In the Spirit of “Compromise”, How About a Flat Tax?

The recent compromise between President Obama and the Republicans that extended the Bush tax cuts for two years has put the income tax on the back burner, for now. But, it could become a major issue as the 2012 election approaches.

In a recent NJ Star-Ledger article, Compromise holds no hope for deficitNJ Assemblyman John S. Wisniewski (D-Middlesex) has weighed in with some thoughts on the recent Obama-GOP tax deal. He begins by charging the president with “succumbing to Republicans’ unflinching protection of the wealthiest of Americans”.

Apparently – and this is standard Leftist fare – Wisniewski doesn’t believe that all Americans deserve equal protection under our government. The horrifying implications of that statement need no commentary here. The Democrats have nothing but utter disdain for the US Constitution, and the principles upon which it rests, as everyone by now knows.

That aside, I want to put in a plug for an idea regarding major income tax reform. With the GOP ascendancy, and so much of his statist agenda already in place, Obama may be willing to take a breather as he looks forward to re-election. We could see major tax reform emerge from the battle over “tax cuts for the wealthy”. I don’t expect Obama to morph into a free market Rightist. He is socialist/collectivist ideologically, and always will be. He will keep his eye on that North Star. But he may be willing to give a nod to the Right – “tack this way or that”, as he put it - if for no other reason than to appear “centrist”, and actually sign on to some kind of sensible reform of our income tax code.

So, let me present an idea that the Republicans can use to take advantage of Obama’s temporary fit of centrism.

But first, let’s cut through some of the clutter exemplified in Wisniewski’s article.

First of all, this is not a debate about the deficit. Given the wild spending of both Republicans and Democrats in both NJ and nationally over the past decades – and especially the past ten years - neither party can be taken seriously on that score. In any event, government deficits are caused by too much spending – period. Liberals like to imagine the nation’s wealth as belonging to the government, and thus see raising taxes as the only solution to deficits. In Wisniewski’s perverted “logic”, we are “padding the deficit to pay for tax cuts [for the wealthy]”. Actually, he proposes to steal money belonging to a small minority of Americans who will be excluded from a tax benefit shared by all other Americans in order to cover the politicians’ profligate spending. This is a debate over fairness, and there is nothing fair about targeting a specific group for confiscatory taxes. If we’re talking about deficits, we’re talking about spending cuts.

And never mind that the rich must be taxed extra to fund worthy causes. There is nothing honorable about politicians practicing forced “charity” for the elderly or the poor or the disabled with other people’s tax money. And there is nothing honorable about receiving the money paid unwillingly by those taxed.

More fundamentally, it’s not about taxing millionaires and billionaires. The reference to Senator Lautenberg is disingenuous, to put it politely. It’s lovely that Lautenberg would “rather have a strong country than a tax cut”. But, Lautenberg’s millions, and the fortunes of all of today’s “rich”, are out of reach of the income tax. The tax debate is about taxing current earnings … i.e., current production. Not to denigrate the Senator’s business success: He did earn his money, and has a moral right to it. But his fortune is old money. His current income, no matter what rate it is taxed at, is peanuts to him. This explains, at least in part, why so many of the prominent wealthy are socialist oriented.

Rich people like Lautenberg, their previously established fortunes safely protected from income taxes, are after power and prestige - the political power to seize other people’s money, in order to spread it out among his favorite welfare clientele like the “alternative energy” gang or some needy group, so he can claim the unearned, phony prestige of making a “strong country” paid for out of his fellow countrymen’s hides.

When the Left demands higher taxes on the rich, what they are really calling for are taxes on the productive rich. The idle rich like Lautenberg get off scot-free. This is why steep, progressive income taxes hurt everyone. Economic growth is built on current income – i.e., current wealth production. Today’s existing fortunes represent past production. Today’s high earners represent current and future production. The top 2% of income earners represent fortunes in the making – the creators of businesses, products and services, jobs – that other less productive but hard working middle and future middle income people depend upon.

If Assemblyman John Wisniewski and others really care about “the economy” and “the middle class”, they would acknowledge these facts, and radically alter their positions on the income tax.

Now, let’s get to my compromise tax reform proposal. Before I proceed, though, let me state my philosophical position on the income tax. I would love to see income taxes abolished across the board. They are immoral because they strike directly at the heart of human survival – our ability to produce the things required to live and flourish – and they feed the power of politicians and government bureaucrats to control and manipulate our lives. They are impractical because they hamper productive activity (i.e., the economy). Furthermore, they are inconsistent with the constitutional protections for property rights and probably unconstitutional, the 16th Amendment notwithstanding. They are certainly inconsistent with our Founding principles. In any event, the income tax has become a vehicle for widespread wealth and income redistribution. That is clearly immoral and incompatible with the Declaration of Independence, which establishes the principle that the proper purpose of government is to protect individual rights. There is no constitutional authority for redistribution, a fact readily acknowledged by our current president.

However, I realize that abolishing the income tax is a long-term goal and cannot happen today. So, since “compromise” is in the air in the wake of the recent elections, let me propose one of my own – a flat (or single-rate) income tax with no deductions or exemptions other than personal exemptions at the bottom (Steve Forbes has proposed a flat tax that contains exemptions that would make the first $40,000+ tax free for a family of four). That should satisfy liberals because it maintains progressivity. Since everyone pays the same percentage, the higher the income, the higher one’s tax burden would be. Assuming for the sake of argument that the rate is set at 10%, someone with taxable income of $50,000 pays $5000; someone who makes ten times as much - $500,000 - pays ten times as much in taxes, or $50,000, and so on. It would take a monumental act of evasion for anyone to claim that a flat tax is not progressive.

For conservatives, they would get the pro-growth incentives of lower tax rates.

In addition, since each dollar of income, no matter how much, is taxed at the same rate, the flat tax is much fairer and is non-discriminatory. And since everyone professes to abhor “special interests”, this would be a boon: the pressure groups would have nothing to gain from lobbying for tax issues, because the politicians would lose the ability to manipulate us through tax policy.

Now, that would be real change we can count on!

Best of 2010

Below is a compilation of some of some of my favorite essays of the past year, representing a decent cross-section of subjects covered.

Aborting "CO2 Machines" - Covers the terrifying implications of the EPA's new power to regulate carbon dioxide.

Gay Marriage and Individual Rights analyses this contraversial issue as it relates to America's Founding ideals.

In Defense of Special Interests - and the Constitution
and Are Media Corporations Next? examines how the calls to reign in "special interests" is an attack on the First Ammendment.

"Regulating" Business - the Good and the Bad examines the basic difference between the regulatory state and the proper function of government.

The Tea Party Movement - A Progress Report examines the promise and the threats the movement faces in its second year, as I see it.

The Voucher Trojan Horse briefly examines the perils of government vouchers and the promise of tax credits as a means of financing parental school choice.

The BP Gulf Disaster: the Proximate vs. the Ultimate Cause examines the role of government interference into the insurance market in the BP oil disaster.

NJ's "Affordable Housing Crisis" - It's the Zoning, Stupid! examines a key fundamental cause of high housing prices in NJ, and its consequences.

Rand Paul, Title 2, and the Importance of Principles is my favorite post of the year, because it is my difinitive statement on the importance of principles in human affairs.

OBushonomics vs. Gilliganomics examines the nature of Keynesian economics and why it is always doomed to failure. In this post, I explicitly reject the absurdity called "macroeconomics", a position recently echoed by Steve Forbes, who stated that "the whole idea of macroeconomics is a fraud".

Extremists vs. the Moderates: Why the Left Keeps Winning, and the Right has been Powerless to Stop It and Obama's North Star examines the philosophical nature of the battle between Left and Right in America, and how consistency counts.

The GOP Grabs a Tiger by the Tail briefly gives my take on the 2010 mid-term elections.

Ayn Rand: Tea Party Voice of the Founding Fathers examines why the Left seeks to drive Ayn Rand out of the Tea Party Movement, and why the movement desperately needs Ayn Rand.

"Responsibility Depends on Individual Rights"

[This essay was originally published here on 5/11/09. With ObamaCare's centerpiece, the individual mandate to purchase health insurance, under attack, defenders are rushing to cloak the immoral legislation in a mantel of "personal responsibility". They follow on a theme long embraced by Obama. I republish it now because of its increasing relevance.]

Responsibility Depends on Individual Rights

At his March 24, 2009, news conference, President Obama once again reminded us that “we all have responsibilities”, as he reiterated the need to “invest” in major healthcare reform.

The President is right to call on us to take responsibility. He is right to call for fundamental healthcare reform. But what, exactly, do they entail? And how are they related?

To be responsible means to think independently, to act upon one’s own rational judgement, and to take responsibility for one’s actions. To be responsible means to recognize, as any honest person does, that each of us must earn his own keep and cannot consume more than he has produced. To be responsible, one must be free to do so. A responsible government protects every individual’s right to his freedom.

The responsible approach to healthcare reform begins with an examination of the existing structural impediments to the ability of individuals to the exercise and act upon their own judgement. If the President really means responsible, his reforms would begin dismantling the decades-long buildup of government interventions into the healthcare field that is responsible for its soaring costs.

He would end the government-imposed third-party-payer system, all government insurance mandates, and all legal barriers to interstate competition in health insurance. This will allow people to be responsible for the direct purchase of their own health care and health insurance. It will also liberate the insurance market, freeing insurers to compete directly for the business of the actual consumers of healthcare. Responsibility means recognizing the rights of consumers, patients, healthcare providers, and insurance companies to contract voluntarily with each other to mutual advantage. This will free employers from an irrational and increasingly untenable burden, and remove the loss of health insurance as a consequence of job loss or change.

Responsibility also means ending the unjust practice of forcing people to pay for other people’s healthcare. Lamenting the uninsured rings hollow when one considers the fact that the same person unable to afford his own health insurance nonetheless sees his earnings drained to support the elderly (Medicare), the poor (Medicaid), other peoples’ children (SCHIP), foreign aid healthcare spending such as former President Bush’s $50 billion AIDS relief package to Africa, etc, etc, etc. It is the responsibility of each of us, as individuals, to determine how we spend the money we earn…including when, who and in what capacity to help others.

Total healthcare spending in America today amounts to about $7500 per person. That’s $30,000 for a family of four. More than 80% of that total represents people spending other people’s money, a major contributor to large and unnecessary administrative costs. Rather than cycle our money through third parties, we (and our employers) should be free to direct our earnings into our own individual tax-free account, such as Health Savings Accounts (HSAs). Each of us can then take responsibility for managing our own healthcare dollars…including retirement planning…rather than a middle man or third party such as government, employers, or insurance companies and HMOs.

These steps would be consistent with the President’s call for both responsibility and major healthcare reform.

President Obama often speaks of responsibilities (or "obligations") accompanying our rights. That responsibility means respecting the rights of others. Each of us has the right to be responsible for our own healthcare. In short, that means free market capitalism…the only political/economic system based upon individual rights. It is only through the exercise of our unalienable rights that we can become truly responsible citizens. The government’s proper role is to protect individual rights, which includes protecting the sanctity of contracts, mediation of contractual disputes, and vigorous enforcement of the laws against fraud and breech of contract.

Of course, when President Obama speaks of “responsibility”, it is not the personal, take-charge-of-your-own-life variety that he speaks of. He means it in the altruistic, communitarian sense of being “our brothers’ keeper”. Said the President:

"But one of the most important lessons to learn from this crisis is that our economy only works if we recognize that we’re all in this together, that we all have responsibilities to each other and to our country."

He means that we are all responsible for the well-being of others, not of respecting each other’s right to the pursuit of his own well-being and happiness. He means for us to seek our own welfare not through our own efforts, but through the efforts of others.

His statement, “we’re all in this together, that we all have responsibilities to each other and to our country”, is a statist concept alien to a nation founded on the moral principle of individual rights. Statism holds that the individual’s life belongs to the collective, as represented by the state. His idea of “responsibility” is for each of us to set aside any selfish concern for our own individual lives, liberty, and property. We must submit to control by a government medical elite who we don’t know and who doesn’t know us, but who acts in the name of some mystical higher entity called “the common good”. His is a call for dependency and for the reign of the unearned.

There is, indeed, a connection between healthcare reform and personal responsibility. Unfortunately, Obama’s policies would sever personal responsibility from healthcare decision-making, leading to the opposite result of the goal of a more responsible citizenry. The principle that we are all responsible for each other actually rewards the irresponsible and penalizes the responsible.

The only true path towards the goal of “responsibility” and fundamental healthcare reform is the one that leads to the recognition of our unalienable individual rights, and consequently to free markets.

For more on this subject as it relates directly to the individual mandate, I urge you to read two excellent essays; The Irresponsible Individual Mandate by Yaron Brook and Don Watkins, and Beware Counterfeit ‘Responsibility' by Paul Hsieh