The absurdities of the income tax

The income tax results in perverse incentives and absurd outcomes, yet most Americans defend it, often for spurious reasons. Photo: AP Photo

TAMPA, April 15, 2013 — Being a libertarian, I agree that all taxation is theft. I hope that someday the human race “progresses” to the point where coercion, even to purchase “protection” from the official mafia, is held in contempt. But of all of the possible ways to rob us, the income tax is by far the most insidious. Consider some of its absurd stepchildren.

There is some finite cost to defending the borders, running a court system, and administering “justice.” For those who believe that government should do more (like conservatives and liberals), there is likewise a finite cost for building roads, running healthcare programs and taking care of the poor. That cost doesn’t change significantly overnight or even from year to year.


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But the income tax doesn’t reflect this. If productivity and therefore incomes double due to some new technology, the amount of money owed to the government doubles, even though there are fewer poor people, more private sector “infrastructure” projects and less crime (crime goes up during recessions, down during booms). The more productive Americans are, the bigger and more oppressive a government they get.

Talk about a bad incentive.

It also discourages productivity in general and encourages wasteful consumption. Anyone who has had any business success knows that at a certain point, additional income costs you money. You would rather stop producing more than allow the additional income to put you at the low end of a higher tax bracket. So you produce less to keep more.

The flipside of that is frivolous consumption. If you’re showing too much profit near the end of the fiscal year, you look for things to buy that you don’t really need so that you can write them off as business expenses. You’d rather purchase something that you’ll get some use out of rather than give that money to the government. If not for the income tax, you might have reinvested that money in producing even more goods or services and making society richer.


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This is in contrast to a consumption tax, which although still a theft, at least provides relatively less perverse incentives. To the extent that it does influence behavior, a consumption tax encourages you to forego unnecessary consumption and, by omission, to produce more, as it does not tax productivity.

Then, there is the strange way in which the tax applies to government employees. In order to ensure “fairness” in the system, government employees must pay income taxes. But 100 percent of the salaries and benefits of military personnel, regulators and other government workers come from taxes. So, Americans have to pay taxes to support their salaries and benefits and then pay for additional government employees to collect some of the money back. It is worth asking why government employees are not just paid less, tax free. But that could lead to other problems.

The current rhetoric about “closing loopholes” highlights the worst absurdity resulting from an income tax and the most hostile to liberty. It is the assumption that all wealth produced by individuals actually belongs to the government, which allows those who produced it to keep whatever portion the government doesn’t need.

If the whole reason for establishing government is to “surrender up a part of his property to furnish means for the protection of the rest,” then it follows that the portion surrendered would be a relatively small percentage. Otherwise, it would make sense to take one’s chances without government at all.


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These are only a few of the perverse incentives and absurd outcomes that accompany an income tax. They don’t result from government bureaucrats failing to execute an otherwise sound policy effectively. They result from the violation of a fundamental law of nature: the right of every individual to keep the fruits of his labor and dispose of them as he sees fit in pursuit of his own happiness.

Right now, squirrels are more secure in this right than human beings are.

It’s not a coincidence that the positive trends in upward mobility, distribution of wealth, growth of the middle class and quality of life for the poor have all slowed and eventually reversed since the income tax was established.

Yet, a majority of Americans not only comply with the tax but fiercely defend it upon the grounds that civilization would collapse without it, despite the fact that the United States has still only had an income tax for 42 percent of its existence. Often, income tax apologists cite roads and other government boondoggles that aren’t even underwritten by the income tax as proof of its necessity.

Libertarianism, anyone?

 

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

 


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Thomas Mullen

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. He writes weekly columns on his blog and has been featured on The Daily Caller, The Huffington Post, Daily Paul, LewRockwell.com, 321 Gold! and Peter Schiff’s EuroPac.net. Tom has been a guest on Fox’s Freedom Watch with Judge Andrew Napolitano, Adam Vs. the Man, Free Talk Live, and numerous other programs.

Tom is originally a native of Buffalo, NY and graduate of Canisius College. He earned a Master’s Degree in English from State University of New York College at Buffalo. He now resides with his family in Tampa, FL.

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