Monday, November 02, 2009

Abolish Income Tax 4: Ayn Rand and income tax

A friend reacted to my posting, "Service charges and capitalism", via a quote from Ayn Rand, below:

When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don't protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice - you may know that your society is doomed.

—Ayn Rand, Atlas Shrugged (1957)

I thanked him for such appropriate quote. Ayn Rand was very emphatic of the virtue of free market capitalism. In a free society, individuals are free to do ALL things they want, except for a few explicitly-stated prohibitions (eg, no killing, no stealing, no physical injuries, no rape, etc.). In an unfree society, it's the reverse: unless there are no laws about them, things and actions are PROHIBITED.

For instance, entrepreneurship and job creation is now prohibited -- unless one gets lots of permits and accreditations, and pay dozens of taxes and fees every year, from people who produce nothing but paper work and legal prohibitions.

There is also a noticeable presence of a big number of central planners in modern society -- at local governments, national governments, and foreign aid/multilateral bodies. People who justify existing high and multiple taxes, propose new taxes, to support new bureaucracies and programs that will redistribute wealth and entitlements.

Another friend made this comment:

I think the essence of taxation is that citizens bear the burden of government and its bureaucracies. The question is the proportion that the taxpayers bear from what they earn from the societies they live in and how this tax is determined. In my view, while we cannot get away from income tax, this should be as little as possible because income arises from personal or corporate productivity in general.

Consumption taxation - the other end of the spectrum - taxes the taxpayers' propensity to spend what he or she created from productivity, not productivity instead. I, therefore, think that it is in within governments legal right to tax income or consumption. I just think that government should reward the productive by taxing their consumption and letting them keep most of their income.

I thanked him for his consistency in advocating a zero or very small income tax. Free market capitalism and dynamic entrepreneurshihp cannot thrive in a fiscal environment characterized by envy. So-called "progressive taxation" of higher tax rate for higher income is driven by envy, pure and simple. The lazy and less hard-working won't be taxed while the industrious, efficient, ambitious and hard-working will be taxed to the top margin stated in tax laws.

A zero income tax policy will encourage hard work and entrepreneurship. Retaining various consumption taxes (VAT, excise tax, real property tax, travel tax, motor vehicle tax, amusement tax, etc.) will ensure that the tax-hungry government and its various bureaucracies will be assured of continued supply of sure money. So it is still a positive-sum policy: you encourage private sector entrepreneurship, while retaining the bureaucracies and pork barrel of people running the government.

See also Abolish Income Tax 3: Taxes and Congress, October 08, 2009

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