End of the Republic

The American Republic is in decline. The decline is self-inflicted, a sort of suicide by choice. Why are people deciding to follow the "Road to Serfdom" over the "Road to Freedom"?

Location: Chesapeake Beach, MARYLAND, United States

Sunday, January 23, 2005

Von Mises Conference part III

The third lecture was by Dr. Mark Thornton. The lecture was called “Thank Goodness for FDR’s Tax Cut”, which was interesting because I did not think that FDR enacted any tax cuts. He started with four bullets: 1> Taxation is theft. The statistics 45% of American GDP is paid in taxes was mentioned a few times during the conference. 2> “Thornton’s Law” (the author's own economic theory) which states that taxation reduces the amount of real goods and services produced. 3> Taxes produce waste and distortion as resources are diverted from their most efficient use toward government use and 4> he asked the question “is it all worth it”? By this he means: "What is it that government does so well it deserves 45% of our national income? What would not be done if the government did not intervene?" He never did answer these questions. I feel that would have made for a good debate and would have allowed for some audience participation! I noticed he made a slight error in reason in his presentation. He asserted that taxes lead to lower standards of living and higher rates of poverty as people are left with less resources to provide for their daily needs after paying taxes. However, he then asserted that people would be wealthier in the absence of taxation. Here he is incorrect. People would keep the wealth that they earned in the absence of taxation and thus would have a higher standard of living, but NO NEW WEALTH is actually created in the absence of taxation. People earn the same amount of income, they would just be able to keep it all.

FDR’s "tax cut" was really a shift in the way the government received its revenues. In the 1920’s, local and state governments used property taxes as the primary source of revenue. When the depression hit, the proportion of property taxes to income nearly doubled and people became upable to pay their property taxes. The tax revolts that followed were mainly local in nature and community oriented due to the nature of property taxes. The tax revolts were a but different from the type we usually think of. People who could not pay their property taxes had their lands seized to be acutioned off. The auction participants turned out to be locals (or friends of the disposessed person) who bid the price down very low and purchased the property for a nominal fee and then gave it back to the original owners – essentially restoring the land to the owner and wiping out his property tax debt. In addition, prohibition in the 1920’s was partially the result of the income tax being created in 1913. The government could now raise money from the income tax and was no longer dependent on excise taxes on liquor. However, the depression led to a sharp decrease in government revenue through the income tax. FDR suddenly became anti-prohibition (played the game of politics) because a re-instatement of legal alcohol also meant a re-instatement of excise taxes to help fill the treasury. Repeal of prohibition was a “win-win” situation. The repeal led to a new source of revenue for the government and significantly lowered the price of alcohol for consumers (who no longer had to pay black market prices). The “tax cuts” of FDR were not real cuts at all, but were shifts in what was taxed and who paid it. The un-stated warning of this lecture is that tax reform does not necessarily lead to a lowering of taxes across the board. The reform just yields new winners and losers in the redistribution of wealth managed by the government.

Dr. Cantor made the next presentation. Dr. Cantor appeared to be a rare breed. He was a self-professed “non-Marxist” English teacher. I have never before encountered a pro-market, anti-welfare state English professor. While his discourse was a bit long-winded at times, he blended in some humor. His lecture was called “Taxation and Literary History, or Who Killed John Keats”? He cited the many taxes on paper, on windows, and on candles that succeeded in keeping people illiterate and uneducated. After all, how can people read without light or when paper is prohibitively expensive? As these taxes were reduced, the amount of periodicals increased exponentially and illeteracy rates dropped. Of course, taxes still played an important role in what was printed and who was allowed to print. An advertising tax was levied on the amount of advertisements published in a paper. The clever publishers found a way to get around this by inventing the “puff piece” or a quasi-news article that was quite flattering of the subject. “Good reviews” of works of literature were similarly not taxed. The government quickly caught on and started taxing good reviews. Newspapers quickly started publishing their disgust and disdain for recent publications, including those of the late Mr. Keats. The bad reviews quickly filled Keats’ heart with sorrow (as his lungs filled with fluid from the disease he had) and he came to a sudden end. Of course, tax policy did not literally kill Keats, but Mr. Cantor appeared to enjoy presenting the story anyway!

Mr. Fogal, CFP made a quick presentation called “How to Outwit the Tax Police While Supporting Freedom” which highlighted the use of various trusts (including charitable trusts with the Mises Institute listed as the recipient). While informative, I am not sure how many in the audience are actually in the position to use some of that advice.

Lew Rockwell came followed with his presentation called “The Dangers of Tax Reform”. He asked which we thought leads to civilization: taxes or production/trade? Which would lead toward a more friendly relationship between men? Is voluntary trade for mutual benefit more likely to yield friendly relations or will forcing them to give a portion of their wealth to others create strong brotherly bonds?
He said that a Value Added Tax (VAT) or a national sales tax, would have to amount to be between 20-40% of the value of the product to earn the same amount of money as the current income tax system provides. He did not mention the effect this would have on prices or wages. He also did not mention the effect it would have on people living on fixed incomes. Older Americans who live on interest, dividends, and pensions would suddenly find that their savings would be wiped out! They may have budgeted their life savings on current inflation trends and certainly do not expect a 20-40% price increase as a result of a VAT. He also mentioned the danger of the “political elite” offering to phase out the income tax as it implements the new taxes but then conjuring up a national crisis to keep all forms of taxation as permanent. He also warned of the potential for a large portion of economic activity to move underground to avoid paying the taxes. Of course, this would invariably lead to government spies, informants, and police to enforce the taxation and limit the activities of the underground economy. He said it would lead to a war of “government against the people”.
The same argument was levied against social security reform. The “privatization” plans currently being discussed involve what appears to be mandatory savings. Essentially, the savings would be compulsory (just like taxation) and the government would still be in charge of determining how the money is invested and how it would be distributed (someday/somehow). Of course, the partnership between government and Wall Street seems to be a match made in corruption heaven. After all, this plan will be deemed TBTF (financial lingo for Too Big To Fail) and questions about how to insure the “savings” will be raised. He asks, why does the government not trust us to manage our own money? I mean, the reform could simply be a reduction in payroll taxes. Each of us could then decide what to do with our own money. Are we not the best judges of our own situation? Why is the government a better judge of how our money should be used? He concluded stating that any offer to “raise” or create a tax of one type in exchange for a reduction or elimination of another tax (or form of tax) is just too risky. His idea for reform: only lower or eliminate taxes. Good luck with that plan! I am all for it, but I do not see how it is to be done.
Someone in the audience next to me said that his presentation was depressing. The presentation was filled with warnings and dire predictions but offered little hope. Of course we are all interested in lowering or eliminating the burden taxation places on us. I guess some of us were just hoping that the conference would provide us with some tools or offer us different ideas about how to go about doing it.

J. Thyme Matz


Blogger AA said...

Hi J,

NO NEW WEALTH is actually created in the absence of taxation. People earn the same amount of income, they would just be able to keep it all.

Here the Austrian School of Economics says otherwise. Government appropriation of private money prevents the creation of wealth. Government doesn't invest (investment is paired with savings), it only consumes. You are only right if you take a snapshot of the economy and forget about the marginal use of capital.


January 15, 2009 at 10:53 AM  

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