“Taxation is the price we pay for failing to build a civilized society. The higher the tax level, the greater the failure.”
– Mark & Jo Ann Skousen, “Persuasion vs. Force”
We constantly hear about the need for tax reform but never really get it. The U.S. Tax Code gets more complex every year, whether it’s a Republican or Democrat in office. The tax code has gone from 26,300 pages in 1984 to 73,954 pages in 2014, an increase of 181% in 30 years.
And now President Obama wants to make it even more complex with his latest changes, originally including the taxing of 529 education trusts. Is nothing sacred? Can you trust politicians to keep their word on anything? I wonder when the next president is going to say that, due to an emergency, we are going to have to tap those tax-free Individual Retirement Accounts (IRAs), or even take away the tax-free withdrawals of Roth IRAs. Nothing surprises me anymore with these clowns in Washington.
Compare our mixed-up tax system with the one in Hong Kong, where there is no tax on capital gains, interest or dividends, and a flat 18% tax on corporate and personal income. And foreign-earned income is exempt! When did Hong Kong last change its tax policy significantly? It was more than 50 years ago. No wonder Hong Kong is growing faster than we are in the United States. Imagine how advanced America would be if we had a simplified tax code like Hong Kong.
We need to teach sound tax theory and policy in our classrooms, boardrooms and Parliaments. I teach sound tax theory and policy in my “Economic Logic” textbook.
Income taxes should be low, flat, simple and easy to administer. The federal government should never take more than God (10%, or a tithe).
Taxes on capital should be low or non-existent, since capital is the source of economic growth and high standards of living. Remember, a capital gains tax isn’t the only tax on capital. A progressive income tax is a tax on capital. A tax on interest and dividends is a tax on capital. An estate or inheritance tax is a tax on capital. A corporate income tax is a tax on capital.
Ben Franklin said it best, “A virtuous and industrious people may be cheaply governed.” If we don’t have cheap government, what does that say about us as a people?