Tax Myths Conservatives Believe

I think there are many times on this site when we are just preaching to the choir or yelling down an echo chamber. I am hoping, or at least guessing, that (at least) some people may be surprised by some of this, especially since these are usually part of the conservative schtick. Here are three conservative myths about taxes…

Half of the U.S. Population Doesn’t Pay Taxes

First off, so what? As Ron Paul said, then we are half way there. Even if this were true (which is not) this would be a thing to be celebrated not mourned.  Those who insist on continuing this myth, emphasizing redistribution of wealth and notions of “fair” share, will only end up with everyone being taxed more. Instead, why don’t we use this rhetoric to help the other half escape the burden, even servitude, of the income tax?

Number two, however, this sentiment is extremely false. The fact is these people are indeed paying taxes and plenty of them. To begin with the actual statistic it is loosely based on argues that 47% of people who filed did not end up paying Net Income tax because of returns or credits. Even this is however is flat out wrong and misleading. The 47% is partly made up of young people who are just starting out and don’t make enough yet but will soon. The next significant portion is of retired and semi-retired who have smaller “incomes” coming in from investments. The biggest problem however is that this does not consider things like OASDI (social security) or Medicare/Medicaid to be income tax! So the study doesn’t even include half of the taxes that came out of these people’s incomes! Instead they are considered “payroll” taxes. Further let’s not forget what Ron Paul called the hidden inflation tax that affects the poor more than any other group. [1]

If this were not enough it also does not take into account the corporate welfare many of the top income earners and businesses receive. Are the companies who received bailouts really net-tax payers? This statistic doesn’t take into account the subsidies, grants, public contracts, and bailouts let alone the central banking system that benefits the power-elite.[2]

The Problem is Our Tax System is too Complicated and Has too Many Loopholes

Again, as in the first myth, this not a problem. The more loops holes the better–this is part of the solution not the problem. My hope is one day there will be so many loopholes, deductions, and exemptions that anyone that is a breathing featherless biped will qualify to not have to pay income tax. “Capitalism breathes through loopholes,” Ludwig von Mises said.

Oddly enough both the left and the right come together on this point. “The code must simplified,” they say “too many people are working the system, we all have to pay our fair share.” But the libertarian sees nothing desirable about ensuring individuals and corporations pay what they recognize as completely arbitrarily arrived at percentage or amount. All promises to “simplify” the tax code and lower the rates are bait and switch jobs to stop the individual and the successful business from keeping more of their money. All such deals will end up with tax rates exactly the same and all means of escape cut off. Simplifying the tax code simply means simplified theft, and it is neither fair nor desirable. Tax loopholes and exemptions are the only true and just tax laws we have on the books.  “The exemption itself cannot be considered unjust unless the tax is first established as just” wrote Murray Rothbard. Libertarians and conservatives should be asking for more deductions, more loopholes, more exemptions, more tax suspensions, and sales tax holidays while demanding cutting, lowering, and eliminating the income tax. Loopholes can be eliminated when the income tax is eliminated and no sooner.

In fact I will go one step further, libertarians should desire an even longer, burdensome (for the IRS), and absurdly arbitrary tax code. The larger our tax code becomes the more ludicrous it becomes in people’s eyes, the more arbitrary they see it to be, and the harder it will be for the IRS to enforce. The fact that our current mile- stack of legislation and code is a joke is a good thing; we don’t want respectable theft, simplified theft, or “fair” flat theft. It is a misnomer even to call these “loopholes” as Murray Rothbard argued “A deduction or exemption is only a ‘loophole’  if you assume that the government owns 100% of everyone’s income and that allowing some of that income to remain untaxed constitutes an irritating “loophole.” Allowing someone to keep some of his own income is neither a loophole nor a subsidy.” Brothers, we are not the Chicago School, we don’t want the government to be efficient. We want the IRS to have a daunting, burdensome, and undesirable task enforcing the tax codes. We want the tax codes and the Internal “Revenue” Service to be an infamously unrespectable inefficient loathe of miasma to the citizenry.

We Need a Flat/Fair Tax

This opinion usually goes hand in hand with the last sentiment. The proposal is often pitched that we can simplify the tax code, remove all exemptions, deductions, and special cuts and institute either a single rate for all (flat), or the same amount (fair) for all, and the government will not lose any revenues in the process. Or if it does it will be made up in the money they save from the more efficient system. The only acceptable tax reform is lowering taxes.

Let us suppose that somehow this does happen, and either the majority or all of us are now paying a slightly smaller tax rate, have we any reason to believe that when things go South they won’t immediately hike the rates? And now without the exemptions or deductions! As Rothbard commented “there is furthermore neither any guarantee nor even likelihood that, once the exemptions and deductions are safely out of the way, the government would keep its tax rate at the lower level. Looking at the record of governments, past and present, there is every reason to assume that more of our money would be taken by the government as it raised the tax rate back up (at least) to the old level, with a consequently greater overall drain from the producers to the bureaucracy.” These conservatives would have us trade a laughable and unrespectable lower tax for a “modest” and “respectable” higher tax. Further as Rothbard continued “There can be no such thing as ‘fairness in taxation.’ Taxation is nothing but organized theft, and the concept of a ‘fair tax’ is therefore every bit as absurd as that of ‘fair theft.’”  The only acceptable tax reform is lowering taxes and expanding loopholes until the whole tax code is nothing but one giant loop hole.

[1] I am not denying that there are net-tax payers and net-tax consumers and a real antagonism created between them as John C. Calhoun pointed it. I just have a very particular view on the matter in light of libertarian power-elite analysis that should be coming in a post soon.

[2] As a side note in political rhetoric today many trash “Wall Street” but give farmers a complete pass or hold them up as the American ideal. Farmers are some of the biggest handout grabbers, lobbyist, and regulators, especially now as smaller farms are replaced by larger and larger more well equipped farms. There wouldn’t even be a corn industry without the absurd subsidies, mandates, unsustainable price controls, and grants for ethanol (which is almost as worthless as corn itself). Seriously corn is useless and a great example of how government creates distortions in the market that divert scarce resources (land) and great opportunity cost. I haven’t looked into it for some time but at the height of the ethanol/corn syrup fiasco millions of acres of land was being converted into corn fields from things we actually need. Land that could have been used for a number of crops or as a grazing field to lower our food prices was converted into a propped up commodity. But enough about corn.

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