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As you may know, I have begun outlining the Taxpayer’s Bill of Rights. The Taxpayer’s Bill of Rights will appear in legislation I will introduce for the consumption tax in January next year. The first basic right that I talked about last week had to do with taxing people in a fair and equitable way. Today I will address the second right in the Taxpayer’s Bill of Rights. The second right states that “the State of Nebraska shall never impose or collect a tax on the income of its citizens, whether such income tax be of a personal nature or of a corporate nature.”
The income tax violates the very nature of our own personhood. Each individual has an inherent and incumbent right to own himself or herself as well as the products of his or her own labor. The income tax violates this most basic right that we have to own ourselves as well as the fruits of our own labor.
The income tax has proven over time to be an ineffective tax system. The primary reason that the personal income tax is ineffective is that it discourages people from working or making money. Because it punishes people simply for making money, it is a system which promotes poverty over prosperity. So, the personal income tax treats making money as if work is somehow evil or a bad thing for a person to do.
The progressive or graduated nature of the personal income tax especially discourages people from making money. According to the progressive income tax, the more money a person makes, the higher percentage that individual pays in income taxes. So, the progressive income tax is effectively designed to keep people poor. This makes the personal income tax the enemy of personal upward mobility. Wouldn’t it make more sense to have a tax system that is favorable to economic advancement? I think so.
Those who advocate for the personal income tax usually do so for reasons of income redistribution. But, as we have already seen income redistribution of this kind does not work and it is a fundamental violation of our most basic personal freedom. As Milton Freedman once said, “I find it hard, as a liberal, to see any justification for graduated taxation solely to redistribute income. This seems a clear case of using coercion to take from some in order to give to others and thus conflict head-on with individual freedom.”
The same principles hold true for the corporate income tax. The corporate income tax is effectively designed to keep small businesses small. The more money that a business makes, the higher percentage that business must pay in corporate income taxes. Consequently, the corporate income tax constitutes the ultimate anti-business tax. Moreover, the corporate income tax violates the nature of a corporation in the same way that the personal income tax violates the nature of personhood.
By way of contrast, the consumption tax respects personhood and honors personal freedom. The consumption tax allows individuals to keep everything they earn. No tax is ever collected until the taxpayer is ready, willing, and able to part with a portion of his or her income. Because the consumption tax comes with a monthly pre-bate allowance, the least advantaged members of society never make a net contribution in taxes to the State. Consequently, the consumption tax promotes personal and corporate upward mobility whereas the income tax discourages it.
If the best tax system is the one which best maximizes upward mobility, then the income tax will never win that prize. The more I study the consumption tax, the more I realize that it is the tax system which benefits all income earners the most, but especially the lowest income earners of society.