Saturday, June 1, 2013

Without Sales Taxes, How Should Government Functions be Funded?

To follow up my May 8th post regarding internet sales taxes, a correspondent wrote in reply to my comments:

Dale wrote:
"Longer term, the sales tax should be phased out and abolished. As to those roads, bridges, ports, and airports, they should be funded through user fees only..."
In New Jersey, does the sales tax just cover transportation or does it go into the general fund where it can be used for any state expenditure? If the sales tax is funneled into the general fund, then it covers more than just transportation, but police, education, senior services, state employee compensation, the judiciary, property tax reduction (a shell game), state parks, and many other things, as well.
If the sales tax is to be abolished, how should the government raise revenue to carry out its functions? Should it rely on the income tax, property tax, and user fees?

I Answered:

Dale: First, let's distinguish between what the government should and should not be doing.

The government's only proper purpose is to protect individual rights through the police, military, law courts, patent and copyright offices, Coast Guard, etc (rights being guarantees to freedom of action, not a claim on goods or services that others must be forced to supply). Education, parks, and transportation are not proper government functions, and should be privatized and payed for directly and voluntarily just as we pay for our own homes, cars, computers, and food.

Privatization will take time, which is why I prefaced my statement with "longer term." Once full privatization of things the government shouldn't be doing is accomplished, all forms of broad-based taxation should be abolished, including the income tax. The remaining, proper government functions should be funded by dedicated taxes, itemized by the government, so the taxpayer can know exactly where each of his tax dollars is going. (Exactly how this is done is a complex legal question. But, the government imposes all kinds of "truth-in-lending," "truth-in-advertising," truth-in-this, and truth-in-that laws. What we really need is truth in taxation.)

Yes, privatization is a long shot today. But, sooner or later, we're going to have to deal with the issue of the proper purpose of government, lest we slide into something almost no one wants; totalitarian socialism, fascist style.

I might add that, in the really long term, if the ideal of a fully free, non-coercive society is ever to be reached, even taxation would be voluntary. That is a pipe dream in today's culture, and forced taxation will be needed for the foreseeable future to avoid anarchy, which no one wants either.

One question that some may ask is; Why not advocate for an immediate end to sales and income taxes? The answer is, because fundamentally, government spending, not taxes, is the bigger problem.

The government has three ways to raise revenue; direct taxation, borrowing, and artificial money creation (inflation, or printing money to monetize the debt, which confiscates dollar purchasing power rather than actual dollars). If sales and income taxes are abolished today, the government would just go on spending, using debt and inflation to finance itself. Nothing would change. The government would go on confiscating our wealth, one way or the other.

There is no escaping the hard work of philosophical education that must be done. The primary job ahead is to roll back spending, regulations, and the welfare state. As we do that, we can phase out taxes as we go. Conservatives used to say we could check government spending by "starving the beast" through tax reductions, and deficits soared even higher. 

We can and should fight to hold the line on taxes, as a matter of principle. But to put tax abolition on the front burner at this time would be a futile waste of precious time, in my view.

Related Reading: 

The Un-American Moral Premise Behind the Drive to Tax Internet Sales

How Would Government Be Funded in a Free Society? by Craig Biddle

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