Tax cuts, the federal budget and the case for zero taxation

18 Dec

President Obama signed a bill on Friday extending the current tax rates for another two years.  The tax bill also reduces an employee’s payroll tax rate by 2% for one year and extends unemployment benefits for 13 months.  However, the bill will not help the long-term unemployed who have exhausted their benefits.  In addition, several tax breaks scheduled to expire on December 31 will continue into 2011.

While both Democrats and Republicans congratulated the President at the bill signing, supposedly a sign of a new era of bipartisanship, the bill reveals why the tax code undermines prosperity.

The tax code changes so often that it has been called the accountants’ “full employment” act.  Tax credits, tax deductions, exclusions, etc., etc., etc., make the tax code an abomination for millions of citizens who have to hire a tax preparer in order to complete the 1040 form accurately.

The cost of complying with the tax code—the dollars and hours spent calculating your tax liability—is a huge waste of resources; resources that could have gone into meeting the American’s people needs now and in the future.  In other words, we have too many accountants specializing in tax preparation—an activity that does not increase the economy’s output of desired goods and services.

In addition, the federal government taxes, borrows and spends trillions of dollars per year reducing the income of the American people who have less money to spend and invest.   Production requires savings and investment.  Consumption is the outcome of production, not the cause.

Big government, by definition, reduces the output of goods and services, now and in the future.  Redistributing income—the holy grail of leftists–does not increase the output of goods and services one bit.

There is a better way to achieve all the goals both Democrats and Republicans assert they want to achieve—high employment, higher real incomes, and sustainable prosperity.  Sustainable prosperity will be unattainable as long as the Federal Reserve continues to manipulate interest rates and debases the value of the dollar.

The economy’s booms and busts are not inherent in a market economy, as both Marxists and Keynesians believe.  The economy fluctuates because the FED pumps money into the banking system and eventually “tightens” up money and credit conditions to cool an overheated economy it has caused.  Thus, abolishing the FED is necessary to end the cycle of boom and bust.

As far as federal spending and taxes are concerned, ideally taxes should be zero.  That’s right zero.  The public should pay for all their needs as they currently pay for the necessities of life (including national defense), voluntarily out of their income and/or savings.  Why?  Because the economy would then reflect the wishes of the people as opposed to every special interest group in America and the military-industrial-congressional-consultancy complex.  In additon, the American people, in zero tax society, will have more money to help social services agencies do good works in their communities.

Currently, the federal budget is about $3.8 trillion, with a budget deficit of nearly $1.4 trillion.  In other words, the federal government is borrowing one dollar for nearly every two dollars it is collecting in taxes.  This is the height of fiscal irresponsibility.

Despite the nonsense perpetrated by Nobel Laureates in Economics that the federal government should run deficits to “stimulate’ the economy in “bad” economic times and surpluses in good economic times to counteract inflationary pressures, so the budget will be balanced in the long run, Ludwig von Mises wrote, “What the doctrine of balancing budgets over a period of many years really means is this: As long as our own party is in office, we will enhance our popularity by reckless spending.”

With one party in control of the federal government, the Republicrats, or the Washington Party, federal spending will never be reduced to the level authorized by the U.S. Constitution.

That is why 2011 could be a pivotal year.  If the new members of Congress, many of whom owe their victories to tea party activists, demand a return to a constitutionally based federal budget and begin to phase out the federal government’s Ponzi schemes and collectivist policies, then both the Congress and the Obama administration can take credit for restoring America’s economic greatness.  Otherwise, by failing to begin the “desocialization” of America, America’s welfare-warfare state will continue to undermine economic progress for all Americans.

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