CHEBEAGUE ISLAND – Two syndicated columns recently appeared in this paper regarding the income tax.

Peter Rush (“Pro: Let’s return to tax system that allows businesses to grow,” July 10) argued that we need a flat tax on all earnings in order to simplify the tax code (making it more comprehensible), eliminate special deductions for connected individuals and industries, and reduce the cost of preparing tax returns.

And William F. Shughart II (“Con: Simpler taxation won’t restore global competitiveness,” July 10) argues that while a flat tax has advantages, the real problem in Washington is spending, and a flat tax would not address that problem. Apart from calling for reduced spending, Mr. Shughart does not make any concrete suggestions.

Let me suggest that user fees, properly implemented, could and should eliminate income taxes. Let me first point out some of the shortcomings of income taxes, and then discuss some of the advantages of user fees.

To begin with, there is no rational basis for income taxes. The best defense is that purported to have been offered by Willie Sutton, when asked why he robbed banks: “Because that’s where the money is.”

We could (and in fact do) make similar arguments with respect to real estate and automobiles: The higher the value of such holdings, the more you owe to your neighbors. But just because a person earns a certain amount of money, or owns property worth a certain amount, does not mean that some percentage of that income or wealth belongs to the rest of us.

Apart from there being no rational basis for income tax (or property tax), such taxes are counterproductive, with progressive taxation being more so than a flat tax. Obviously many of us work because of the financial rewards resulting from such work. Reduce those rewards, and the tendency to work will be similarly reduced.

And the third problem with income tax, whether flat or progressive, is that it does not rein in spending. Just as a majority of citizens of a town can raise the mill rate on property taxes in order to spend what they want, so our government can change the tax rate in order to allow politicians to do what they think will likely get them re-elected.

What is required in order to control spending is a structure within which politicians are constrained by the rules of the game.

An approach that addresses all of these problems, as well as some others, would involve each person paying for what he or she obtained from the government, no more and no less.

At a local level, each of us benefits from the protection of police and firefighters. Divide the total cost of those services by the number of people in a community, and that would constitute one major cost of living there.

Each of us benefits from the protection of the U.S. military. Divide the total cost by the number of people living in the United States, and that would constitute one major cost of living here.

In the above examples, there is a built-in mechanism for restraining spending. For example, if citizens felt they were spending more on the military than was reasonable, there would be a vigorous movement to reduce those costs, as some are now saying.

In other cases, the costs are not fixed, but depend on choices made by each individual. Consider automobile ownership. At present, each car requires payment of an excise tax, which depends both on the value of the car and its age, independent of how much that car is driven.

Similarly, insurance costs are largely independent of how much a car is driven. But the costs to the community depend only on miles driven. As an alternative to our current approach, one could charge an automobile owner excise tax and insurance only on those days a car was driven.

This would automatically make each of us think long and hard about our driving decisions. People would walk or bicycle more for errands and would choose to live in close proximity to their places of work.

There would be, I predict, a reduction in both obesity and in oil imports, and hence a reduction in both health care costs and the cost of oil.

Naturally, a change of this magnitude would annoy many beneficiaries of our current system, but it may be the only way to get governmental spending under control. It would also give each individual more control over what he or she handed over to the government. The benefits far outweigh the costs.

– Special to the Press Herald

 

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