I am going to pay some taxes in January about which I’ve been having nightmares for a couple of months already. Then I found out that Mike Huckabee proposes to abolish the IRS, in favour of CONSUMPTION TAX!! When I heard this I thought it was a joke, but it is actually true. And Mike Huckabee has just won the Republican elections in Iowa. Great news! I hope he wins’em all and becomes president. I’m not very sure about a FLAT consumption tax, but I am definitely in favour of abolishing income and all other similar taxes.
I am not so sure whether it is MORALLY okay to pay 23% tax when buying a personal jet, and also 23% when buying milk! However I also know that it is very difficult to decide WHAT to tax less and what to tax more in case there would a progressive consumption tax system.
For instance we can say that everything above $1,000 will be taxed 35% and everything below it will be taxed 15%. So, then we need to decide whether we are going to measure the goods by their weight, units, or how? Because then cars can be sold in pieces that would be under 1,000$, then assembled.
And there are many other issues too. What about a very tiny amount of caviar? That would be luxury and extremely expensive food, but it can just cost $990! And the list can go on and on and the door would open for confusion, abuse and yet another type of tax evasion, just like we have all sorts of them now.
Income (or profit) tax is and has always been immoral for society, and bad for economy. Why? Let me explain why! Let’s assume one has a job where he works his ass off 12 hour a day and makes $200,000 per year. I’m sure there are many Iranians in the US who make much more than this, but the majority make much less. From that $200,000 he gives the government something like $60,000. He is left with $140,000.
It is much worse in Europe where we have higher income tax and also value added tax (VAT), which is supposed to be consumption tax. Another person works much less, does not care about his future, and makes $20,000 per year. Both these guys may actually have an IQ level pretty much similar to one another.
However the guy making $20,000 probably pays no more than $1,000 tax to the government while the hard-working guy pays $60,000. The hard-working guy does not get drunk and does not need an ambulance every now and then, does not cause traffic jams, does not beat his wife and his neighbours and his children and does not even throw any type of garbage in any public place.
And the poorer guy does all the above, therefore costing the community some $5,000 a year, while he is only paying $1,000. So, this poorer guy is causing the community a loss of $4,000 per year, a loss that is paid by other people (like the one who pays some $60,000 per year) who give more to the community, and who incur less costs.
No community is perfect, and no man-made system can be perfect, but the income tax system has so many obvious flaws, from which one was just explained. Another huge flaw of the income, or profit, tax system is related to its practicality. While taxing consumption is quite easy and only requires registering the sales, taxing profit or income is more into the magic domain.
How is the government to know the exact amount of money one makes? How is the government to know how much RELATED expenses one has incurred in order to have that income, or that profit? These are all subjective, very often wrong, and always costly to measure. The costs of measuring all these revenues and expenses are supported by ordinary people or entrepreneurs, either directly or incurred through government expenses in order to check the validity of the data.
So much is spent in order to check whether the data is, or is not, too much evasive, and very often very evasive data get away, while ordinary decent people who write down everything pay more taxes because of their honesty. And this is definitely a bad system in which crooks are rewarded and honest people are punished, paying more taxes.
Another huge problem of the income tax system is related to what happens to the money in the grey area! Rich people know how to avoid paying too much taxes to incompetent public administrators (intrusive governments in general) so they take their businesses, or simply their bank accounts and headquarters, to places where they are treated better, ripped off much less.
Those places can be called tax havens, where lots and lots of money usually change hands while little factual business takes place. And those places are some of the places where dirty money, or even money for terrorism, finds its place and rest easily. And the usual cause is to evade huge taxation in large countries. There are so many other problems with the income tax system, but it can get really boring especially in a non-economic forum like this.
No income tax would eliminate the costs of checking and catching those who want to evade the taxes. And they (evaders) usually succeed anyway, those of them who try hard enough. No income tax would eliminate the costs of book-keeping and therefore help small businesses become more efficient, have less costs.
No income tax would eliminate all these social problems and inequities and would no longer reward the crook and punish the good. Less consumption and more investments are better for the economy. People would have more available money to invest as they see fit. They can never be worse than the government in doing what they see fit with their own money. And the government, a much smaller one, would have enough money to spend simply by collecting taxes from consumption.
This system could revolutionise the world and improve the lives of people in the US and change the whole world for better because America is the leading economy of the world and everybody would take the example and follow suit, sooner or later.
I have no vote in the US but I’m voting for anyone who would have the courage to implement such a system, abolish the income-tax and change it into a wholly consumption-tax system! And I like Mike Huckabee just for his courage to propose this extraordinary measure!
