Looking Forward and Sideways

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I’ve received some e-mail critical of my skepticism of a national sales tax. Am I crazy or evil? Do I assume the tax reformers are? Do I love the IRS, or something? Why am I trying to discredit this great reform agenda? Whom am I working for, anyway?

I have nothing against steps in the right direction, even tiny ones. I would not oppose a one percent tax cut, or a half-percent spending cut. Such reforms would indeed be true, if marginal, improvements. Scrapping income tax withholding, a relic from World War II, would also empower workers and protect their privacy a little, and help them see how much the government is costing them. Perhaps tax day should be moved to Election Day. Lots of reforms could very well do good.

But if your destination is twenty miles North, it is likely a waste of time to drive five miles East. It is also a waste of gasoline.

Also please keep in mind that I never attacked any particular grassroots organization and its undeniable good intentions. I critiqued a national sales tax as it would likely come about. You might have the perfect idea in mind of how to phase in one tax and phase out the other, how to abolish the IRS and prevent its resurrection, how to ensure the politicians won’t add a bunch of exemptions or rate hikes to the tax code, and how to guarantee that the national sales tax does not turn into another excuse to increase government spying on your economic life. But when has such a perfect idea ever been adopted by the government, implemented and executed correctly, and not corrupted and distorted shortly thereafter?

President Bush seems quite willing these days to adopt economic and tax reforms propelled by free market rhetoric. After his Social Security plan either succeeds or fails, he may get around to monkeying with the tax code. We should keep guard of this and seriously debate and question any plan likely to come about.

When considering a reform in government policy, the only way a libertarian can unequivocally support it is if it clearly leads to more liberty and less government intrusion in our lives. An example of a small but unobjectionable reform: legalizing medical marijuana would probably be good. Arguments that partial drug decriminalization would destroy the present black, and therefore relatively free, market in drugs, and therefore will reduce American liberty, do not have much merit, because such underground markets will always exist to the extent that there is demand. Making it harder for the government to prosecute people for a drug, therefore, is probably a step in the right direction.

Rarely do drug-policy reformers say we should legalize medical marijuana but outlaw aspirin and acetaminophen. Likewise, we seldom hear gun-rights advocates say that some guns should be made legal while other currently legal ones become prohibited. Opponents of the death penalty rarely call for more electric chairs and fewer gas chambers. Opponents of the draft do not spend time organizing to make conscription fair. Few doves want to see American troops leave Iraq only to occupy Iran.

If America already had a national sales tax, I would not support changing it to a revenue-neutral income tax. Such a reform would inevitably eat up resources and run a serious risk of causing economic instability, without the benefit of actually decreasing the power and size of the government. The same is true when you move sideways in one direction or the other.

Particularly strange in all of this tax reform talk is the idea that the federal government’s tax mechanisms will become less invasive and intrusive. Let us think about what would probably really happen. If the federal government depended on state governments to collect national sales tax revenue, we would see a shift in the direction towards a total national state. State governments would further become the engines of the central government, and those that had no sales tax infrastructure would have to create one. There would be a new motivation for states and the federal government to use these collection mechanisms in abusive ways. Retailers and their customers would inevitably be spied upon. The IRS would not disappear: it would only be restructured and integrated into the local collection and enforcement apparatuses of the state governments, or the enforcement apparatus would remain completely federal and essentially the same as it is now. Maybe the IRS would be renamed, but that’s hardly an improvement.

Before you knew it, government would load exemptions onto some products, and raise the rate on others, whether you liked it or not. If the feds had trouble collecting enough revenue because people weren’t buying enough, they would reform the system for the worse. Eventually calls for progressivity or other interest-group pressures might motivate the feds to abandon the principle of economic "fairness." Perhaps they would become sick of depending on the good graces of retailers to collect revenue, motivating them to collect directly from consumers and leading to the sales tax being connected to a new national ID card. The proposed checks the federal government would send to everyone to pay sales tax on basic necessities would essentially put all Americans on the dole. How is making Americans dependent on monthly federal checks just to pay their taxes a triumph for financial privacy?

Black markets would emerge, as would enforcement and the use of disproportionate punishment against them. We would have a federal War on Illegal Retail before you knew it. Merchants would be guilty until proven innocent.

For more good arguments about what could likely happen — and not simply what we would like to see happen — see Claire Wolfe and Aaron Zelman’s article. These two freedom activists are hardly shills for the IRS, and they raise some important points.

Despite these and other economic and historical arguments against moving toward a national sales tax, some people are so incensed with the income tax system that they would welcome nearly any change. This is understandable. Even many Iraqis considered the US attack on Saddam’s regime to be a blessing at first, notwithstanding the initial collateral damage and destruction. By now, however, far fewer Iraqis think that they are better off, despite the recent election. This isn’t a defense of Saddam’s regime; it is an indictment of how much liberty truly results when one coercive government system replaces another. Without the proper philosophical framework, inciting the people to force their government to change and truly liberalize its rule, minor reforms often make conditions worse. Rarely do they improve.

Moving sideways is a risky, unpredictable gamble, and deserves serious skepticism when the policy goal of those in power implementing it is to increase the efficiency and fairness of an inherently inefficient and unfair system while leaving it the same size as before, and on the path of growing at the usual rate.

There is no easy answer to the question: How do we maintain the current government, at its current size, but make it less painful to fund (or more painful, as some people seem to want it, supposedly so as to incite the masses to rise up against the system)? People have been trying to answer it for many years, suggesting more inflationary spending, a flatter tax, the elimination of "loopholes" and deductions, and all sorts of ideas. Even if any given proposal would genuinely be, on balance, an improvement, we can doubt that America’s politicians will accept, enact, implement and execute the proposal in its original form. We can expect, however, that the politicians will establish something that perpetuates the fundamental injustice at hand while congratulating themselves and receiving unwarranted adulation from the reformers. Any new problems will be blamed on the philosophical and political orientations claimed by the reformers — in this case, individual liberty and free market economics. There is a reason that some leftist historians associate the protectionist Republican policies of the 1920s with "laissez-faire" capitalism, and God help us if one day Bush is seen in this light.

One is not an apologist for oppression to doubt that the solution is to redirect, reorganize and otherwise leave the oppression intact — especially when these changes will all be carried out by the oppressors. One is not defending the sadistic prison guard by withholding enthusiasm when the guard goes from beating the inmates with a club to using the butt of a rifle instead.

Some of these sideways reforms, such as Social Security privatization, more than being a waste of time and resources, are potentially steps in the wrong direction. Moving sideways, after all, typically takes you further away from your ultimate goal. Why spend grassroots political capital on such diversions? Why give the politicians a chance to be congratulated for doing nothing to truly expand our sphere of liberty and decrease their power?

We cannot win our freedom by asking kindly to be ruled differently. The goal of most politicians, once exposed to the corrupting force of government power, is to increase their power as much as they can. Our goal should be the opposite of theirs, and it’s hard to stay focused on it when we’re bargaining with them to please be kindler and gentler.

We might want to keep mind that the American Revolutionaries didn’t consider the cutting of the tax on molasses by half in 1764 to be an improvement, but rather as a reason for rebellion — precisely because this move was intended, along with more consistent enforcement (i.e., "closing loopholes"), as a way to collect more revenue for the British Crown. What might excite some "free market" reformers today — less intrusive methods combined with more "fair" enforcement to raise more money for the state — the radicals who overthrew British rule of America correctly viewed as a sneaky ploy to expand government power.

The colonists understood the underlying problem was government’s size and its power to destroy. Unfortunately, since then conservatives have convinced many freedom-fighters that tax cuts and tax reforms can come into play while allowing the government to run as usual, or even more efficiently with a larger budget, and that somehow this is good. It is not good. Some of today’s tax reformers, had they lived in the 18th century, might have devoted their time to pleading King George to repeal the Stamp Act and to replace it with a new duty on different products. And some of them would have been so wrapped up in the proposal they would have ignored the greater assaults on liberty, such as the monarch’s "writs of assistance" (open-ended warrants) and tyrannical standing armies. Why on earth should we expect Patriot Act George to reform taxes to the benefit of our privacy, any more than the colonists expected Hovering Act George to have their freedom in mind when he pursued his own tax reform schemes?

The government is too large and taxes are too high. I would gladly take a 15% tax of any type over a 20% tax of any type. That percentage represents the size of the government and how much it gobbles up from the economy. Real spending cuts are far more certain and easily measured, no matter how hard to achieve, than rearrangements in the tax structure, which are also difficult to achieve, but also unpredictable, destabilizing, and easily botched. Real tax reform and real spending reform must come together, and come as obvious steps forward, not sideways.

Anthony Gregory [send him mail] is a writer and musician who lives in Berkeley, California. He is a research assistant at the Independent Institute. See his webpage for more articles and personal information.

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