The True Tax
Taxes take away a portion of a person’s time on the earth. That portion is the same for each person only if governments tax nothing but labor income, at a single rate, with no deductibles or deductions.
October 15, 2021 published
October 27, 2021 revised
Since all the value that exists is created by people’s labor, there’s only one way to tax that treats each person equally.
Labor Income That’s Saved Is Still Labor Income
A person earns money by doing work, which takes time. Taking some of a person’s money amounts to taking some of the person’s time, which amounts to taking some of the person’s liberty.
The liberty that’s taken should be the least that’s needed to, in return, deliver a net increase in the security of individuals’ lives, liberty, and property . And the liberty taken from each person should be the same.
A value-added tax would take away some of the value that was added by people through their work in the latest tax year. It would also take away some of the value that was added using capital.
But capital only exists in the first place because people saved some of their earnings from their labor in past tax years. Using capital actually means making further use of the work that people did in past tax years. Taxing the resulting value that was added using capital would take away even more of the money that a person had earned through his work in past tax years. So a person who had worked and also saved in past tax years would have even more of his liberty in those years taken away in the succeeding tax years.
A business-income tax also would take away some value that’s added using capital. Businesses are owned by people: people who worked, kept some of their labor earnings as savings, and invested some of those savings in shared ownership of businesses. Here again, a person who had worked and also saved in past tax years would have even more of his liberty in those years taken away in the succeeding tax years.
A sales tax would take away different proportions of people’s liberty from different people.
A labor-income tax, though, is different. A labor-income tax applies only to work in the current tax year; it doesn’t also apply partly to savings from people’s work in past tax years. Under a labor-income tax, the liberty taken from each person can be the same.
True, Honest, Clean, Influential
A “true tax” will be a labor-income tax that will be applied to every dollar of labor income, with no deductions and no deductibles, that will be due in a lump sum at the end of each calendar year.
Such a true tax will be the only tax that will take away the same proportion of each person’s liberty.
Such a true tax could also be thought of as the only honest tax, in that no tax of any kind would be hidden; every bit of tax would be visible above-board, out in the open. Of course given the many ways that most government people are misusing our taxes, labelling a tax as honest would seem to give the whole enterprise a seal of approval that most current government people haven’t earned.
Eliminating withholding will cause some people to not save to pay their first year of true tax. They will learn this lesson soon enough and they won’t forget it.
Lenders can help those people pay these bills on time. Or tax collectors can get those people’s back taxes deducted from their future income, plus interest (which may be less costly from tax collectors than from lenders).
These remedies will be available for those people but won’t be forced on everyone. Governments have no constitutional right to without cause withhold from every person a part of the property he earns. This would effectively treat each person as if he’s presumed guilty of future nonpayment of taxes.
The due date at the end of the calendar year will be right around the time when in election years, the primaries start. Voters will think hard about government spending.
Also helpfully, this design is clean.
For this tax to remain a true tax (which will be mandatory in order to treat each person equally), the only thing that the legislators and executives in a given jurisdiction will be able to change will be the single tax rate.
Legislatures and executives won’t be able to carve out deductions to favor cronies. Congresspeople and presidents won’t be able to, through their Fed, use inflation to produce bracket creep, which would stealthily increase taxes without putting on the record the legislative votes and executive signatures on tax hikes that voters punish severely.
Best of all, any change in the single tax rate will be felt as fully as possible by everyone.
That means that if legislators and an executive were to increase the tax rate even a little, each person who works would clearly see the same full proportion of his liberty grabbed away from him. Even small added overreaches would cause big electoral losses.
But that also means that when instead—possibly soon—legislators and an executive will cut down the tax rate to a small fraction of its past level, each person who works will clearly wrest back the same full proportion of his liberty. Restoring substantial liberty will earn the responsible party  a permanent majority.
Straightforward to Implement
National-government revenue for the current year is projected to be $3.6 trillion. State and local government revenue for the current year is also projected to be $3.6 trillion .
Labor income (wage and salary income) for the year is currently running at $10 trillion .
National-government revenue as a percentage of labor income, then, is projected to be 36%. State and local government revenue as a percentage of labor income is projected to be another 36%.
So then currently the national true-tax rate looks like it would be 36%, and the overall-average total state and local true-tax rate looks like it would be another 36%. These certainly would be the rates, if under a true tax the labor income wouldn’t change.
But the labor income will change, immediately.
To picture how the labor income will change, for starters note that the transition will provide the maximum benefits, and will build up the maximum permanent support, if it’s done fast and completely: by fully repealing all existing revenue sources, and fully putting into force the true tax, in each government jurisdiction starting in the very-next year, all at once .
From the start of the year, each employer will no longer pay taxes. Also, each employee will see substantial taxes looming at the year’s end.
Employers will seek to keep their employees working for them, and will seek to keep products selling in the same volumes. Employers will satisfy both objectives by immediately making straightforward adjustments.
As a primary adjustment, each employer will shift its tax savings to its employees as increased labor income, in proportion to each employee’s increase in income tax.
As a secondary adjustment, each employer will shift its benefits savings to its employees as increased labor income, in proportion to the employer’s savings on each employee. Employers will no longer provide benefits, because providing benefits will have been made illegal.
Providing benefits would prevent customers from controlling producers, and this would be unacceptable. Customers’ shopping provides fast, accurate, relentless control of producers. This is what makes free and voluntary cooperation steadily improve producers so they deliver the most value added. Whenever customers’ shopping has been eliminated, free and voluntary cooperation has been replaced with crony socialism .
Providing healthcare benefits, for example, created so-called insurance companies that control payments for routine medical care and that also control insurance for catastrophic medical losses. These crony companies have made contributions to their enablers in government in exchange for receiving unconstitutional monopoly privileges. The inevitable results have been reduced innovation, reduced gains in outcome quality, reduced service quality, and dramatically-increased prices .
Many such bypasses of customers’ control of producers are possible. All must be proactively prevented.
Even if we didn’t all have firsthand experience already with the bad consequences of allowing benefits, the true tax still would require a true accounting of labor income. This true accounting would be prevented if it was legal for employers to shift some labor income into benefits that have monetary value. If this way was left open to innovate in reducing taxes and to do less to innovate in adding value, then less value would be added, and everyone’s living standards would rise much-more slowly.
Finally, as a tertiary adjustment each employer might adjust employees’ incomes for net changes in employees’ costs of living.
Each employee’s direct taxes and health expenses will have jumped up. On the other hand, each employee’s income will also have jumped up. Also, each employee’s out-of-pocket expenses for sales taxes and for extra taxes on specific products will have been zeroed out.
Any cost-of-living adjustments resulting from a one-time change to true taxes are likely to be modest one-time changes. After all, each government’s tax revenues will be unchanged, so on the average everyone’s living expenses will also be unchanged.
Since labor income will make a predictable one-time jump higher, the national true-tax rate will start out proportionally lower than 36%, and the overall-average total state and local true-tax rate will start out proportionally lower than another 36%.
And remember, as pointed out earlier, true-tax rates will be harder to raise, and true-tax rates ultimately will be driven considerably lower.
The Right Thing, Quick, and Enduring
When taxing is done manipulatively, this wastes immense effort . Doing the right thing on taxes and letting the chips fall where they may will make much friction disappear immediately.
The tax collectors and tax preparers who account for that friction currently aren’t entitled to control us, aren’t entitled to be paid to not control us, and anyway couldn’t be trusted to not try to control us. They can repurpose their talents. They can find jobs where they too will add value that we customers are willing to buy.
Meanwhile right away, saving will be more rewarding. Soon, the many people who will benefit from saving more will start saving more. Soon afterwards, producers will find it feasible to invest more to increase productivity. From then on, our living standards will start to steadily improve faster.
Also, quickly our governments will come to be controlled much better by the people who have the ultimate control—their sovereigns, we the people .
James Anthony is the author of The Constitution Needs a Good Party and rConstitution Papers. He has written articles in rConstitution.us, American Greatness, Foundation for Economic Education, American Thinker, and The Federalist. Mr. Anthony is an experienced chemical engineer with a master’s in mechanical engineering.