July The Fourth naturally brings the following verses to mind.
Listen my children and you shall hear
Of the midnight ride of Paul Revere,
On the eighteenth of April, in Seventy-five;
Hardly a man is now alive
Who remembers that famous day and year.
Fewer still remember that through the chain of causality Revere was warning that the tax collector — in the shape of its enforcers, the Redcoats — was coming. The War of Independence was to a nontrivial extent about the manner and level at which taxes should be levied. The Declaration’s bill of grievances mentions this explicitly. It said of George III, “he has erected a multitude of new offices, and sent hither swarms of officers to harass our people, and eat out their substance.” The problem of course, as Forbes points out, was that George III had run up a deficit fighting the Seven Year’s War.
Great Britain had gotten itself into quite a pickle after the Seven Years’ War which had been expensive to fight. As a result, Britain needed to raise revenue – and quickly. What better way than a series of taxes and tariffs? …
Here’s what really irked the colonists: under the British Constitution, no British subjects could be taxed without the consent of their representatives in Parliament. But the colonies didn’t elect representatives to Parliament. The colonists considered the constant imposition of taxes on them under those circumstances to be unconstitutional. It was, they felt, “taxation without representation.”
Many colonists worried that the attempts to impose taxes would only get worse. They decided to do something about it. Led by Thomas Jefferson, they penned a letter – a declaration of their rights – to be delivered to the King. On July 4, 1776, the day we officially celebrate Independence Day, the wording of the Declaration of Independence was approved by Congress.
The important thing to note was that the founders didn’t “reform” the tax system. They didn’t want to fire the tax collectors from the equivalent of Cincinnati. They wanted to replace the whole structure.
The key to understanding why this is sensible is in Leo Linbeck’s op-ed published in the Washington Examiner. He writes of the IRS that “human institutions have this funny habit of appearing to be indissoluble right up to the moment they dissolve.” Bureaucracies age by getting bigger. In that way they are like cancer cells. You can only destroy them and grow healthy tissue in their place.
Morris McTigue, a former Cabinet Minister from New Zealand and more recently on the Performance Management Advisory Committee for the Commonwealth of Virginia explained why only the radical works. An established bureaucracy, like a malignant cell, is almost unkillable. The process is akin to angiogenesis. Tumors make their own blood vessels and keep making them until they starve out the healthy cells.
What I have been discussing is really just a new way of thinking about government. Let me tell you how we solved our deer problem: Our country had no large indigenous animals until the English imported deer for hunting. These deer proceeded to escape into the wild and become obnoxious pests. We then spent 120 years trying to eliminate them, until one day someone suggested that we just let people farm them. So we told the farming community that they could catch and farm the deer, as long as they would keep them inside eight-foot high fences. And we haven’t spent a dollar on deer eradication from that day onwards. Not one. And New Zealand now supplies 40 percent of the world market in venison. By applying simple common sense, we turned a liability into an asset.
Let me share with you one last story: The Department of Transportation came to us one day and said they needed to increase the fees for driver’s licenses. When we asked why, they said that the cost of relicensing wasn’t being fully recovered at the current fee levels. Then we asked why we should be doing this sort of thing at all. The transportation people clearly thought that was a very stupid question: Everybody needs a driver’s license, they said. I then pointed out that I received mine when I was fifteen and asked them: “What is it about relicensing that in any way tests driver competency?” We gave them ten days to think this over. At one point they suggested to us that the police need driver’s licenses for identification purposes. We responded that this was the purpose of an identity card, not a driver’s license. Finally they admitted that they could think of no good reason for what they were doing—so we abolished the whole process! Now a driver’s license is good until a person is 74 years old, after which he must get an annual medical test to ensure he is still competent to drive. So not only did we not need new fees, we abolished a whole department. That’s what I mean by thinking differently.
There are some great things happening along these lines in the United States today. You might not know it, but back in 1993 Congress passed a law called the Government Performance and Results Act. This law orders government departments to identify in a strategic plan what it is that they intend to achieve, and to report each year what they actually did achieve in terms of public benefits. Following on this, two years ago President Bush brought to the table something called the President’s Management Agenda, which sifts through the information in these reports and decides how to respond. These mechanisms are promising if they are used properly. Consider this: There are currently 178 federal programs designed to help people get back to work. They cost $8.4 billion, and 2.4 million people are employed as a result of them. But if we took the most effective three programs out of those 178 and put the $8.4 billion into them alone, the result would likely be that 14.7 million people would find jobs. The status quo costs America over 11 million jobs. The kind of new thinking I am talking about would build into the system a consequence for the administrator who is responsible for this failure of sound stewardship of taxpayer dollars. It is in this direction that the government needs to move.
Leo Linbeck III makes this point precisely. He argues that abolishing the IRS and replacing it is the only rational thing to do. It’s what a private sector manager would do when faced with a similar problem. Any attempts to fix the tax system at the margins would only be swamped by the tumor’s defense mechanisms. Leo writes:
What about the IRS? We will always have taxes, but do we really need the IRS? I believe there is a compelling case that the time has come to end the IRS and restructure the tax system that enables it.
First, as a nation, we have too few jobs and too much consumption. And yet the federal government taxes jobs (wages, profits, capital gains) and gives consumption a free pass. We have an IRS because we tax production; switch to a consumption tax instead of a production tax and we no longer need the IRS, as we know it.
A consumption tax can fund the government. In fact, two of the largest and most vibrant economies in the world run without income, payroll, or capital gains taxes: Florida and Texas. And the federal government operated without an income tax for over 120 years….
That is why the debate about taxes needs to start with fundamentals. Fixing the existing system or “reforming the IRS” will not address the root of the problem: federal revenues coming from taxes on production.
So the place to start is repealing the 16th Amendment. Americans have done this sort of thing before. …
Many will say, “We can’t repeal the 16th Amendment until we agree on what will replace income taxes.” But that is a classic political ploy, and we shouldn’t fall for it.
There are lots of ways to fund the federal government without income taxes, and we don’t need to agree on the solution before we address the root problem. We didn’t need to agree on how to regulate alcohol before repealing the 18th Amendment and ending prohibition.
It is time to redesign our tax system, and the place to start is repealing the 16th Amendment and prohibiting taxes on production. That would bring an end to the 100-year failed experiment of the federal income tax and end the IRS.
Then the real debate about what comes after can begin.
In the old days they worried about the fundamentals. The refinements could come later.
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