Morality of Taxation

We are here to discuss important issues surrounding the flat tax but I want to spend most of my time raising some of the moral issues involved in taxation in general. Whether we like to think of it as such, our fiscal problems, as well as many others, are rooted in immoral government conduct.

Let me start off by referring to the U.S. Constitution, or what I prefer to call the citizen's rule book. To say something meaningful about taxation one must also say something about expenditures. I know that nowadays one risks being labeled an extremist if he looks to the Constitution for guidance about what the federal government should be doing, but I will happily accept that risk. Article I, Section 8 of our Constitution is very relevant to today's discussion. Article I, Section 8 begins by granting Congress authority to lay and collect taxes.

In the passages that follow, it enumerates a broad category of activities (namely nineteen) for which Congress has spending authority for which it can use its taxing authority. Among those activities, for those who have not bothered to inspect, are common defense, coinage of money, establish of post offices and courts. I have not done the numbers but I am guessing that the amount of money necessary for Congress to pay for these constitutionally, and by the way moral, authorized functions of the federal government would come to no more than $400 billion or so at the most. Obviously, that amount differs significantly from today's expenditure level of $1.6 trillion. Even that expenditure figure does not capture total spending because we have an underground government - the so-called "off-budget" expenditures as well as government-mandated spending by its citizens - such as ADA, OSHA, EPA dictates.

I do not believe that we can restore government to its proper role in a free society by focusing our energies on the revenue side of the equation. In saying this, I in no way wish to demean the yeoman-like efforts of all those who worked to come up with a better method of taxation. I do not mind being corrected, if I am totally off base, but I see the debate between the flat tax, national sales tax and our current tax code as essentially one of which is the best way for government to subjugate its citizens? That is, of course, not a totally meaningless question because, given that we are going to accept subjugation, there are, I suppose, preferable methods to be subjugated.

The debate over the form of taxation we should have legitimates the level of government spending. It is spending, not taxation, that is the true measure of the burden of government. After all there is no necessary reason why government has to tax in the first place. At one extreme Congress could acquire all the resources it needs simply by printing currency. Or Congress could borrow and require citizens and other entities to hold a portion of their holdings in government securities. Of course there would be severe problems associated with either of those methods but the point is that government spending, not taxation, is the proper measure of the burden of government activity. That is the major problem that needs to be addressed.

Throughout most of our nation's history, up to the beginning of the twentieth century, the federal government spent no more than three or four percent of the nation's output except during war times. During that interval, it did not make much of a difference what form of taxation supported federal government activity. In fact, excise taxes carried the burden. But even if we had today's income tax code, there would not have been much of a problem. In other words, if federal spending is only three or four percent of the GNP, almost any kind of a tax system is not going to impose that much of a burden. And I am sure, were that the case, we would not be gathered here today to discuss substituting a flat tax for the current code.

Some might ask what congressional spending should be cut so that we would not have to worry about the form of taxation. A French philosopher, Frederic Bastiat, gave us the best guide, in a little book titled, The Law, wherein he suggested a way of identifying legal plunder saying, "See if the law takes from some persons what belongs to them, and gives it to other persons to whom it does not belong. See if the law benefits one citizen at the expense of another by doing what the citizen himself cannot do without committing a crime." Clearly, at least two-thirds of all federal spending fits Bastiat's description of legal plunder or what I call legalized theft. So if we eliminated legal plunder from the scope of congressional activity, the form of taxation could easily be a non-issue.

Some may wish to quarrel with my description of Congress' business as legal plunder. If you do so, just ask yourselves how does Congress get money for, say, farm subsidy programs, S&L bailouts or foodstamp programs. It uses intimidation, threats and coercion to take what rightfully belongs to one citizen and gives it to another to whom it does not belong. The mission of virtually every cabinet department is to distribute the loot. There is neither moral or constitutional authority for Congress to commit plunder.

Turning to the Armey-Shelby flat tax proposal, notwithstanding what I have argued, there are nonetheless some benefits to its enactment. First, it would reduce Congress' ability to grant one group of Americas special privileges denied to another group of Americans. The House Ways and Means Committee and the Senate Finance Committee are two of the most powerful committees in Congress. Its members have the largest political war chests. They are the focus of Washington's lobby groups who pay handsomely and work diligently to have favors bestowed upon them. The Army-Shelby flat tax would go a long way towards eliminating privilege granting. That may explain some of the political resistance to the flat tax.

Another benefit of the Armey-Shelby flat is lower tax compliance costs. According to various estimates, the compliance costs of our current tax code comes to 5.5 billion to 6 billion hours in recordkeeping, filling out tax forms, going to court, seeking methods to avoid taxes, etc. The Armey-Shelby flat tax would create a GNP windfall. If Americans were spending those tax compliance hours in productive activity, we would be considerably richer. The current tax compliance costs are estimated to be equal to the annual outputs of the auto, truck and aircraft industries combined.

As evidenced my remarks, I am a purist or what the news media and maybe even some of you might call an extremist. But I am not so much of a purist that I cannot see that a flat tax is a major improvement over the status quo. But if there is a flat tax enacted, there should be a supermajority vote required to increase the rate, say, four fifths of both houses and a simple majority to decrease the rate. My reason is quite simple. Like the Framers of our constitution, I do not trust Congress. With the current complex tax code, there are numerous legal ways to hide our money from the revenuers. With a simple flat tax, those hideaways would be eliminated. Then, if Congress raised taxes we would be up that proverbial creek without a paddle.

Walter E. Williams
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