Tax the Poor

It can be thought of as a sort of natural law that every government will increase taxation until it hurts.  Once the burden of taxation has become sufficiently painful to a sufficient number of people, a tax revolt will begin – either at the ballot box, or at the palace gates– and taxation will be rolled back to a less painful level, often by a new government. 

One way to avoid this danger is for government officials to learn to live with a relatively low tax rate.  This option, of course, is similar to the idea that an alcoholic would be OK if he just wouldn’t drink so much.  Thus, governments universally have sought means to increase “their” revenue while minimizing the level of pain perceived by victim/citizens.  This is an old trick.  Mosquitos and leaches, for example, secrete anesthetics in their saliva, so that the people upon whom they feed will feel no pain while taxes are being siphoned.

While I am quite sure that many legislatures would result to pharmacological means to deaden the senses of annoyed taxpayers, such an option has not yet proved practicable on a large scale, so other tricks have evolved. 

Foremost among these is the hidden or indirect tax.  Getting a bill from the government for a large sum tends to decrease one’s enthusiasm for that government, so much taxation is conducted in ways that are as untraceable as Enron’s bookkeeping –primarily because it occurs through Enron’s bookkeeping, or the bookkeeping of another corporation.  People love to tax corporations, and governments love to tax, so there is little pain caused by corporate income taxes.  They may thus seem like a win/win –but that’s just the anesthesia talking. 

Corporations do not operate at a loss for very long.  They are not charity operations and they do not magically get more efficient when taxed.  What they do, when gleefully burdened by the government with taxes, is pass the cost along to you.  There is little penalty for doing this, since all their competitors will have the same expense to pass along as well.  Essentially, the government sends a bill to the corporation and they charge you for it with a directly increased price for goods and services. 

When you buy a toaster, or socks, or lettuce, or a car, you pay corporate taxes.  No corporation has ever paid taxes, they just collect the money from you, and pass it along to government, the members of which will proudly hail the funds as a form of justice collected from the powerful to spare you, the powerless.  Meanwhile you can’t figure out why everything is so darn expensive.  It’s all just bookkeeping nonsense: the receipt says “socks: $2.49”, not –as it should- “socks $1.97, hidden tax scam $0.52.”  Since you never see the breakdown, and the money is not paid directly to the government, you never swat at the mosquito you should.

This trick works so well that the government dispensed with the usual motions of such bookkeeping when it came time to fund Social Security.  There, it simply ordered the corporations to show only half of the taxes as coming from your paycheck; the other half comes “from” the corporation.  This functioned as a sort of government-mandated increase in wages for about 15 minutes, until it reduced the amount of money available in every business for actual wage increases.  Thus, we now live in a society in which your actual gross income is 7.65% larger than it appears (6.2% Social Security plus 1.45% Medicaid "employer contributions’), but this 7.65% is siphoned off before you ever even see it, so it causes no pain.  Most people do not even know to be angry about it, and are in fact happy that the government makes their evil employer “give” the money on their behalf.  We celebrate paying a large debt for which we never even receive a bill.

The income tax, by contrast, has at least one redeeming feature –it is a very direct tax for which you receive a very large bill with the proper return address.  It is also –not coincidentally—the one tax that seems to create a good deal of opposition from the citizenry. It is an honest tax, but government has a solution for that as well.  The great principle of democracy is “one man, one vote.”  Perversely, this creates a huge incentive for government to target taxes toward the richest minority.  You can rob a few millionaires royally and be a rich hero come election time, or you could rob everyone modestly and be unemployed come election time.  Although the rich have other powers to influence that mitigate this trend somewhat (thankfully), the fact is that it is politically more appealing to totally screw over one man than it is to moderately anger many men.

This would all be, at some level, great for those of us in the less taxed majority except for one fact: the wealthy have enormous power to recoup their tax losses through price increases.  They did not become rich by spending more than they earn.  They will charge more for services, raise their own corporate salaries, and restructure deals to account for the increased parasitism.  Thus again, they are taxed and you are billed.  There is a reason some Doctor invented the “office fee” and the $5 aspirin.  You are paying his taxes, among many other things.

Indeed, in a modern, flexible, reactive economy it matters very little whom is taxed, it matters only how much the whole system is taxed.   Except for those actually receiving payments from the government, the tax burden is shared remarkable efficiently.  That is why so-called “progressive” taxation is so pernicious –it inherently encourages high taxes on the system by minimizing the political pain of increasing and collecting taxes.  Progressive taxation is the idea that those who have more, should pay more – a lot more – and those with less should pay less in direct taxes.  It is a politically and morally appealing idea. 

But the result of this idea is that taxation is made much less painful, since taxes are collected indirectly from businesses and the wealthy, which then pass the cost on to others.  Taxation that would normally be checked at low levels by voter tax revolts is then free to rise substantially until it exerts so much pressure on the system that a general economic pain is the result.

Ironically, progressive taxation hurts the poor and the middle class more than flat or regressive taxes because it allows the total tax burden to escalate in anonymity.  They pay more indirectly in hidden costs than if they were billed directly for taxes, because progressive taxation does not create the equal and opposite reaction in the electorate that is necessary to keep the systemic tax burden in check.  Progressive taxation is like an anesthetic that allows greatly increased parasitism of the system.

The proof of this is that those governments with the most progressive tax rates are precisely those with the highest tax burdens.  The reason Europe’s economies sputter is that they suffer under large tax burdens, which bleed dry the financial lifeblood of the people.  High unemployment and increased costs of living are the result.  The same effect can be seen in America through the twentieth century: as our taxation has become more progressive, it has grown to exorbitant levels, increasing nearly 600% since 1910.

Progressive taxation is simply increased taxation.

Once such a hypothesis is accepted, the vision of the “ideal” tax system becomes very different indeed.  Taxation should be painful and direct, so that it can be properly accounted for, and can thus be controlled through the normal democratic process.  We should tax the poor, as well as the rich.  We should never tax corporations or other legal fictions.  We should never hide payroll taxes.

The ideal tax system to reduce taxation might be a flat, single-rate income tax collected only from individuals via a direct bill, due just before Election Day.

It will never be passed, and the parasite’s proboscis will therefore probe ever deeper –unfelt by most.