Tax Reform – a Modest Proposal

We must have some government, local, state, and federal, and government needs money to do the things that we need government to do. There are disagreements about how much government should do, but there is little or no disagreement that government is necessary to do some things. So how do you finance government? Currently we do this with taxes. Taxes not only impose an inescapable financial burden on individuals and corporations, they also impose an enormous bureaucratic and paperwork burden that severely impacts productivity at every level. The second burden is completely unnecessary.

The federal government is in charge of the money supply. Between the fiscal and monetary policies of Congress, the President, and the Federal Reserve Board, they decide how much money there is. There is obviously little correlation between tax revenues and government expenditures at the federal level. Whatever the tax revenues, government spends what it needs to spend, by issuing interest-bearing notes to make up the difference.

The idea that individuals and corporations give some of their money to the government to carry out its duties is an illusion. There is no real exchange of money. It’s all smoke and mirrors. There is no reason for anyone to fill out all of those incomprehensible tax forms, or for the government to employ thousands of people to process them. All that needs to happen is to pass a law that says when the government writes a check, everyone is required to honor it. Abracadabra, no more taxes. Currency, printed by the federal government in quantities decided by it, are already such a government check. Maybe there needs to be some mechanism for putting a cap on how much the federal government can spend, but there is no such cap now and we seem to muddle through alright. Of course these government checks increase the money supply, thereby fueling inflation, but what else is new? Government deficits already do that.

A dollar is worth whatever people believe it is worth. It has no intrinsic value. The present tax system serves two purposes. firstly, it shores up the illusion that money is something real, rather than a convenient fiction for replacing the inefficiency of the barter system. Secondly it is a means of social engineering, encouraging such things as home ownership, marriage, and drilling for oil, and discouraging activities like smoking, alcohol consumption, and driving. But nobody, economists least of all, really has any idea how the tax burden plays out. Sure, you can tax corporations, but then they raise prices. So who is really paying? Are renters paying to support home owners? Are rich people paying more or less of their fair share? Nobody knows.

We should just eliminate taxes altogether, let the government write checks for what it needs to do, and quit bothering us with all this nonsense.

Now, because of the United States’ unique federal system which grants a certain degree of sovereignty to the states, this becomes more problematical at the state and local level. The states don’t have any control over the money supply. They used to be able to print money, in fact individual banks used to be able to issue their own brand of currency, but those days are long gone. States don’t get to run deficits. They can issue bonds, but sooner or later the piper must be paid, and the budget balanced. So the only way to eliminate state and local taxes is for the states to give up some of their sovereignty and have the federal government apportion some of the money to the states based on a formula of population and productivity. The states in turn could then apportion some of this money to county and municipal governments.

The result? A huge increase in productivity, enriching us all, and a huge increase in intangibles like happiness and peace of mind.

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