a job guarantee, is a much better approach.
That is my complaint about federal taxes.
Tune in next time where I complain about local and community taxes. (Hint: land value taxes are an enticing idea, but they are not the solution either! LVT focuses on manipulating land use instead of reflecting costs accurately, accurately representing costs will allow communities and property holders to decide how they want to use their resources most effectively!)
The general principle is that taxes should reflect political relationships between a polity and its constituents, as well as culturally effective accounting practices.
