American tax policy is stupid, as are most tax proposals. Our federal, state and local governments need money (though they could do a much better job with the money they have, and could spend money on helping people in preference to killing people), so taxation is necessary. However, taxation is a burden that discourages things. What do we choose to burden through taxes?
Currently, our first choice is labor. If a regular person goes out to do something productive, they pay income taxes and social security taxes. Is labor really the thing we most want to discourage?
Our second choice is value creation within the United States. The international tax system allocates taxing rights based on where value is created. That makes sense in that nobody can earn a profit outside of a society whose government provides the security, infrastructure and trustworthy markets that make modern commerce possible, so the government that provides those facilities should be able to charge for them. But charging for them burdens U.S. value creation. We exercise this right and tax value creation in the U.S. more heavily than value creation elsewhere. We have the right to do that, but do we really want to burden U.S. value creation?
We choose to tax capital – i.e. rich people, the ones that we used to call capitalists, who make most of their money from having money – very lightly. It should be noted that the media have created intentional confusion between capitalists and two-earner professional couples. Those couples, who work for a living, may be in the top 5% or even the top 1% but they are a different species from the capitalists who earn fabulous amounts of money from having money or from handling other people’s money. Most capitalists (I exclude people like Elon Musk who actually take risks and create things) are parasites who do nothing productive, and instead impose financial friction on people who are trying to be productive. They are sold as being risk takers, but in general they exemplify the old W.C. Fields bit about poker. Rube: “Poker – is that a game of chance?” Fields: “Not the way I play it, no.” They contribute heavily to politicians, but it is otherwise difficult to see why they should be treated more favorably than labor.
We tax the value of homes. If you maintain and improve your home, you pay more tax than if you trash it.
We tax buying things. If you participate as a consumer in the economy and create opportunities for employment, we tax you. If you keep your money under a mattress, we don’t.
Some taxes – sin taxes on tobacco, for example – makes sense. They burden things that cause poor health and cost us all money via Medicare, Medicaid, the welfare system and the health insurance system. For the most part, though, our tax system seems to have been designed to be as perverse as possible. Why do we tolerate this? Why don’t we seek a better way to raise money?
This blog is intended to suggest some alternative ideas that would shift the burden to things that we would like to discourage, or at least not encourage. If you like any of these ideas, please pass them along. The establishment is happy with things the way they are. They will not change unless we demand a better system.