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Taxes: National Sales Tax, Objectivist Support For

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jedymastyr

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I was recently perusing ARI's "Live Speaker Events:"

(http://www.aynrand.org/site/PageServer?pagename=education_campus_speakers)

In doing so, I came across the talk by Richard Salsman, "A New Tax Policy That Advances Capitalism," listed under the "Capitalism: Practice" category.

The description of the talk follows:

A New Tax Policy That Advances Capitalism

By Richard Salsman

“Indirect taxation” at a rate which is the same, proportionally, for all citizens, is the only tax system consistent with the U.S. Constitution and a capitalist fiscal policy. Today’s system of graduated income taxes (direct taxation) is immoral, unconstitutional and totally inimical to prosperity. How did the income tax become law in the U.S.? How has it evolved since passage in 1913? How might it be abolished? Why is a “flat tax” on income, as proposed by Kemp-Armey-Forbes, potentially worse than our current system? Why must tax reform precede spending reform? In answering these questions, Mr. Salsman argues that only the passage of a national sales tax — and with it the abolition of the IRS and all federal taxes on personal and corporate income, capital gains and estates — will permit the advance of capitalism in the 21st century.

I should preface everything else I say by noting that I have not heard Mr. Salsman's talk, nor am I familiar with his argument for this national sales tax. I assume, since it is an ARI talk, that ARI sanctions this idea. I would like to know more about it.

I was under the impression that taxes are entirely wrong.

In a fully free society, taxation—or, to be exact, payment for governmental services—would be voluntary. Since the proper services of a government—the police, the armed forces, the law courts—are demonstrably needed by individual citizens and affect their interests directly, the citizens would (and should) be willing to pay for such services, as they pay for insurance.

In order to be consistent with Objectivism, a "tax" must be voluntary. It is true that purchasing items in society is voluntary--you can farm and produce your own food (and not participate interact with society at all) if you so choose.

The best argument I can come up with to support the general idea of a sales tax, then, would be something like this:

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Since a government only arises in a social context, and contracts must be protected by that government, the government has the power to charge a fee for providing that service (similar to the quote from VOS). [Note the difference here, though, that it is not optional (as far as I am aware) in the instance of a national sales tax.]

Nevertheless, you are still free to not participate in society if you choose not to (i.e. farm, etc.). If you do choose to deal with society, though, that means that you enter the context in which a government is necessary and should have to bear your share of the costs of the government functioning.

---

I am not satisfied with this argument--when Ms. Rand wrote about voluntary "taxation," there was always the option to trade without dealing with the government (and just not having your contracts enforced). Doesn't this also imply some sort of national currency or government-inforced standard to keep track of the value owed to the government for private transactions? Doesn't Mr. Salsman advocate banks producing their own currency, rather than a governmentally printed one? What about the trade of physical objects, as opposed to dealing with people financially, even if there is a well-established conversion rate and standard (e.g. gold)? Don't those trades also enter the social context? What is a better argument to support Mr. Salsman's claim?

I realize that my argument is not Mr. Salsman's, but I am trying to understand where he is coming from. Unfortunately, I am not aware of any places I can go to find this information. Are there any books or lectures on this subject that I could look to for more information and the original argument?

Perhaps he is only advocating it as a step towards a free society, and not as a final end? I don't think this is the case, but I don't want to overlook that possibility.

I also see one reason why this national sales tax would be better than the income taxes:

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Since production is required to survive, and this can be done outside a social context, it is on principle wrong for the government to tax production. It is directly inhibiting your ability to provide for your own life.

Since gaining a benefit from other people's work by trading with them only arises in a social context, since it can be a great benefit, and since governments are necessary in a social context, it is more reasonable to tax this than the original productivity across the board. Also, it would be easier to implement (taxing transactions) as opposed to taxing production (defining what production is, how to charge people that just farm their own food, or defining a boundary where taxation starts).

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Still, of course, 'better' does not mean 'right.'

I obviously do not have much knowledge on this subject--I would like to hear what others think, get sources to read for more information, or even just get a clarification or explanation of what Mr. Salsman's claim is.

Any help would be appreciated (thanks in advance).

Edited by softwareNerd
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AR supported tax credits as an interim step. The idea is discussed here: http://www.aynrand.org/site/News2?JServSes...ws_iv_ctrl=1254 AR's essay "Tax Credits for Education" is in The Voice of Reason.

Perhaps he is only advocating it as a step towards a free society, and not as a final end? 

I think that is what he is doing, yes.

I can certainly see some advantages of replacing the income tax with a sales tax, but there are also big disadvantages. The rate would have to be about 30% to replace current tax revenues. That would severely affect consumption and encourage a black market and smuggling. Also, think about the effect on taxing home sales 30%. I suspect the housing market would collapse and we would become a nation of mostly renters.

I also find it odd that ARI would support this sort of intermediate step rather than just promote the correct principle of no taxes whatsoever. Perhaps doing so is seen as more practical, but there is a grave risk of muddying the message ARI is trying to promote.

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I have already paid taxes on the money I have previously earned. Of the plans I've seen for transition to a national sales tax, none take this into account.

Unless there were a transfer to a new currency at an exchange rate calculated to return taxes on existing money and investments, and to charge tax on existing debts, a national sales tax would be horrible.

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They are entirely wrong. He is advocating a step toward freedom...

So he is advocating the abolition of the IRS, personal and corporate income tax, etc--but then he advocates adding a national sales tax? It sounds like a very uncompromising view, and if this is just an intermediate step it sounds like it's making a really big compromise right when you get really close to achieving your goal.

Also note in the original talk description, which I didn't put in bold:

“Indirect taxation” at a rate which is the same, proportionally, for all citizens, is the only tax system consistent with the U.S. Constitution and a capitalist fiscal policy.

To me, that reads that he finds it consistent with capitalist (Objectivist, I'm thinking) fiscal policy to use this national sales tax.

Do you have some extra information I don't about Mr. Salsman's position that leads you to believe it is only an intermediate step? If you do that's great, but if it's just based on what you read that I posted, I would have to disagree.

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it is a positive step, but unless the debate starts about the proper functions of government, it is no where near a solution. As long as they can print up the money for their welfare schemes, then they really wont shrink the gov. Inflation will get us if taxation doesnt. See : Egalitarianism and Inflation. One of Ayn Rand's best articles.

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A sales tax makes sense only if the income tax is abolished. If income tax is simply reduced or simplified, it is only a qeustion of time before it will go up again. I think there is little chance that the income tax will be abolished, so I think supporting a new tax is extremely unwise.

This is an excellent thread!

I listen to Neal Boortz radio program on occasion and he has discussed a National Sales Tax proposal.

So far I haven't come to a conclusion on how taxes should be restructured, but I am certain that a simplification of the tax code is an immediate concern.

I've only read basics about the Objectivist views on the purpose of government and possiblities on how to finance it in The Virtue of Selfishness by Ayn Rand - Chapter 14 The Nature of Government, and Chapter 15 Government Financing in a Free Society - and it appears most of you have read this as well.

I haven't anything to add here except to ask that the thread continue over time as more information and ideas become available.

-Elizabeth

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The income tax is a form of slavery. A government that has the authority and power to tax 1% of one's income, has the authority and power to tax 100% (as it came close to doing to the wealthiest during WW II).

A sales tax could work as a replacement to the income tax ONLY if the size and scope of government is reduced. Otherwise the sales tax rate will be high enough to provide incentive for a HUGE black market in goods and services.

The government's response to this could result in the abolition of paper currency and coinage in order to force ALL transactions to be made electronically. Present technology makes this scenario feasible.

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As long as we have a welfare state, the particular means by which the government maintains it is not very important. Whether it taxes income directly, by sales taxes, tariffs, stamps, or by manipulating the money supply, the same incentives will exist to seek exemptions and get a share of the loot. A sales tax is not fundamentally less immune from political manipulation than any other kind of tax, since all coerced wealth transfers will alter economic incentives. In fact, any “flat” tax will encourage more hidden taxation and favoritism, since interest groups will have to find new and more indirect means to receive benefits from the government. Advocates of capitalism would fare better if they consistently advocated radical ideas than trying to sell compromises.

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Advocates of capitalism would fare better if they consistently advocated radical ideas than trying to sell compromises.

I agree. Either we gradually get rid of the taxes we have now until they are gone, or any new system we put in place MUST have a built-in gradual reduction and eventual elimination of itself.

But I will never support any new system that is open-ended. That is just a short-term compromise which concedes the point that taxation is acceptable in principle.

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Has anyone actually listened to the entire lecture? I haven't, but I'm sure an ARI speaker never compromised the moral right of capitalism.

Exactly what I'm thinking! I've listened to two of Mr. Salsman's Harvard lectures, and I absolutely loved them. They didn't have anything compromising in them, despite being focused on capitalism. I wish there were a source for more information on this view or what he intended. I have a hard time just dismissing a respected Objectivist's view without actually hearing the argument first.

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