I‘ve been interested lately in the federal government’s plans to revive our failing economy by providing “stimulus” to various sectors and industries. Obviously, something must be done because we can’t just sit back and watch people lose their homes, lose their jobs, and whole companies dissolve away.

But maybe now is the time to revisit this idea of taxing American’s income. Only a small handful of people alive today were around when income tax was first introduced in 1913. And anyone alive would have been a small child. So Americans don’t really understand what it’s like to live without a tax on their earned income. Let’s explore some things:

First, a federal tax on income provides the federal government with approximately 19.5% of Gross Domestic Product (GDP). GDP is the dollar value of all goods and services produced in the United States. What does that amount to? Well, GDP is presently $14 trillion or so. So federal income tax is approximately $2-3 trillion. Recent stimulus packages from the government have conditioned us to understand what those trillions of dollars represent. It begs the question, How can our government pass a stimulus package AND have enough money to operate if this is all they’re pulling in? But that answer is for another time.

Second, a federal tax on income was essentially the last nail in the coffin of states’ rights. By taxing all Americans, it became pretty clear pretty quickly that states would now rely on the federal government for a portion of their budgets. Some would argue that since we all have state representatives in Washington, this shouldn’t be much of a problem. But it is, and here’s why: even with representation, those people have a duty first to spend money on the nation as a whole. This would involve the entire federal government, the national military, and all other federally-created programs. It’s almost as if they’re saying, We can do it better than the states or the people or the economy. Problem is, we haven’t really seen strong spending discipline from our federal government lately.

And that brings us the third and final point: a federal tax on income doesn’t provide much money to the federal government for spending anyway. A commission set up by President Ronald Reagan found that one-third of income taxes is lost to government wasteful spending, and another one-third is lost to an underground economy where nobody is taxed. Thus, the remaining one-third is essentially used to pay off the national debt. In turn, we increase the national debt now while paying it off later. We’re constantly playing catch-up on the world’s largest credit card.

It is time for our government to stimulate this economy in a different way: abolish the income tax. There are a variety of alternatives that have been explored by competent economists and have been proven to keep more money in the circulation of Americans while also providing financially for a federal government. I personally feel that the FairTax is the best option, but there are also flat tax, sales tax, and investment tax ideas that would also help.

In this economy, with the problems we have, we can’t afford to just throw more government spending and more government money — OUR money! — at the problem. We must address the core issue of where our federal revenue comes from and how it can best be used to stimulate our economy in a healthy and responsible way.

Cross-posted at harrisonfarr.com.

One Response so far | Have Your Say!

1. 

   Luke Macias
   March 2nd, 2009 at 9:53 pm #

   I really like what yall have written! I would like to see if we can’t work together. my website is http://www.effectualchange.com and my email is [email]

   Please contact me to see how we can work together!