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posted on 15 January 2018

Fiscal Policy: Present And Future

Written by , The Somist Institute

If We the People are offended by the obscene display of power in the current GOP Tax Plan that transfers wealth from the 99% to the 1%, there is no reason to despair. We need to change the Tax Code. But before engaging in such a venture, it behooves us to know the characteristics of the current Code as well as what we want in the Tax Code of the future - no matter how distant that future might be.

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Some characteristics of the current code

Will Rogers identified one characteristic of the current fiscal policy, the fiscal policy under which we have been living and suffering for more than a century. Will Rogers said:

“The income tax has made liars out of more Americans than golf."

He was right; nearly all of us try to hide as much wealth as we safely can from the Tax Man. And this is not the worst characteristic of the system. The worst is the economic consequence of this action. Once we hide some wealth from the Tax Man, we are induced to hide it from other people as well.

Technically speaking, we are induced to hoard our wealth.

Some of the consequences of hoarding are self-evident. If we hoard our wealth, we cannot invest it. Thus, no new wealth is created; no new jobs are created. We are somehow even doomed not to enjoy that wealth; and not to give it to others who might sorely need it.

Quite apart from these consequences, what legal right does the Tax Man have to our wealth? None. Except the power that the Tax Man arrogates to himself through the exercise of sheer political power.


what moral power does the Tax Man have to the wealth that I have produced?


When we come to analyze corporate taxes, we realize that the Tax Man exercises the power to tax that wealth twice: First, when it is within the ledgers of the corporation, and then when it reaches the hands of the stockholder.

But what moral power does the Tax Man have to the wealth that I have produced? None. Thus, We the People tolerate an immoral economic system. Any wonder some rich people retaliate and try to keep as much of “their" wealth as possible? No wonder the social, economic, and political world today is tossed into such upheavals that no one is certain of anything any longer.

We must change The System.

But how?

The question to investigate is, “How does wealth inequality arise?"


Inequality is created by the lack of recognized and enforced economic rights and responsibilities


The Tax Code tends to make a bad situation worse; through the exercise of political power, it increases the inequality. But it does not create inequality.

Inequality is created elsewhere. Inequality is created in the economic system. Inequality is created by the lack of recognized and enforced economic rights and responsibilities that prevails in the economic system.

Four horses of inequality

When people do not pay the full share of the taxes they owe, especially taxes on land and natural resources, they steal from fellow citizens who are burdened with the total share of the costs of running a country. When the central bank sells a pool of common wealth - i.e., national credit - to preferred customers, the central bank sells for a mess of pottage a national treasure that belongs to the entire population. Private appropriation of common goods - such as land and money - without compensation is expropriation and plunder. When stockholders cash in the value of their stocks and bonds, they rob the workers who have originally contributed to the creation of that value, namely its capital appreciation - and are excluded from that bounty by the faulty legal institute of the “wage contract." When one purchases a whole corporation, and uses other people’s money to concentrate the wealth of the nation into fewer and fewer hands, one robs at least the workers, if not also the previous as well as future potential stockholders, of the ensuing capital appreciation of the corporation.


Equality is a faulty, impossible, and unnecessary ideal.


Set these four economic mechanisms of wealth accumulation aright, and inequality is cut at its root. You Give to Caesar What Is Caesar’s. Do not steal is a commandment. You do justice and receive justice. With a just distribution of wealth, there is no need for its redistribution. Moreover, the purpose of reducing inequality is not to achieve equality. Equality is a faulty, impossible, and unnecessary ideal. Control these four horses of inequality and you automatically make room for the development of a just and free economy.

The fiscal policy of the future

The fiscal policy of the future will not have double taxation of corporate wealth; the fiscal policy of the future will not have income taxes. In a modern application of Henry George’s prescription (and Ricardo’s, and Stuart Mill’s, and 8 Nobel Laureates in economics), taxes on values of land and natural resources will suffice to keep the structure of the state in good health. The proviso is that the functions of the state will shrink to those that truly belong to the state; namely, safety, national security, and promulgation and administration of justice.


the fiscal policy of the future will not have income taxes.


There is one positive aspect of the welfare state that ought to be noticed and, mutatis mutandis, might need to be kept alive. This is the field of social insurance. It might make sense to have one public or private national insurance corporation dealing with the health care system; and one insurance corporation for social security; and one corporation for old age pensions. But there is no need for these corporations to be organized and administered by the stare, a detailed supervision of economic justice might suffice to preserve the integrity of the system.


taxes on values of land and natural resources will suffice to keep the structure of the state in good health.


The transition

It is hard to foresee the future, and whatever plans for the future are to be made should be flexible. It is possible to imagine that the transition will be very gradual and self-organized. As one enters fully the free economy, one has all the incentives to voluntarily leave the welfare state. As one increases, the other decreases.

Surely it will be possible to find double-dippers. But they will not last long. They will surely be expunged from the system.

Who will not prefer to live in the dignity of self-sufficiency?

Conclusion

The current fiscal system is at a breaking point. It remains alive for two reasons. One is inertia; the other is lack of alternatives. As soon as the alternative becomes available, the welfare state will dissolve. These are some of the results of Concordian economics.

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