Failure to Tax

by David Zweig | July 17, 2009

Taxes don't cover spending, so we're heading toward financial collapse-- that's simple arithmetic.

It's political suicide to suggest increasing taxes. Every election we hear mobs chanting: "NO NEW TAXES!" But those same people are in favor of balancing the budget. The problem is that income taxes reallocate wealth, and taxpayers scream when it is their activity that gets hit with a tax increase.

Instead of trying to get approval for a tax on income from activity X or Y (and bring out the lobbyists), why not apply a NEUTRAL tax that AUTOMATICALLY comes into play to mop up the effects on the money supply of government spending that has already occurred? All the lobbying (and delays) should be on the spending side, so that the taxing can be automatic.

How can a tax be neutral and automatic? We're already familiar with a hidden tax that automatically affects all cash (and all fixed debt obligations payable in cash). It's called inflation, but it is hardly neutral. Well it is neutral in the sense that it affects each dollar of cash (and debt) the same. But people can simply shift their assets out of cash and debt and escape this tax. Now, if the inflation tax applied to all assets, it would be the perfect tax:

1. Each dollar of wealth in the system would be reduced by the same percentage. So taxpayers would have no change in their relative buying power after paying the tax than they had before.

2. Government spending would AUTOMATICALLY trigger this hidden tax-- the laws of economics would dilute the dollars of value in the system. No tax proposals would need to be raised. No lobbyists would swarm on the scene.

A Net Worth tax, collected at the end of a period in the EXACT amount of that period's government spending, achieves the same result. See my previous article: http://www.financialsense.com/fsu/editorials/zweig/2009/0709.html

Here's how readers responded:

1. "Only people that accumulate wealth would get socked with the burden of taxes? How about people that spend all that they make, and wealthy people that are deeply in debt?"

The SOLE purpose of the net worth tax is to mop up inflation by deflating the dollar value of assets. It does not reallocate wealth, and therefore is not a burden. If it is decided to reallocate wealth away from big spenders and/ or debtors, then enact separate taxes or fees for them. The net worth tax is important, because it keeps the economic system from collapsing. If politics is mixed in with it in any way, it will fail.

2. "No, I do not want to declare my assets. It is against my understanding and belief of liberty and private property."

Well, inflation was an assault on private property. And what do you think will happen to liberty when the economic system collapses? Survival brings about changes in our thinking.

The smart money is into wealth, not the treadmill of income/ spending, and has been gaming the system in their favor for years. Consider this quote from Charles Adams, For Good and Evil: The Impact of Taxes on the Course of Civilization, p.402:

"Unfortunately, the richer a taxpayer, the easier the avoidance. Howard Hughes' planning was so simple any junior accountant could have done it... Governments frequently publicize information on large income earners to show that they are paying a substantial amount of tax. From these statistics the situation for the super-rich appears to be under control. What these statistics fail to reveal is the number of multimillionaires who have little taxable income, pay low taxes, and could, if they had the nerve, apply for welfare!"

So the wealthy would work hard to keep a net worth tax from ever surfacing. Especially with concentration of the wealth at the top increasing in recent years. One reason we have not seen hyperinflation yet is that they are not letting go of their ever increasing share of the wealth. So much of the wealth is hidden and concentrated that a net worth tax would be very tiny for the vast majority of people. And as I have shown, this would not be soaking the rich since their relative buying power would remain unchanged by the tax.

Is it still possible to prevent collapse and disintegration into a system of localized barter? A net worth tax won't erase the existing government debt, but may prevent it from increasing. That would be a start.

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