Taxes, and Tigers and Bears. Oh My!

I recently read an article in The Daily Bell that really bothered me. The article is an "Exclusive Interview" with Nelson Hultberg. There are several phrases that indeed cast light on the reasons that alternative parties never truly take hold. This particular phrase really caught my eye.

"Marginalization" is the flaw of the Libertarian Party and the Constitution Party. This takes place because these two parties attempt to instantly implement an ideal vision of how society should be constructed through the political process. They ignore the fact that politics is a game of incrementalism, that it is not an arena in which an "ideal society" can suddenly be voted into place. Because they try to do this, they are perceived by the public as not living in the real world.

For example, whenever they are asked what tax policy they advocate for the country, Libertarian and Constitution Party members reply that the income tax should be totally abolished and government should be stripped down to a minimal state funded by tariffs. Now this is a wonderful "ideal" that could perhaps be achieved in 100 years. But it's not a credible political platform to be gained through a political campaign. Libertarian and Constitution Party members are blind to the damage this does to their image in the minds of the voters. As a result, both parties are marginalized as utopian. They end up getting at best 1% of the vote every year and remain obscure fringe voices.

And further down he states:

A couple of Libertarian Party candidates recently complained to me that I was being unfair with the above assessment. For example, in the last election they had modified the tax proposals of the LP and ran their local individual campaigns on just a simple flat tax, and still they got nowhere. So according to them the LP's problem was not its radical idealism; it was basic voter apathy and the unfair rules set by the major parties. But what these LP candidates overlook is that the national Libertarian Party ideology has been around for 35 years, and it has firmly cemented into the public's mind that the LP stands for abolition of the income tax with no replacement. Seeing that the Federal Government took in $1.42 trillion in revenue from the income tax in 2008, the LP stand on taxes means that there will be $1.42 trillion less in government services. This paints a picture of extremism and unreality to the people; it is a threat to the stability of their lives that they will reject overwhelmingly. This is the image of the national Libertarian Party, and it taints all individual candidates no matter what they say to voters. This is why Libertarians get only 1% of the vote. The national Libertarian Party has the "mark of Cain" on it, and no amount of individual side-stepping in local campaigns will remove the mark. LP candidates don't understand that the national party has marginalized itself over 35 years, and anyone associating with it will be stuck with the image of extremism and unreality. Unfortunately the Constitution Party succumbs to this same error.

Where do I begin? I both agree and disagree with Mr. Hultberg. My reasoning is a bit convoluted, but I'll try to explain the best I can. 

I do agree that the LP (national) has marginalized itself over the past 35 years. However, I disagree with his assessment beginning in 2004. I also disagree with the concept of forming yet another "3rd" party. The more that the liberty movement is fractured, the less effective it will become.

Speaking from personal experience, I can attest that the claim of "Libertarians get only 1% of the vote" is factually incorrect. When I ran for office I got 46% of the vote (thereabouts). Though it was a "non-partisan" race, you would be hard pressed to find anyone in Fort Bend County that did not know that I was a Libertarian. After all, at the time I was the County Chair, and the Vice-Chair of the state party. And let me tell you, my opponent and her supporters (Neoconservatives) never failed to utilize that fact. Hey, I live in DeLay country. If you can't stand the mud, don't wallow with the pigs.

What differentiated me from most libertarian candidates is 1) I was running a real campaign and was not a "paper candidate" and 2) I didn't preach to the voters. I didn't try to "educate" the voters. I offered my detailed solutions to the problems that our community was facing. 3) I knew the issues. I know tax policy and I know how I would like to fundamentally change that tax policy to the benefit of not only the voters, but the business and property owners as well. So let us discuss taxes on a national level, shall we?

When we discuss government spending and revenue the general populace is allowed but a glimpse through the looking glass. Every year Congress battles over "the budget." They offer figures for the public and the media to consume. However, anyone who has ever been in office, or been a member of a board of directors knows that this figure (the budget) is simply a predefined amount that needs no further authorization to expend. What is actually spent, and revenue actually raised, is in a report known as the  Comprehensive Annual Financial Report or CAFR for short. Any governmental entity should produce a CAFR once every year.

CAFR's are often referred to, by those of us who investigate and uncover excessive governmental endeavors, as the "second set of books" by which the federal, state and local governments attempt to hide their assets, actual income and actual expenses. They give you the budget, tell you they are broke and raise your taxes. All the while, they have trillions (combined) in investment assets that they attempt to keep hidden from the public's scrutiny. So while Hultberg claims that the income tax accounts for $1.8 trillion, this figure is 1) not accounting for revenue from all sources and 2) includes social security. It is estimated that this year, the federal government will bring in over $3 trillion in revenue.

You see, you have to ask for the CAFR. It isn't freely published to the public. I challenge you, ask your county, municipal, school, mud or levy district for their annual CAFR's and begin your education. You'll find, like I did in 2008 for example, that these entities have vast asset holdings and that "tax" revenue is but a percentage of combined revenue. The "budget" will tell you where "tax" dollars are being spent. The CAFR will give you a better picture of where EVERYTHING is being spent. These revenues are usually investments via bond defeasments in my experience. Then ask yourself, did we the taxpayer give these entities authorization to invest our tax dollars? Short answer.....NO! Anyway, I am not here to educate you on CAFR's. You are all smart individuals who know how to Google.......go for it.

If Libertarians must develop a tax policy which will replace the income tax in order to satisfy the likes of Mr. Hultberg, I have no issue with that. There are two such plans currently being discussed in my circles. Neither is "promoted" by the national party at this time nor are they likely to be in the near future. The national platform was almost wiped clean in 2006. In 2008, planks were added. Prior to 2006, the platform was a hodgepodge of ideals and position statements on pet-peeve issues, much of which had no relevance in modern society. Many planks were leftovers from the 70's. The policy position on the "draft" comes to mind.

The two plans currently being kicked around are the Fair Tax and the Automated Payment Transaction Tax.

The Fair Tax is a consumption or sales tax over the retail and service sectors of the economy. It would impose a 30% tax on every purchase of a new product or service. Some claim it is a 23% tax. Both are correct, depending on which methodology that you use. $23 out of every $100 you spend would go to the tax (23%). Likewise, your $77 purchase would get a $23 tax levied on top (a 30% tax).

There would be no exemptions for food, drugs, new cars, new homes, you name it. The tax would not be imposed on second hand purchases such as used cars, homes, clothes, etc. It would replace "most" taxes including the personal income, corporate income, inheritance, etc. It is argued that those who gain from illicit activities would now have to pay taxes because everything that they buy would be taxed. Taxation on basic living expenses (poverty level) would be refunded in the form of a monthly "rebate."

Costs of goods and services would decrease due to savings in compliance and administrative costs (estimated at $346.51 billion in 2008).

Some of the arguments against the tax that I have heard are:

  1. There is no requirement for the XVIth amendment to be repealed. - true; this really should be addressed.
  2. We would double tax retirees - false; the monthly rebate addresses this.
  3. No tax is fair and thus it cannot be a "fair tax" - yes, I have actually heard this argument presented.
  4. It places too much burden on retailers - false; all but 5 states currently have a sales tax.

Personally, I could not support the Fair Tax unless a provision was included to prevent implementation without the repeal of the XVIth amendment. If you haven't read up on the Fair Tax I highly recommend doing so. I will include a link to their website at the bottom of the page.

The Automated Payment and Transaction Tax is lesser known, but no less viable. It is a small uniform tax on all economic transactions, automatically collected at the payment source. According to their own documentation, it can be viewed as a "public brokerage fee accessed by the government to pay for the provision of the monetary, legal and political institution that protect private property rights and facilitate market trade and commerce."

This system would require that each party of a transaction (i.e. check, wire, debit, etc.) would be accessed a tax of .15% making the total tax imposed on the transaction set at .30%, or 3/10ths of 1%. The tax would not take into account whether you are an individual or some other entity, such as a business, charity, governmental entity, etc. Any time you utilized the financial system you would be assessed this tax. In order to address the "cash" economy (which is a very small comparatively), the tax would necessarily be assessed whenever cash left, or entered the banking system. To be more specific, it is known that cash goes through 2.5 transactions between leaving and returning to banks. Therefore, the tax rate for cash withdrawals and deposits would have to be adjusted to reflect this. Currently, with a GDP of over $13 trillion, and currency at $829 billion (most of which is used overseas), and considering that "cash" transactions account for only 2% of our economy, this is rather insignificant.

Think about it. Every time money changed hands, a small fraction is debited for the tax. The net effect on an individual earning $50,000 per year, assuming that he or she spent every penny earned, would be $150. Wow. Of course the money movers, who buy and sell stocks and bonds as if they were tic-tacs and move large sums of money from this account to another, would feel this the most. Also keep in mind that foreign entities that currently enjoy the utilization of our financial system would now be required to pay taxes as well. Remember those foreign banks we just bailed out?

Again, this method would drop compliance costs (about $345 billion above), as well as reduce price distortions (taxes inclusive of products and services) of approximately $250 billion annually, all of which could go back into the economy or saved by the respective entities be it an individual or otherwise. Fostering savings would be good for our economy as it creates capital that could be utilized for economic expansion.

Now, this plan doesn't take into account Social Security or Medicare. According to their own figures the necessary rate to completely fund these plans would bring the overall rate of tax per transaction up to .60%. In our $50,000 example above, it would bring total tax payments for the year to a whopping $300 annually.

Now here is the real kick in the pants. Current tax revenue (federal and including Medicare / Social Security) is around $2.6 trillion annually. Local taxes (state, county, municipal, etc) from all sources are approximately equal to federal intake. Therefore, if you would desire to remove ALL other forms of taxation, you could do so by setting the overall rate to 1.2% and be done with it. No more income tax. No more gift tax. No more capital gains tax. No more gas tax. No more property tax. Imagine that, we would no longer rent and houses from the government. Oh, and my favorite............ NO MORE IRS.

Currently, the only significant objection to this method of taxation has been from those in the financial sector, die-hard supporters of the Fair Tax, or folks that believe that the tax isn't "transparent" enough. Additionally, like the Fair Tax, a provision to prevent implementation until the repeal of the XVIth amendment would be required in order for me to fully support the initiative. I believe that the Fair Tax would send a shock to our economy and create a fervent black market. This type of taxation could be phased in over a 5 - 10 year period negating such a "shock wave." It is obvious that some behavior, such as day-trading, is going to change. However, people and businesses are far too accustomed to the convenience of paying for necessities via a swipe of a card or a click of the mouse. We are not going to return to a cash economy. It simply isn't going to happen.

The important thing to remember is that those who benefit from government the most (currently those who utilize government "services" such as the judicial and financial systems as a matter of routine), would necessarily pay more than those who have little interaction with the government (middle class, the poor and small businesses). What is most important is that we could realize a debt free nation within our lifetime, beholden to no foreign influences. Personally I find China's meddling in our affairs to be unacceptable and it is about time that we do something about that.

So let us have a discussion on taxes. I welcome the debate. However, do not claim that Libertarians will support no viable alternative. That simply is not true. The reality is that Libertarians will have no significant impact on tax policy until voters can no longer accept the looting of the wallets. Personally, I wish that the LP national would adopt the Automated Payment and Transaction Tax as a viable alternative to the current tax code. For my part I will continue to work towards that end. Until then, ask yourself what alternatives have the Republicans or Democrats (as a party) offered? They will never change to the tax code because it would take away their ability to provide largesse to their donors. Are we tired of influence peddling yet? Are you tired of the nonsense?

References:

The Fair Tax

The Automated Payment and Transaction Tax

 

 

Comments

"The reality is that Libertarians will have no significant impact on tax policy until voters can no longer accept the looting of the wallets. "

Until enough people from either party get fed up with feeding the monster I can't see serious consideration by the machine that controls our dollars and our lives adopting anything like this that would benefit the middle. I could be wrong and hope I am, but I want to see more competition of ideas and we are long over-due a fresh paradigm.

This is a very good point and one that the masses will have to figure out for themselves. They are to easily lead by popular media and the ad dollars that fund it. Our own recent governors primary race is a very good example. Both sides were ripe with corruption charges. I tend to think that both sides were actually telling the truth about the other, but people still voted for only those two as if that was the only choice.

I worry too that as a 3rd party gains it also can get co-opted by those same forces. I would like to see the federal government stop the subsidies to either of the two major parties so that they would be on an equal footing with other 3rd parties (plus I don't like paying for their follies). Of course, then corporate monies would become the new subsidy and the "politician for hire" mentality that has supplanted our democratic processes would simply increase. As I've said before, I have many questions and few answers, but it is nice to see such a discussion.

As usual, Kevin rather effortlessly manages to touch upon the sticking point in the morass that constitutes the concept of third party legitimacy. That point of course being that everyone wants to cook the candy bar to their favorite recipe and a pox on anyone who should so much as suggest it might taste better with nougat in it. Might I respectfully suggest that if we quit acting like children who have to have everything to our exact specification, we might actually be capable of accomplishing something here? This election sits at the nexus of what might well be looked back upon as an historic reclamation of our country's very soul . . . if we, and I mean the type of "we" here that would be defined as an all encompassing roar heard coast to coast, can actually put aside our petty little personal preferences and take our self centered blinders off long enough to look at what our country needs and then gather up the intestinal fortitude to commit to and actually follow through with whatever is necessary to place this treasured land of ours back on a steady, honest keel. For something such as this to work would require our fellow citizens to, for once, go into the polls with nothing more on their agenda than to do that which is best for our land; not for the purpose of bettering their bottom line or enriching their favorite political party. If we are finally fed up (nationwide) to the point where it's "too late to fix it and too soon to shoot the bastards" then the third party that the country truly needs will build itself on the ashes of all that came before it. That, I believe, is the point that Kevin is trying to make . . . without, of course, insulting the tender sensibilities of those who are really quite fond of their overpriced, designer blinders...
Oh, and as for the taxes, they'll sort themselves out only after all the rest of this is done. There's just too much lucre in there for any of our current brand of politicos to step forth and do anything noble about it.
Dave

The Fair Tax would be a cut for the working poor and the ultra rich. The upper middle class and the somewhat rich would be clobbered. But that's not the worse part. The Fair Tax would not be a "voluntary" system in the sense that the income tax is. The income tax works because we report on each other. My employer's deduction is my paycheck. A sales tax lacks this double entry effect. As a result, the government would need no-knock access to all businesses in order to perform spot audits. This is the case now for state sales taxes, which are by comparison trivial. You think the IRS goons are bad, wait till you see the sales tax police in action.

The transaction tax would also not work as advertised. The tremendous number of trades we see today are due to the low transaction costs. Bump up the costs and the activity drops precipitously. We're talking serious Laffer Curve action.

--Carl M.

"The Fair Tax would be a cut for the working poor and the ultra rich. The upper middle class and the somewhat rich would be clobbered. "

I view it as hitting sectors of the economy. I've studied the Fair Tax and believe my family would be better off under the system. However, I also believe that the retail sector (the sale of new manufactured items), would be hit the most.

"But that's not the worse part. The Fair Tax would not be a "voluntary" system in the sense that the income tax is."

How is the income tax voluntary?

"A sales tax lacks this double entry effect. As a result, the government would need no-knock access to all businesses in order to perform spot audits."

We have a sales tax right now (in Texas). State auditors have yet to knock on my door to audit my books. As a matter of fact, every state I have ever lived in has had a sales tax. As the "administrator" of the facilities at which I have worked, if there was ever an audit it would have been me handling the situation. That has never occurred in the 20 years I have been in my industry.

"This is the case now for state sales taxes, which are by comparison trivial. You think the IRS goons are bad, wait till you see the sales tax police in action."

I file my state sales tax annually. It isn't an issue. However, the APT would not require any reporting by entities that provided goods and services. That pleasure would be laid upon the banks. If I deposit checks or cash.....it would be taxed. If I had electronic deposits (which is my primary souce), it would be taxed. In all cases it would be the bank (or  merchant services) that deducted the tax and forwarded on to the appropriate entity (fed, state or local).

So, if anyone got audited.....it would be the banks and transaction vendors. I don't have a problem with that. They are part of the financial infrastructure and the beneficiaries of hundreds of billions in bailout dollars. Let them eat cake.

I put "voluntary" in quotes because the income tax is certainly not voluntary in the conventional sense of the word. It is "voluntary" in the sense that people pay it with only random sample monitoring by the IRS. This works because each tax return provides information about others.

BTW, the Fair Tax would tax quite a few services currently not sales taxed in most states.

Mmmmm....Yes but so many people have learned that the fed.gov uses a dictionary for such terms other than Webster's. Perhaps their dictionary was codified by Attila the Hun?

We should (and I stress should) strive to achieve a tax code that is not predicated on the concept of indentured servitude.

Yes I am aware that the Fair Tax would tax services. It would tax just about everything except pre-owned goods. The APT could be accomplished through rather simple computer coding and reporting only from the financial institutions. The Fair Tax would require that retailers and service providers be the tax collector and reporter. I don't like collecting taxes, sales, payroll or otherwise. I'm certainly not getting paid to do so.

Again, as stated, only 5 states do not have some type of sales tax. If, as you previously suggested, the IRS would send their storm troopers into businesses, why havent the indiviual states been doing so? They have just as much riding on revenue as does the federal government.

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