The power to tax is the power to destroy. Show me what you tax, and I will tell you what you are going to destroy. Those who advocate taxation often speak of “tax evasion” and of how it is unpatriotic for citizens to do anything within their power to avoid as many taxes as they can. But in fact, it is legal and moral for each of us to do whatever we can to avoid being taxed. Furthermore, the government ought to take more care not to hinder economic activity.

Today, in the United States, we face every conceivable kind of tax; from tariffs and duties, which are a tax on imports; to income taxation, which is a tax on doing business; to social security taxes, which are a tax on working for a living; to taxes on sales, which are a tax on buying and selling within the boundaries of a state; to gift taxes, which are a tax on giving someone a present; to estate taxes, which are a tax on death; to ACA taxes, otherwise known as Obamacare, which are a tax on our own existence.

Taxes don’t just raise revenue for the government; they also deter the type business and personal interactions being taxed. Taxes on income do not only provide funds for the government; they also deter investments, savings that earn interest and every conceivable other transaction by which one person pays another in currency. Inheritance taxes do not merely raise revenue for the government; they also deter people from leaving anything to their heirs in a will, by either inducing transfers during one’s lifetime or causing people to funnel funds overseas to locations where they can be inherited tax free. All taxation is a deterrent to market activity.

Ultimately, the more taxes are levied in a particular jurisdiction, the more likely it is that people will leave that jurisdiction or find ways to move their money out of that jurisdiction. When such options are present, people will often engage in black market activity, such as smuggling, money laundering, illegal immigration, and unreported transactions, in order to avoid the punishment of being taxed out of existence.

The Purpose of Taxes

Taxes come in many forms. While the declared purpose of all forms of taxation is to produce revenue, some taxes are in place for the purpose of manipulating markets. When a proponent of a tax tries to sell the public on that tax, he will often start out by explaining not only why we need the revenue — to pay the national debt, to achieve military goals, to build roads or educate children or feed the poor — but also how the tax is a good thing, because it will punish people for choosing to do what they should not.

Tariffs, for instance, have traditionally been seen as a way to discourage imports and to offer a protected market to domestic goods. In such instances, the destructive effect of the tax is more the intent of the legislators than the revenue that it generates. But every tax, even an intentionally manipulative one, still results in consequences not intended by the proponents of the tax. Protectionist measures usually backfire, because they stifle trade and allow the price of domestic goods to remain much higher than they might have been had there been competition from outside. Tariffs also encourage smuggling to get around the tax. It then happens that the consumer and the domestic merchant have a direct conflict of interest, and that the common citizen comes out on the side of the smugglers, while the authorities storm the marketplace weapons in hand, attacking both sellers and buyers on the open market and turning them into criminals just for choosing goods at the best possible price. This is what used to happen to American customers of the Baratarian privateers in the days of when the Embargo Act was in place, and even later when smuggling was used to evade tariffs. The problem of tariffs is of very long standing.

Here is what Alexander Hamilton, as Secretary of the Treasury under President George Washington in 1790 , had to say about his proposed tax on imports and some domestic goods for the purposes of paying current interest on the national debt:

But to the sum which has been stated for payment of the interest, must be added a provision for the current service. This the Secretary estimates at six hundred thousand dollars; making, with the amount of the interest, two millions, eight hundred and thirty-nine thousand, one hundred and sixty-three dollars, and nine cents.

This sum may, in the opinion of the Secretary, be obtained from the present duties on imports and tonnage, with the additions, which, without any possible disadvantage either to trade, or agriculture, may be made on wines, spirits, including those distilled within the United States,teas and coffee.

The Secretary conceives, that it will be sound policy, to carry the duties upon articles of this kind, as high as will be consistent with the practicability of a safe collection. This will lessen the necessity, both of having recourse to direct taxation, and of accumulating duties where they would be more inconvenient to trade, and upon objects, which are more to be regarded as necessaries of life.

Notice that Hamilton thought that tea and coffee, as well as liquor and wine were “pernicious luxuries,” so that he did not regret the destructive effect of taxation on the markets for those products. To this very day, taxing authorities engage in this kind of high handed rhetoric, destroying entire industries in the process. Hamilton was so high minded in this pursuit of legislated morality, that he even included wines and spirits distilled within the United States on what started out as a list of import taxes.

The Whiskey Rebellion was the result. The first tax on domestic goods in the United States did not trigger mere tax evasion nor nor tax avoidance, but outright armed rebellion. The tax on whiskey became law in 1791. To people living west of the Appalachian Mountains, whiskey was not just a drink, nor just a commodity, it was their stock in trade. Because gold and silver were scarce in those areas, whiskey was used as a currency and a medium of exchange. For them, taxing whiskey was like taxing money itself.

George Washington ultimately put down the rebellion with help from militiamen.

Income Taxes

The most basic purpose of taxation has always been to pay for the military, but the effect of taxation over the lifetime of the republic has been to defeat markets and to accustom the people to being ruled over by their governments. Most tax protesters today do not dare to even withhold a tax from the government, because the consequences of  non-payment are so harsh. Because people no longer rebel, any time a heavy new tax burden is added, the results of legal avoidance are what shape our economy.

The first federal income tax in the United States came into being during the Civil War. Both the North and the South resorted to this extreme, emergency measure in order to bankroll their war against each other. A civil war is the most destructive kind of war there is, not merely because of the direct damage done to civilians by marauding forces, but also because of the wholesale damage to the economy from double taxation exerted by the two competing governments.

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The Anti-IRS Symbol Attribution Wikimedia

 

 

 

 

 

 

 

 

 

Though the income tax as enacted during the Civil War was repealed soon after, the permanent income tax came into being under the administration of Woodrow Wilson in 1913. With the passage of the 16th amendment to the United States Constitution, it became permissible to enact direct income taxes that were not assessed equally nor apportioned to the states, and this was the birth of progressive taxation. The purpose of this kind of tax is to allow large numbers of people to be shielded from the heaviest burden of the tax, so that taxpayers of diverse backgrounds and incomes will not be able to form effective political coalitions in order to lobby for the repeal of the tax.

The social security tax, a highly regressive tax that targets people of low or moderate income, while exempting the majority of the income of wealthy individuals, was enacted into law during the administration of Franklin Delano Roosevelt in 1935. While promising to create retirement income for the elderly, it is one of the biggest hindrances to employment among the young and less skilled workers.

Today, payroll taxes, such as FICA, siphon off funds that employers are willing to pay for the labor of employees, but in such a way as to make the process invisible to the employee himself. Businesses subject to payroll taxes are burdened to such an extent that they often go overseas, where they are allowed to pay whatever they wish directly to the employee. The loss of American jobs is in part attributable to this kind of  taxation.

The framework created for income taxation is what makes the introduction of many new oppressive taxes possible, including penalties under the ACA, which have been deemed a tax by the Supreme Court.  The federal tax code is a tangled web and repealing it would breathe new life into our economy and allow personal freedom to bloom again.

Proposed Tax Reforms

Many tax reforms have been suggested over the years. The Libertarian Party presidential nominee of 2016, Governor Gary Johnson, favors a “Fair Tax,” which would levy a 23% consumption fee on all goods and services in the United States, in place of the income tax and payroll taxes currently on the books. When added to current local sales taxes, the Fair Tax would amount to a 30% national sales tax. Governor Johnson argues that not only would such a tax be less discriminatory and less burdensome than the current system, it would also remove the invasion of privacy inherent in the IRS’s requirement that citizens report on their own income, thereby giving up the constitutional right to be free from forced self-incrimination.

While there is certainly merit in Governor Johnson’s criticism of the current system, it is not clear that his own proposed tax would not pose undue reporting burdens for retailers and other businesses offering goods and services. In addition, the natural consequence of a national sales tax is fewer sales taking place in the United States — and obviously more sales driven underground.

We recently heard of a case where people were caught smuggling bologna into the United States from Mexico. It would not be surprising if there were a rash of such cases upon the passage of a national sales tax — and not only bologna, but every commodity imaginable!

Destroying the Enemy Rather than Ourselves

The expression “the power to tax is the power to destroy” is attributed to Daniel Webster and to Justice John Marshall in the case of McCulloch v. Maryland.  In that case it was decided that the state of Maryland was not allowed to tax the Second Bank of the United States, since the power to tax is the power to destroy — and the Federal government reserves the power to destroy banks to itself.

Once we are aware how destructive all taxes can be, why couldn’t we repeal them when it comes to ordinary citizens and our own domestic businesses, and reserve them as a weapon to be used toward entities that we have a legitimate interest in destroying? For instance, rather than fund our war against terrorists through onerous taxation of innocent business, why not issue letters of marque and reprisal and allow private individuals to go after terrorist organizations and to loot them of their resources?

In ancient times, the entire purpose of war was to loot enemy nations, and rulers were not shy to admit it. Successful empires made those defeated in battle pay tribute, which is simply a kind of tax. It’s the kind of tax that you pay to keep bad people from taking your stuff — the same sort of tax that ordinary Americans now pay the IRS. Today, our own government taxes us and then sends our money abroad. They do it with foreign aid, they do it for humanitarian purposes, they even do it to conserve chimpanzees and gorillas in Africa. But would it not make more sense to tax our enemies, and leave Americans alone? The constitution has a provision for the issuance of letters of marque and reprisal. Privateers can go out with our blessing and seize prizes belonging to enemy nationals and then share the booty with the federal government. Under this system, the privateer gets a share, the US government gets a share, the terrorists are out of money to build weapons and bombs, and the American citizen is left alone to spend his money whichever way he sees fit. What could be better than that?

Taxes are so destructive that they should be deployed like any other weapon, using the same rules of conduct. First rule: do not point it at yourself.

 

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