“The power to tax is the power to destroy.”
– Supreme Court Justice John Marshall, 1819
Most people dislike taxes but see at least some level of tax as inevitable, even necessary. Surely some of our dislike for taxes is driven by the fact that it’s human nature for us to want to keep more of what we earn and to direct where it’s spent rather than abdicate that decision to another person.
Some of our dislike is driven by the fact that we inherently oppose wastefulness and don’t like to see our money spent on things we believe are inefficient or unnecessary. Some of our dislike comes from seeing our money spent on activities that we consider immoral or unethical.
And many of us dislike taxation because we believe it takes money away from producing things that people want – its best use – and instead is diverted into uses that are less valuable to society, and even are often used to prop up government-sponsored monopolies that the private market isn’t allowed to compete with, preventing us all from having a better quality of life.
But one thing is sure, the taxes you pay out of your earnings are dollars that you will not be able to spend to improve your life or reinvest in your business to create additional goods or services, increase your workers salaries, hire new workers, donate to a charity, or spend in your community.
Every dollar taken from your business is a dollar you can’t spend at another business, use to send a child to college, or donate to a charity. Every dollar taken from you is a dollar you can’t lend to another business owner.
If politicians are truly serious about stimulating the economy, they will cut taxes. Period.
America already has a deeply flawed tax system. In fact, the Tax Oppression Index ranks America in the bottom half of Industrialized Nations, and our ranking is set to plummet further.
Taxation often sends a discouraging message, “You cannot be trusted to do with your money things that will make the world better off, therefore it must be confiscated and given to those who know better than you.”
Have no doubt that many politicians would like take everything you earn, and give you back whatever they feel is “just,” if only you’d keep working. They’ve learned, though, that at some point the burden is just so great that many people finally throw up their hands and won’t work.
The federal government – and many state and local governments – treats the country as something it owns and allows you to use, so long as you pay your “dues.” Don’t believe it? Think you “own” your “property”? Try not paying your property taxes. You’ll ultimately lose “your” property. That’s the “dues” you pay for the privilege of the government allowing you to “own” something. The way they see it, they own the country, you rent from them.
Even your own body and labor. They own it, to the tune of whatever they decide. Sometimes they decide to own 10% of your work. Sometimes 40%. Sometimes 90%.
They claim you and everything you possess.
Taxation without your consent is theft, but what can you do?
What you can do is educate others to see the reality of our system today so that it can be reformed.
It starts with an understanding that government is not a magic institution that can wave its wand and turn us into a utopia, if only we feed it. It’s an institution made up of people who are no more benevolent and competent than the people and businesses they take from.
It starts with an understanding that, yes, we can be trusted with our lives, our liberties, and our properties, and that we can use those resources we have earned better than those who have not earned them, but merely confiscated them from us.
It starts with an understanding that every dollar of taxed income incurs an opportunity cost, which is the choice you no longer have and can’t make because that dollar was taken away from you.
It starts with an understanding that competition lowers prices, an understanding that when a government carves out a monopoly for itself in any market, and does not allow for competition, we’ll all pay way too much for the “service” provided.
Here are some exercises you can use to teach your employees and coworkers about the “hidden costs” or “perils” of taxation. Embedded in the message is a warning that if they value job security and personal prosperity, they should never vote for a tax increase on themselves or on anyone else.
Let’s look at a couple of simple profit and loss statements – two companies with identical performance, but one is not taxed at all, while the other is taxed at 40%.
| With 0% tax | With 40% tax | |
| Revenue | $1,000,000 | $1,000,000 |
| Costs | ($900,000) | ($900,000) |
| Profit before tax | $100,000 | $100,000 |
| Tax | $0 | ($40,000) |
| Profit after tax | $100,000 | $60,000 |
Now, assume that every $30K reinvested each year creates one job. This may or may not be accurate for your business, but it is for mine, so it will work for illustration purposes.
| Amount reinvested to grow business; machines, inventory, etc | $100,000 | $60,000 |
| Jobs created | 3.3 | 2 |
That’s a 65% increase in job creation. That’s enormous.
That money could also be used to fund an employee retirement plan, or give employees a raise, or just have a big enough savings that during an economic downturn a company can weather the storm and not have to lay off employees. That’s job security.
And, remember, the money we spend with other companies creates jobs there, too! That cash is either reinvested in business, reinvested somewhere else, or spent in some local economy.
Now, what happens if your customers’ individual tax rate goes from, say 20%, to 0%?
They have more money to spend on your goods or invest in or loan to your business.
What happens if the rate goes up? Just the opposite. Resources and cash are diverted away from your customers (and potential customers).
Help employees understand that sales taxes reduce the amount of money customers spend with you. If a customer has only $100 of discretionary income they’re willing to spend with you, $94 of their available income will go to you and $6 will go to the government. That 7% extra you could have makes an enormous difference over the life of a company.
When a politician says, “I’m going to take from someone else – not you – to pay for my pet program,” we must all remember that other person who has been targeted may someday be – or already is – our customer.
We should never vote to take away someone else’s purchasing power. Even when politicians are making Robin Hood arguments and saying they’re going to take from someone and give it to us, we must resist the temptation to burden others. We should, “Do unto others as we’d have done unto us” and all that.
A tax increase is a freedom or choice decrease. It takes away options from businesses and individuals. A tax decrease is a freedom or choice increase that provides new opportunities to individuals and businesses.
Just as someone’s death leaves us wondering “what might have been” had they lived, taxation leaves us wondering what “might have been” had we been able to determine how our money would be used.
What children weren’t able to go to college because their parents were overtaxed? What businesses were never launched, what discoveries were never made, what lives were not saved because of innovations never pursued, all because the resources and money that could have been used in those pursuits was confiscated?
Now you might be thinking, what about schools? What about roads? What about . . . ? Those are valid thoughts.
While some may argue for the abolition of all coercive taxes, and others may oppose that or think it unrealistic, I think we can all agree that lower taxes is good for everyone.
Let’s assume all tax is abolished. What might happen?
Well, the dollars you were spending on tax for school funding, or roads, or downtown arts centers is now back in your pocket. All the money you spent on any government service is now back in your pocket.
Will we all just go without?
No.
Any service provided by government that was of any value will find lots of people in the free market (who now have more money to invest and spend) who are willing and able to meet those needs.
That saved money will still be invested and spent, but it will now be at your discretion and by your choice.
Let’s also remember that if a service is received where the tax is paid, it more closely resembles free trade.
If a service is not delivered where the tax is paid, it more closely resembles theft.
Taxes paid should be paid where the benefits for paying them are delivered directly to those paying them.
Most people are willing to pay a local tax to support a local school where their children or the children in their community attend or to pave roads in the communities where they live. At the local level these things are best worked out.
Most of us are not willing to pay a federal tax used to support abortion delivery services in Mexico – whether we’re opposed to abortion or not – or funding opera in Washington DC, or financially backing research on the sexual behavior of gay Argentines.
Last year many of us worked 2-4 months out of the year for the government. That is, when the year was over the government took roughly 15-35% of our incomes.
The American Revolution was fought because of burdens far less than that!
We must educate our employees and co-workers about the benefits of low taxes (and of lowering taxes), of services rendered where taxes are paid.
You can use the examples above to show them how low taxes gives them job security and increases their earning potential.
When people are taught free market principles, they understand them. They can see through the smokescreen that Big Government propagandists throw their way if you help them see through it.
If you own a business, consider showing your employees how taxation affects your profit and loss statement and how personal income taxes limit what people can spend with your business. It will help them understand that high taxes directly affect them and limit their current and future choices and freedoms. Help them understand the immorality of voting for a tax increase on someone else while exempting themselves.
Please share your ideas with us in the comments below. Is this sort of educating feasible in your workplace? Are people responsive to this message or apathetic? What more can be done?
If SBABG.org were to prepare printable fliers or pamphlets that contain this information in a summarized form, would you be interested in distributing them to your co-workers or employees?
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June 26th, 2009 at 9:42 am
Fantastic article. Summarized form would be great.
The perils of taxation 101… now that we understand, we need it in a more simplified “handout” format.
June 26th, 2009 at 2:55 pm
What about the argument that the government creates jobs? Look at all of the government workers? If we do not have taxes, then unemployment will shoot way up? Just playing the Devil’s Advocate, here…
June 26th, 2009 at 6:41 pm
Hi Jack,
I had a whole section in the post about this . . . but it was too long already.
The bottom line is . . . whenever there’s a monopoly, you’re overpaying. The economy will absorb those lost jobs and have more resources to do it with.
Government jobs are, as a rule, overpaid jobs. There’s no market to set the appropriate prices for them. They get pay raises that outpace the private sector, they get health plans that are superior to the private sector, etc. They are, by and large, a kooshy racket . . .
Here’s an interesting take on inflation – it’s caused by “unproductive government spending”: http://www.hussman.net/html/economy.htm#inflation
Look at inflation for signs of unproductive spending.
We’ve had inflation almost constantly in the US. If Hussman is right, it’s b/c year in and year out the gov’t is squandering resources that could be used for productive purposes on unproductive projects . . .
June 27th, 2009 at 11:50 am
Thomas Sowell, in his book “Applied Economics”, proposed that the difference between short-term benefits and long-term problems can be determined by asking yourself the simple question, “what will happen next?”
For example, let’s say you increase the taxes on the rich! (To Republicans, “rich” is based on income; To the poor, “rich” is anyone that owns a business!) The real question should be, “What will happen next?” Republicans will always have a hard time with this argument because their answer is always long-term! In this example, there is no question that “taxing the rich” is a short-term benefit to the poor because the rich get taxed instead of you! Republicans ignore this truth!
However, Republicans would say that when the rich get taxed, they earn less, they invest less and they create less jobs! This sounds pretty good to Republicans but compared to the long-term problem of “loss of jobs,” the short-term solution of “taxing the rich” sounds pretty good to the poor! Republican’s will never win this argument because they expect everyone to think long-term, which they don’t.
For Republicans to win this argument, they have ask the question, “What happens next, in the short-term?” What happens next in the short-term is that when the rich have higher taxes, they charge higher prices and the poor have less to spend because the rich always pass their expenses back to the poor! The result is that the short-term problem for the poor is worse than the short-term benefit to the poor. In the end, it is always the same, the poor have less to spend and the rich have more!
I know this argument once again makes the rich look like the bad guys but that’s what the poor think anyway! Republicans have to pose the argument so that they can see we understand their problems but the results are the same. The Republicans have to quit trying to both win the argument and make the rich look good, too! That ain’t going to happen!
Let’s just try to win elections by showing that taxing the rich will end up hurting the poor more than the rich and quit trying to make the poor like the rich guy for providing them with jobs! That way, maybe we can at least be able to move on to the next argument!
June 29th, 2009 at 7:45 pm
Let me start by saying, the principle of this argument is sound. In fact, it’s refreshing in its sincerity and genuine concept of free-market economics (in its basic elements).
My concerns, although it is written in simplest terminology, lay in the fundamental groundwork portrayed in its examples. Government is essential, even if it is minimal. Taxes under the current “democratic” system are abhorrant, but nonetheless they should not be removed by 100%.
The basic utility of the government of the United States is in its defense. Defense in its explicit nature, not to be confused with its protection, which is the definition under which our present politicians create their platforms. We need to have our rights upheld by a unified understanding, a governing body, therefore, although blatant and eye-opening, the example of “Zero” taxation is a notion that is not valid or welcomed.
What is welcomed is the acceptance of the underlying concept that we as a population are strong, and our will is greater than that of those of the politicians who have been simply telling us what we want to hear. Should we, the individual citizens, have the power and ability to grow our businesses, communities or simply our own families and lives, we are far more suited to do so without the influence of an imposing body who infringes on our rights to keep what we earn.
Furthermore, the argument made to sacrifice our neighbors (i.e. tax increases on those who earn more that $125,000/year) serves to only diminish the amount of currency flow in the free market, which, in turn, only aids in the impairment of the “lesser tax brackets”.
We are a nation of individuals, strong, proud and loyal, it’s time that we take our ethics back and our government learns to live within the minimalist structure for which it thrives.
I’ll leave you with my own personal tag, which has been focused on the industry in which I work, but it is fitting for all business in this time of stress and anxiety:
Go Slow. Stay Local.
June 29th, 2009 at 9:38 pm
I thought this article was well-written and easy to read….perfect for those who have not given this subject matter much thought. It would be excellent if this information was compiled into a brochure or handout.
June 30th, 2009 at 2:08 am
Well put. I would only correct this sentence “Sometimes they decide own 10% of the work you do.” Other than that, music to my ears. : )
June 30th, 2009 at 1:02 pm
Replies to Rich, Dave, Katie and Holly below. (this is “Admin” signed in under my real name).
Rich,
Your points are excellent. I think all of this comes back to that old acronym from “The Moon is a Harsh Mistress” – TANSTAAFL. “There Ain’t No Such Thing As A Free Lunch.”
If someone is getting something for free now, someone is getting stiffed later. Government can’t take something unless it takes it from someone . . . and there’s consequences now and later.
There are some folks doing some very good research now about incentive systems, public choice theory, etc. that shows that Government behaves like their incentive structures allow them to – monopoly over a service with the right to not only charge what they want, but compel the purchase of their product at the force of arms. The only thing keeping them in check is the electoral process (i.e. the fear of losing station/power), but even that’s iffy b/c even leaving office can be very lucrative provided you serve the right special interests while you have office . . .
Consequences are misunderstood. Incentive structures are misaligned with Government’s stated objectives.
Most of the problems are at the Federal level. Then the state level. Fewest at the local level. That ought to tell us something.
The greatest concentration of power in our country is vested in the body that is the furthest removed from the people it is supposed to answer to and serve.
We got a whole lotta mess on our hands.
Dave,
The examples of zero taxation were chosen for math simplicity and to give people a clear understanding of the difference btw low tax (no tax) and high tax without getting bogged down in the rates (most never pay a 40% rate, either).
The main point being, the closer you can get to a zero tax rate while government still provides its normal, legitimate, constitutionally determined functions, the better. All businesses seek to do this by nature, to widen the spread between value given and resources consumed. If government can provide protection for life, liberty, and property for citizens against domestic and foreign enemies while consuming less resources each year b/c it’s getting better at it, fantastic. The problems come when governments are inefficient (usually b/c they do not face competition), are incompetent (b/c they are trying to provide services they are not qualified to provide), or are corrupt (because of a lack of accountability, monopoly power, etc).
The more government is local, the less you get of those three problems above.
I love your slogan. Go Slow. Stay Local. Can I co-opt it from time to time?
Katie,
Thanks for the nice words. We’ll look into creating a summer/pamphlet or distributable .pdf that can be printed and shared.
Holly,
Thanks for catching the omission. I’ll fix that now . . .
Best,
Drex
June 30th, 2009 at 1:10 pm
maybe I don’t understand my history, but didn’t excessive taxation spark the Revolutionary War. Taxation is the greatest form of opression, the only ones who benefit from it are government agencies, even when they try to help a majority of the money they spend is taken by bureaucracy. How would your buisness fare if 70% of every dollar went to paper pushers ? Why can’t the government understand that we are far more efficient with our money that they ever could be ? Thomas Jefferson said, ” I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them “. When our govrnment officials vote on legislation that detrementally affects us without even reading the legislation, it’s time for them to be voted out of office. It’s up to every one of us to be vigilant about who we put in office, know who you’re voting for.
June 30th, 2009 at 5:10 pm
Its amazing how taxing the middle-class and small business’ of America seem like a logical choice for Obamanation. Yes, taxes are necessary…but at what cost? Aparently Obamanation is answering that: small business america either closing shop or firing staff in order to stay out of the red. Additionally, this whole concept of “Joe the Plummer” is now real – and very painful. I find it strange that I have to now wake up and decide how I can be successful, but not TOO successful – or I’ll be penalized. At the end of the day, obnoxious Congress bill passings and unlimited checks being written, we are now in a nose dive as a nation. Do I want Obamanation to fail? No I don’t…we can’t afford to keep this 6-month trend up and let it go for 4-years. As an American citizen, I support the President of this great country in my ways, including protecting our freedoms…however, now, more than ever, we need to keep the phones ringing with our Senators and Congressmen to make sure our voices are being heard and our concerns are being addressed. As it stands, I can’t afford, nor can small business America (the heartbeat of our great nation) to keep this trend up. May God help us all.
June 30th, 2009 at 6:13 pm
As a middle class business owner (middle class referring to moderate income), taxation is something that affects just about every decision I make. Right now I have the advantage of many deductions, so my income tax bite is smallish, but my property taxes are huge for a modest home in a municipality where very few services are offered. I find this to be the most evil form of taxation. My retired elderly parents with low fixed incomes have to pony up almost $20,000 per year to stay in an old house that they can’t sell. I’m sure they are not alone. This of all forms of taxation should be eliminated.
July 3rd, 2009 at 11:29 am
This is a great piece for getting a conversation started. More supporting facts and figures might be better, though they may also belabor the point.
As to the question of how things like public schools, public roads, etc. will be provided – consider this: you already pay for these things. Roads are paid for mainly by gas and property taxes, and the government builds roads at great expense compared to private roads. Using a toll road is typically much cheaper per mile traveled than your share of the burden for a state highway, and road quality and service has been shown to be better. In any case, the income tax does not provide roads and therefore roads are not a valid point in the income tax debate.
Public schools are, once again, provided for primarily by property tax – not by income tax. Despite spending a massive amount per capita on schooling, our public school system is an utter failure – ranked toward the bottom in all advanced nations. It’s an inefficient disaster that serves more as a system for propagandizing children than educating them. This is a fact well-understood by educators, but the solution is always “more funding! more schooling!” when the underlying problem is clearly mismanagement by the state. Many people who own homes could provide a quality education at a private school for what they pay in taxes for public schooling and have some change on the side. If we still want to provide public schools charities are a possibility, as are voluntary contributions to a state school system and a plethora of cost savings from volunteer service to decentralizing part of the curriculum (in-home schooling). Student loans (at non-profit, non-usurious rates) might be a possibility; so is advertising and corporate sponsorship (don’t be alarmed, it’s already happening in the current system anyway).
When stealing from people is no longer a considerable solution to a problem other solutions spring up like magic. If nothing else, let the Deparment of Defense host bake sales. If they can only ensure our safety, privacy, and education by robbing us at gunpoint they are not a public service, they are a mafia protection racket, and we should treat them as such.
July 3rd, 2009 at 11:48 am
@Dave: a zero taxation/voluntary taxation government is certainly a viable concept. OUR government placed to those standards is not, but a minimal government – with no standing army, no foreign wars or occupations, no coercive economic system, no spy agencies, no army of bureaucrats – could operate on a for-profit/charitable basis. Studies and models have been presented in support of the concept.
Another good question of course is, if governments could operate entirely on a voluntary basis, could the next logical step be “nations” as private entities engaged in the traditional roles of governance, competing for your citizenship? If so, could that possibly be a positive thing? 🙂
July 12th, 2009 at 3:33 pm
We are on the same page. Keep up the good fight!
July 15th, 2009 at 9:17 am
Drex – You may certainly borrow my tag-line when you feel it is appropriate. I am an aspiring chef, and local and slow food are the guidelines by which I determine my individual education. They, as well as trends in the restaurant industry at the moment, also reflect on a small scale how we as a nation can take back control. Supporting neighborhood businesses that are making a consciencious effort to provide their service in their community at a reasonable cost with premium end results.
Justen- The concept of the Utopian society has always been an argument that I avoid because of the simple fact that those humans who desire power over a nation are inherently incapable of being trusted. Although this is not uniformly accurate, there will always be lobbying to distort the ideals of any political entity. On the other hand, applying free-market capitalism on nationly soverignty? A concept worth debating, even in my own skepticism.