In the aftermath of a Great Recession and with the threat of
insolvency in the decades ahead given Washington's debt, deficits and penchant
for spending, it may be time to revisit what the Federalist Papers have to say
about taxation.
Specifically, papers 12, 21, and 31-36 make the case for
indirect taxes and how much better they are for America than any other type of
tax.
Granted that a lot has happened since 1789, the fact remains
that the principles of sound financial management remain unchanged. Indeed,
every step toward complex and specialized accounting processes seem to have
taken us in the wrong direction.
Without getting into the specifics of Democratic, Republican
and independent plans to balance U.S. budgets, deal with ballooning entitlement
liabilities or bring down the massive national debt, it is worthwhile to
consider a simple principle of taxation as taught in the Federalist Papers.
First, the framers considered indirect taxes far superior to
other options. None of the current proposals to managing the nations finances
take this into account.
It may well be politically infeasible, but that
shouldn't stop up from considering the benefits of this alternative system or
of running the numbers. Indeed, the numbers could well impact the feasibility
of indirect taxes.
Direct taxes are those where the person who pays the tax is
the same person who files what is owed, maintains records documenting what is
owed, and makes the payment to the government. Examples include property taxes,
taxes on assets, poll taxes, income taxes, and even licenses and permits.
In
contrast, indirect taxes are those where the person paying the tax is different
than the person filing what is owed and keeping the records. Examples are sales
taxes, tariffs and federal assessments on the states.
Without getting into the history of why the U.S. moved away
from indirect and toward direct taxes (and the history is fascinating reading),
the reasons the framers greatly preferred indirect taxes have not changed at
all in over two centuries.
These reasons include:
- direct taxes encourage
abuses by the tax collecting arm of the government,
- indirect taxes are
significantly less expensive for the government to collect, thus benefiting the
economy,
- the consumer pays the tax, so there is a natural graduated tax
where the poor pay less and the wealth pay a lot more.
The framers felt so strongly about this that the
Constitution made direct taxes on individuals unconstitutional (Article 1,
Section 9).
Again, there is a complex and interesting history surrounding the
change from this policy.
Any plan for putting America's financial house in order
should seriously consider the constitutional principles that created American
freedom.
First, such a plan should factor out many or most direct taxes and
replace them with indirect taxes.
Second, such a plan should look at the
effects of selling off all government lands not used for the constitutional
military purposes.
Whatever else is included in our national financial planning,
these additions could have a significant positive impact.
Social Leader Daily by Oliver DeMille
