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Tax Cuts for the Rich? Abolish the Income Tax Instead

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The left and right are debating whether tax cuts for the rich should be extended. The debate only goes to show how there’s really not any difference, philosophically speaking, between liberals and conservatives. They both believe in the income tax and the welfare-warfare-state programs that the income tax funds, and their battle is simply over who is going to pay for the ever-growing expenses of the welfare-warfare state.

As most everyone knows, the federal government is spending much more than what it is collecting in taxes, to the tune of at least $1.3 trillion per year. How is it getting the money to pay the extra $1.3 trillion? It’s borrowing it, just as it has been doing for many years. That’s why the federal government’s debt is almost$14 trillion. That means that you, your spouse, and your children each owe an average of $44,000, given that the American people are, effectively, guarantors of the government’s debt.

Ultimately, the federal government does what governments have historically done after incurring massive indebtedness. It resorts to the printing press to print the money to pay off its debt and fund its ever-growing expenditures. That’s what the Federal Reserve is all about. It enables the government to default on its debts, without appearing to default on its debts, by paying creditors off in devalued dollars.

Inevitably, the consequence of a debasement of the currency will fall on at least some Americans, especially through the rising prices across society that are reflecting the debased value of the currency. It is impossible to know who will end up paying the inflation tax — and that’s exactly what it is — but more often than not it’s the poorest people in society — those who make a low wage while facing the soaring prices for necessities.

Thus, the real problem is federal spending. That’s what needs to be slashed, especially by abolishing the welfare-state and warfare-state programs, departments, and agencies. By abolishing, say, Social Security, Medicare, Medicaid, food stamps, welfare, foreign aid, education grants, community grants, bank bailouts, and all other welfare-state programs, the problem arising from domestic spending disappears. By immediately ending the occupations of Iraq and Afghanistan, closing all overseas bases, bringing all the troops home and discharging them, closing domestic bases, and dismantling the standing army and the military-industrial complex, the problems arising from empire-military spending disappear.

At that point, what do we need an income tax for? Once Americans decide that they no longer desire socialism, interventionism, and empire, we’re talking about the abolition, not the reform, of the entire income tax, thereby restoring the situation under which our American ancestors lived: an income-tax free life, one in which people keep everything they earn. That’s right — no more IRS, no more threats of audits, no more tax deductions, no more tax-cut extensions. You make it, you keep it. And you decide what to do with it — that is, a society that is based entirely on freedom of choice, free will, and voluntary charity with respect to income and wealth.

Herein lies the key to economic prosperity, especially for the poor. When people are free to keep everything they earn (and have sound money by also abolishing the Federal Reserve and legal-tender laws), many of them save a large portion of their income. That savings, not consumption, is the key to rising standards of living, especially for the poor. It is the savings that provides the capital for businesses to upgrade their facilities, which then makes workers more productive, which then leads to higher revenues and higher real wages.

The left-right debate in America over income-tax policy assumes the continued existence of the welfare-warfare state way of life, along with the continued existence of the income tax that funds this way of life.

That’s where libertarians are so different from statists. We don’t engage in these silly debates over how to manage a failed system or how to divide the shrinking economic pie that statism inevitably produces. We instead have our sights set on restoring a free society to our land, one where people are living in freedom, peace, prosperity, and harmony, without an income tax and without the welfare-warfare programs the income tax funds.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.