Listen my children and you shall hear
Of the midnight ride of Paul Revere,
On the eighteenth of April, in Seventy-five;
Hardly a man is now alive
Who remembers that famous day and year.
Fewer still remember that through the chain of causality
Revere was warning that the tax collector — in the shape of its enforcers, the Redcoats
— was coming. The War of Independence was to a nontrivial extent about the
manner and level at which taxes should be levied. The Declaration’s bill of
grievances mentions this explicitly. It said of George III, “he has erected a
multitude of new offices, and sent hither swarms of officers to harass our people, and eat out
their substance.” The problem of course, as Forbes [1] points out, was that
George III had run up a deficit fighting the Seven Year’s War.
Great Britain had gotten itself into quite a pickle after
the Seven Years’ War which had been expensive to fight. As a result, Britain needed
to raise revenue – and quickly. What better way than a series of taxes and
tariffs? …
Here’s what really irked the colonists: under the British Constitution, no British subjects could be taxed without the
consent of their representatives in Parliament. But the colonies didn’t elect
representatives to Parliament. The colonists considered the constant imposition
of taxes on them under those circumstances to be unconstitutional. It was, they
felt, “taxation without representation.”
Many colonists worried that the attempts to impose taxes
would only get worse. They decided to do something about it. Led by Thomas Jefferson,
they penned a letter – a declaration of their rights – to be delivered to the
King. On July 4, 1776, the day we officially celebrate Independence Day, the
wording of the Declaration of Independence was approved by Congress.
The important thing to note was that the founders didn’t “reform” the tax system. They didn’t want to fire the tax collectors from the equivalent of Cincinnati. They wanted to
replace the whole structure.
The key to understanding why this is sensible is in Leo
Linbeck’s op-ed published in the Washington Examiner [2]. He writes of the IRS that
“human institutions have this funny habit of appearing to be indissoluble right
up to the moment they dissolve.” Bureaucracies age by getting bigger. In that
way they are like cancer cells. You can only destroy them and grow healthy
tissue in their place.
Morris McTigue [3], a former Cabinet Minister from New
Zealand and more recently on the Performance Management Advisory Committee for
the Commonwealth of Virginia explained why only the radical works. An established
bureaucracy, like a malignant cell, is almost unkillable. The process is akin
to angiogenesis [4]. Tumors make their own blood vessels and keep making them
until they starve out the healthy cells.
What I have been discussing is really just a new way of
thinking about government. Let me tell you how we solved our deer problem: Our country
had no large indigenous animals until the English imported deer for hunting.
These deer proceeded to escape into the wild and become obnoxious pests. We
then spent 120 years trying to eliminate them, until one day someone suggested
that we just let people farm them. So we told the farming community that they
could catch and farm the deer, as long as they would keep them inside
eight-foot high fences. And we haven’t spent a dollar on deer eradication from
that day onwards. Not one. And New Zealand now supplies 40
percent of the world market in venison. By applying simple common sense, we
turned a liability into an asset.
There are some great things happening along these lines in
the United States today. You might not know it, but back in 1993 Congress
passed a law called the Government Performance and Results Act. This law orders
government departments to identify in a strategic plan what it is that they
intend to achieve, and to report each year what they actually did achieve in
terms of public benefits. Following on this, two years ago President Bush
brought to the table something called the President’s Management Agenda, which
sifts through the information in these reports and decides how to respond.
These mechanisms are promising if they are used properly. Consider this: There
are currently 178 federal programs designed to help people get back to work.
They cost $8.4 billion, and 2.4 million people are employed as a result of them. But if we took the most effective three programs
out of those 178 and put the $8.4 billion into them alone, the result would
likely be that 14.7 million people would find jobs. The status quo costs
America over 11 million jobs. The kind of new thinking I am talking about would
build into the system a consequence for the administrator who is responsible for this failure of sound
stewardship of taxpayer dollars. It is in this direction that the government
needs to move.
Leo Linbeck III makes this point precisely. He argues that
abolishing the IRS and replacing it is the only rational thing to do. It’s what
a private sector manager would do when faced with a similar problem. Any
attempts to fix the tax system at the margins would only be swamped by the
tumor’s defense mechanisms. Leo writes:
What about the IRS? We will always have taxes, but do we
really need the IRS? I believe there is a compelling case that the time has
come to end the IRS and restructure the tax system that enables it.
First, as a nation, we have too few jobs and too much consumption.
And yet the federal government taxes jobs (wages, profits, capital gains) and
gives consumption a free pass. We have an IRS because we tax production; switch
to a consumption tax instead of a production tax and we no longer need the IRS,
as we know it.
A consumption tax can fund the government. In fact, two of
the largest and most vibrant economies in the world run without income, payroll,
or capital gains taxes: Florida and Texas. And the federal government operated
without an income tax for over 120 years….
That is why the debate about taxes needs to start with
fundamentals. Fixing the existing system or “reforming the IRS” will not
address the root of the problem: federal revenues coming from taxes on production.
So the place to start is repealing the 16th Amendment.
Americans have done this sort of thing before. …
Many will say, “We can’t repeal the 16th Amendment until we
agree on what will replace income taxes.” But that is a classic political ploy,
and we shouldn’t fall for it.
There are lots of ways to fund the federal government
without income taxes, and we don’t need to agree on the solution before we
address the root problem. We didn’t need to agree on how to regulate alcohol before
repealing the 18th Amendment and ending prohibition.
It is time to redesign our tax system, and the place to start
is repealing the 16th Amendment and prohibiting taxes on
production. That would bring an end to the 100-year failed experiment of the
federal income tax and end the IRS.
Then the real debate about what comes after can begin.
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