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Taxes: Government Financing In A Free Society

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My question is how can we completely eliminate taxation whether income tax or national sales tax? The government has some obligations, such as to provide for national defense.

I'm new to objectivism and this is my first message. I'm particularly interested in the practical application of objectivist living. I have a possible solution to the question.

I agree that, as long as there is a government, it will need to be funded in some way. I also agree with others that the funded government will be much, much smaller than today's government.

The solution I see is that found in the US Constitution: apportionment.

Let's say the federal budget gets cut from $2.4 trillion down to just $300 billion to fund a national defense (not a national offense), a court system (open to everyone), and a few limited functions allowed by the Constitution.

Congress sets the year's budget and the President signs it. At that point, each state gets a bill. If California, for example, is 12% of the nation's population, the state gets a bill for 12% of the total, or $36 billion.

Each state then determines how to pay that bill. Assuming this ever comes to pass, there would be many ideas about how to do this with the least negative impact to the individual.

One idea would be to charge each artificial legal entity (corporation, limited liability company or limited partnership) an annual fee. Individuals engaged in business have today and would still have a self-interest to form these legal entities for the purpose of limited liability.

For federal taxation purposes, no corporation (or other artificial entity) would pay any federal income tax. It would only pay the annual fee to the state, saving a lot of taxes and expenses related to taxes and regulations.

Each individual would be completely free of any federal income tax or social security tax and would ultimately pay the corporations' fees through the higher prices passed on to them when they buy goods and services -- though the overall cost of goods and services would be much lower without any of the other taxes.

I think this system would have natural checks and balances against a federal government's excessive spending. It would act sort of like a national sales tax, but not really. Each state legislative body would be self-interested in attracting as many corporate businesses as possible in order to keep the corporate fees low per corporation.

There would be absolutely no direct involvement between any individual and the federal government, unless they were involved in federal court case or other constitutionally-allowed function of the federal government.

The states might also piggyback on the system by also funding their (smaller) government expenses in this way.

The apportionment option is available today. There is no need to amend the Constitution, though repealing the 16th Amendment would be a good idea.

The way the states would tax to pay the federal government's bill would be up to each state, so this idea of corporate taxes is not necessarily the way it would be done, unless each state adopted it.

Would appreciate any feedback on the idea and whether anyone thinks it would be either unworkable for some reason or would be a non-objectivist approach.

~ zynner

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Even if the overwhelming majority of people living in a society were 'rational,' there is no garantee that the government will receive necessary funding through donation. Tragedy of the Commons is a very basic economic principle, and perhaps not something to be dismissed so easily.

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Even if the overwhelming majority of people living in a society were 'rational,' there is no garantee that the government will receive necessary funding through donation.  Tragedy of the Commons is a very basic economic principle, and perhaps not something to be dismissed so easily.

The government can also charge fees for certain legitimate functions, such as for contracts, etc.

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The government can also charge fees for certain legitimate functions, such as for contracts, etc.

I never quite understood this.

Does this mean that if I do not pay the government to protect my contracts, my alleged inalienable rights can be trampled on?

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I never quite understood this.

Does this mean that if I do not pay the government to protect my contracts, my alleged inalienable rights can be trampled on?

No, you just don't get to have your contract upheld by the force of law. If you mean things like a police force, businesses and people with money will naturally want to protect their assets and will fund the police force (which won't include things like officer's driving around preying on innocents that drive a 1/2 a mile over the "speed limit", etc.) and the police will also protect your rights because that is their purpose for existing. So in other words, the business owner is selfishly protecting only his interests, but if your a cheap-ass and don't contribute to paying for the protection of your rights also, you will still get that benefit because that is the purpose of the police force being funded by non-cheap people. And don't say, "Well, what if nobody volunteered their funding?," because this would NOT happen, and the duties of the police would be so delimited that they wouldn't have much work to do anyway. How many murders, rapes, etc. happen in a normal suburban area of say 80,000 resident of a given day, week, year? The answer is not very many if any, so a proper police force would have very little work to do anyway.

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No, you just don't get to have your contract upheld by the force of law. If you mean things like a police force, businesses and people with money will naturally want to protect their assets and will fund the police force (which won't include things like officer's driving around preying on innocents that drive a 1/2 a mile over the "speed limit", etc.) and the police will also protect your rights because that is their purpose for existing. So in other words, the business owner is selfishly protecting only his interests, but if your a cheap-ass and don't contribute to paying for the protection of your rights also, you will still get that benefit because that is the purpose of the police force being funded by non-cheap people. And don't say, "Well, what if nobody volunteered their funding?," because this would NOT happen, and the duties of the police would be so delimited that they wouldn't have much work to do anyway. How many murders, rapes, etc. happen in a normal suburban area of say 80,000 resident of a given day, week, year? The answer is not very many if any, so a proper police force would have very little work to do anyway.

So police-enforced contracts are merely another iteration of a volunteer-based system? Does that not present the same problem?

You correctly point out that it is in any company's "rational self-interest" to want protection. I can see two problems with this. 1) Many people/companies do not act in their rational self interest. I'm sure there are many cash-strapped companies in existence that could not bear the burden of security donations. 2) Why would a successful company want to donate to a public police force? Why not invest in a private security force to look after the securtiy of ONLY the company's interest? Why should a big multinational have to bear the burden of providing security for many people, when it can just fund its own force to possibly do a better job?

Edited by Quantum Mechanic

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How would they prosecute customers who defraud them or thiefs that rob them simply with their security guards who have no power to do anything?

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How would they prosecute customers who defraud them or thiefs that rob them simply with their security guards who have no power to do anything?

Would you say that securing physical property is takes more manpower than securing contracts? Security guards would be justified in taking down robbers if caught in the act, no? Especially if there was a clear threat to the lives of the officers.

If not, suppose this wealthy company granted their security forces the power to go collect debts or whatnot. They are very well equipped. Who stops them?

Edited by Quantum Mechanic

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Would you say that securing physical property is takes more manpower than securing contracts?  Security guards would be justified in taking down robbers if caught in the act, no?  Especially if there was a clear threat to the lives of the officers.

Securing physical property would probably take less manpower than contracts, because to secure a contract you need things like a court and government. To secure property under immediate assault you just need more men, more or better weopons, training, etc. But if the criminals are ripping of your company via fraud, hacking, etc., you would still need court and police. What would guards be able to do? Kidnap the people and hold them hostage in the multinational's basement till they said their sorry? See the problem? There would be no way that private security could enact justice on criminals, but they could properly hold off a direct assault on the company until the authorities came.

If not, suppose this wealthy company granted their security forces the power to go collect debts or whatnot.  They are very well equipped.  Who stops them?

The police for one. Or any person out there crazy enough to go toe to toe with them in a firefight. In other words, it would be complete anarchy. And once again what would the security force do to "collect the debt" if the debtor didn't want to pay? Give stern warnings? Hold them hostage? Torture them? There's nothing they could do to ensure payment without the force of government backing the contract.

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Does it really matter whose holding the gun? (to the criminal that is)

If you'll allow me the liberty to carry this analogy to an instance of many companies opting to not fund a police force (and instance choosing to fund their own force) and assume that the private force is better equipped and trained than the public force.

What's to stop these forces from ensuring that contracts are upheld? Anything the government can do to ensure payment of a contract could certainly be done by this more capable force.

What can be done is such a situation? Do we simply say, "your actions are not condoned by our objective set of laws outlined by Charter H-394 of the Laissez Faire Treaty." You shall face severe punishment." Except that since the government force (military included) is less capable than the private force, there isn't anything that can be done.

Now some might say that this scenerio is outrageous and need not be considered when examining the validity of a voluntarily funded government. But I ask, is it really that unrealistic? Companies like Haliburton already have very well equipped defense forces (they need it obviously). What if every company chooses the private road. Who then polices the police? Does Objective Law really do anything at this point?

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You evaded the question or possibly I didn't state it clearly, what could these private security forces do to enforce the contract except maybe a stern warning which essentially means nothing. They couldn't imprison you, they can't have your assets seized or sanction you in any way. They would have no power to enforce there contract whatsoever without the power of government. I can guarantee if a group of private security guards barged into my house in an attempt to collect money on a contract that they alledged I defaulted on by putting a gun to my head they would get nothing from me accept maybe my middle finger and that gun shoved up where the sun don't shine while I kicked them out into the street. I nor do I think most people have any fear that a security guard is actually going to shoot them anyway. See what I mean they could not have any possible means of enforcement without backing by a legitimate government.

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You correctly point out that it is in any company's "rational self-interest" to want protection. I can see two problems with this. 1) Many people/companies do not act in their rational self interest. I'm sure there are many cash-strapped companies in existence that could not bear the burden of security donations. 2) Why would a successful company want to donate to a public police force? Why not invest in a private security force to look after the securtiy of ONLY the company's interest? Why should a big multinational have to bear the burden of providing security for many people, when it can just fund its own force to possibly do a better job?
(from Quant Mech)

The police for one. Or any person out there crazy enough to go toe to toe with them in a firefight. In other words, it would be complete anarchy. And once again what would the security force do to "collect the debt" if the debtor didn't want to pay? Give stern warnings? Hold them hostage? Torture them? There's nothing they could do to ensure payment without the force of government backing the contract.

(from Rat. One)

QM, Rational One's comments are furthermore related to the principle that most industries CANNOT EXIST without this specific kind of government, not just protection, and have all the money (and promise of much more) needed to justify such an expense, locally and nationally.

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They couldn't imprison you, they can't have your assets seized or sanction you in any way. They would have no power to enforce there contract whatsoever without the power of government. 

I did answer this, but more indirectly.

My contention is that these private forces certainly have the power to enforce what they view as the law. And if companies chose to do this while negleting to fund the public force, the public force would have a very difficult time dealing with the criminal company (assuming other companies withheld funding as well).

Maybe I'm just putting too much stock into a recent episode of 24 where a company uses its own SWAT team to try and take out a Federal agent. :D

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I did answer this, but more indirectly.

My contention is that these private forces certainly have the power to enforce what they view as the law.  And if companies chose to do this while negleting to fund the public force, the public force would have a very difficult time dealing with the criminal company (assuming other companies withheld funding as well).

Maybe I'm just putting too much stock into a recent episode of 24 where a company uses its own SWAT team to try and take out a Federal agent. ;)

Right, but the point is that if you do that before, it can't last, for reasons Rational One explained clearly. If you do it after you create a government, you have already given up your money, and even if you haven't, you are going up against the collection of resources of everyone else. Bill Gates has that kind of advantage right now, why isn't he taking matters into his own hands? :D:ninja::ninja:

Like I mentioned above, the principle being reflected in Rational One's comments is that it is impossible to have a capitalistic economy, a complicated system including many profitable industries and services, without capitalism: universal individual right protection.

Edited by unskinned

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Fair enough.  I'm satisfied.  :D

Time to go complain about something else. :ninja:

Alright, I won a discussion! :ninja:

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For federal taxation purposes, no corporation (or other artificial entity) would pay any federal income tax.  It would only pay the annual fee to the state, saving a lot of taxes and expenses related to taxes and regulations.

Each individual would be completely free of any federal income tax or social security tax and would ultimately pay the corporations' fees through the higher prices passed on to them when they buy goods and services -- though the overall cost of goods and services would be much lower without any of the other taxes.

Would appreciate any feedback on the idea and whether anyone thinks it would be either unworkable for some reason or would be a non-objectivist approach.

~ zynner

Now that's an idea I never heard of before. I suppose you already know corporations pay a lot of fees to government agencies already and of course pass the proceeds along to the consumer. The advantage of sales tax, on the other hand, is that the coporation is involved in the transaction only as a middle man. The problem with it is that the tax is regressive, which means everyone pays the same percent of their assets. Now, if you eliminated sales tax and income tax, replacing it with a fee, what would be the base for allocation? Volume, cost, profit? Some businesses provide high volume, low cost goods and services. Others, just the opposite. Some profit margins are very high, others are zero or even less. Since businesses can usually expense most of the profit away, they can easily avoid paying taxes, anyway.

The nation had few taxes in its early history. From 1791 to 1802, the United States government was supported by internal taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves. The high cost of the War of 1812 brought about the nation's first sales taxes on gold, silverware, jewelry, and watches. In 1817, however, Congress did away with all internal taxes, relying on tariffs on imported goods to provide sufficient funds for running the government.

In 1862, in order to support the Civil War effort, Congress enacted the nation's first income tax law. It was a forerunner of our modern income tax in that it was based on the principles of graduated, or progressive, taxation and of withholding income at the source. We're firmly entrenched in the system now.

Libertarians believe we can survive again without federal taxation and there are some sound reasons that's possible. Look at their platform for the details. The main problem we have currently is the gigantic defense budget and the high crime rate in our cities. If we could eliminate those very negative causes for nonvoluntary expenditure, we could probably set up an insurance type of system that would cover basic community needs.

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Corporations are a conglomerate of people, Zynner. The people who own the corporation have a right not to be taxed.

Corporate profits and assets are taxed first then the dividends paid to owners out of the remaining profits are taxed, and owners also pay capital gains on asset growth. The workaround is expensing everything possible. And that's not very hard to do.

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Corporate profits and assets are taxed first then the dividends paid to owners out of the remaining profits are taxed, and owners also pay capital gains on asset growth.  The workaround is expensing everything possible.  And that's not very hard to do.

He wasn't saying here that corporations, at present, aren't taxed, but that they should NOT be taxed.

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[Mod's note: Merged with an earlier thread on taxes. - sN]

I finished reading Atlas Shrugged recently and I was just wondering, did Rand oppose all taxes? I know, in the novel, The pirate ("Danes gold", not sure of the spelling of his name) pays Rearden for all of the (income?) tax that he has payed in his life.

Was Rand just opposed to the income tax, (Her justification is obvious), or was she against all taxes, as I feel that other taxes are rationally justified, (school tax, property tax).

Edited by softwareNerd

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Objectivists are opposed to all involuntary methods of government financing; expropriating people's property, even "for their own good", turns the government into a gang of legalized looters. It is immoral to expropriate people. What you call the tax doesn't matter.

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Was Rand just opposed to the income tax, (Her justification is obvious), or was she against all taxes, as I feel that other taxes are rationally justified, (school tax, property tax).

Property taxes are even less rational than many of the others, which are all immoral. Just think about it. You buy a piece of land. You own this land. It is yours by right. Now the government just stops by your property EVERY year and makes you pay just to keep what you already bought. At least with other valueables, you can keep them to yourself without further penalty.

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