Americans pay an inordinate number of taxes. We pay taxes at the Federal and State level. We pay taxes that are easily recognized as taxes, such as income, social security, unemployment, inheritance, capital gains, corporate, property, gas, sin, I think you get the point. We also pay taxes that are less obvious, fines, fees, licenses, and permits.
Despite paying so many taxes, there is many misunderstandings about taxes. Don’t feel bad if you have fallen for any of these. They are purposely obfuscated by the government to confuse us about the truth behind many taxes so that we will be less inclined to rebel.
Whether you recognize the payments as a tax or not, the one thing that all taxes have in common is this, they are paid by people. Corporations do not pay taxes; they only collect them. They pass them on to actual people in a number of ways. The easiest is to their customers in the form of higher prices. They can pass them on to their investors through lower dividends.
Taxes can be passed on to the employees. They can decrease benefits and raises, or reduce headcount and demand higher productivity. One of the greatest hoaxes the government has perpetrated is that businesses pay half of our Social Security taxes. We pay both halves. Business simply lower the amount of salary offered in order to cover the other half.
This next misunderstanding is actually one that government seems to have. Taxing people based on their current behavior will result in a change in behavior. This one always seems to catch the government off guard. But it is important for us as well. So many people have a desire to punish the wealthy, so when the government offers to do so, they applaud. What they don’t realize is that the wealthy have many options and won’t sit by and simply pay higher taxes, but the poor do not.
When people hear that Mitt Romney paid 14% taxes, they demand an increase in the capital gains tax. While Mitt has many options to avoid this higher rate, grandma however does not. Living off of her investments, an increase in taxes requires a greater share of her nest egg to pay these taxes. While Mitt uses various tax strategies, or simply waits for the rate to go back down, grandma will find that it is too late, and her much reduced nest egg can no longer cover her living expenses, even at the lower rate.
I would like to say that it is incredibly unfair to tax someone’s income. I would go as far as to say that taxing income is heartless. Just like grandma in the previous example, taxing income is done whether or not the person being taxed can afford it. Taxes on income have no sympathy for the person being taxed. Child gets sick, pay me. Car broke down, pay me. Regardless of your needs for your money, pay me. And if you choose to serve your needs with your money instead of paying the government, they will punish you severely for your choice.
That is why I would like to make a plea for a consumption tax. A national consumption tax would not be on top of the current taxes, it would be a replacement for every Federal tax. Consumption taxes would work like this. The tax is paid only on new items. Once an item is taxed, it will not be taxed again. Goods and service required to keep the tax payer alive, and for which used items are not an option, such as food and medicine, are not taxed at all. This put all decision making into the hands of the tax payer. Child get sick, car breaks down, other unforeseen costs incurred, and the tax payer can choose to not consume or consume used items and reduce their tax burden. Driving to the dealer to buy a new car and the news announces that the tax has just been raised, the tax payer can pay the higher tax, go to a used car lot, or simply return home.
Some of us earn a paycheck, some live off of capital, but we all consume. If any tax was more likely to affect the rich than the poor, it would be this one. Mitt would equally have the option to consume less or buy used, but I have a feeling that he would not seek to avoid consumption taxes.
Charles Hagerman is married with two daughters. He spend a great deal of time listening to music, and watching tv and movies. Most conversations with him will feature many movie quotes, and him breaking out into song. Having taught himself to pay guitar using the internet, he plays guitar at his church. Additionally, Charles is a self taught programmer, studies economics and various languages using the internet. He is a tireless defender of liberty.