Some of us “radical” (read: principled) libertarians are sometimes accused of refusing to compromise, refusing to accept incremental movements toward liberty; that we would only accept a magical “push of the button”. Of course, this is not true. I want the income tax abolished, but I would view a reduction in the marginal tax rates as an unambiguous improvement by libertarian standards.

The problem lies in reforms that do not clearly and unambiguosly improve the situation, however minutely; but that might even make things worse, at least for some people. For example, moving to a “flat tax” of 20% (with no deductions at all) would be a good thing for me, and maybe even “overall” (whatever that means), but it would amount to a punitive tax increase on people making, say, $25K a year, who pay almost no income tax now. Such a reform would decrease rights violations for some, and increase it for others.

Likewise, talk about shifting from income to VAT or sales tax is dangerous; the problem is not the form, but the level. A sales tax would not replace the income tax; it would add to it. The voucher system is problematic not because it is not a whole solution, but because it is not even moving in the direction of more liberty; it would actually expand the number of education welfare recipients, and further increase the state’s control over currently private schools.

Similarly, one significant problem with the proposed social security reform is not that it does not go far enough. If it made an incremental, unambiguous improvement in terms of liberty and rights, I would favor it.But both the current system and the proposed new system are going to be terrible. I can’t really rely on receiving benefits from the system, whether it’s reformed or not; and even if I got to invest a paltry 4% of my income up to the new FICA income cap (currently about $90K but likely to increase, as noted below), that would only be at most about $6-7K a year–in a conservative, government limited set of investments. That’s just noise.

However, the the new plan will almost certainly result in an increase in the limit of income subject to FICA. I.e., my taxes will go from 6.2% of $90K to 6.2% of say, $130K at least (for now–probably unlimited thereafter). This means at least an additional $2400 or so of taxes for me, and another $2400K for my employer (which in the end, acts as a tax since it reduces wages). I.e., the cost to anyone earning decent money will be roughly $3-4K a year in extra taxes, just for the privilege of putting $7K of my own money into a government-controlled investment account (you can already put $15K into 401k which has more flexibility, and up to about $40K into a SEP-IRA if you have a business with enough profit, so the $7K in a much less attractive account is not that great a deal).

I would rather they just leave the current FICA tax in place, with no increase; means-test social security benefits, and label it what it is: welfare; and increase the limits on how much you can put into a 401k pre-tax. That way at least the dreadful tax would not increase as much and working people would stop stupidly relying on SS benefits being there when they retire.

The Best of Stephan Kinsella