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Posts Tagged ‘Tax Increases’

The Real Tax Scandal | Mises Institute

Posted by M. C. on June 10, 2021

Yet the real scandal here is not the IRS leak, which was no doubt internal and designed to gin up public support for Biden’s proposed tax increases while advancing a progressive inequality narrative.

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life.

Jeff Deist

The self-styled investigative journalism outlet ProPublica recently published private IRS tax information—presumably embarrassing private tax information—for a host of ultrawealthy and famous Americans. I say “self-styled” because the organization claims a pretty lofty and self-important mission to use the “moral force” of journalism on behalf of the public interest against abuses of power. But does this apply to state power, such as when a federal agency employee illegally leaks sensitive material to media? And why is it presumed to be in the public’s interest to have rich billionaires pay more in taxes? Maybe we’d rather have them investing in their companies, or at least buying megayachts and Gulfstream jets, rather than sending more resources to the black hole of DC? Why is the public interest always defined as “things progressives like”?

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

And as an aside, it’s worthwhile to recall the tremendous whopper of a lie President Franklin Delano Roosevelt told back in 1935—namely that no one other than the program’s administrators would ever know your private Social Security number. Today, of course, Social Security numbers are the absolute linchpin of one’s entire financial identity, and known by everyone from the IRS to your local credit union.

Yet the real scandal here is not the IRS leak, which was no doubt internal and designed to gin up public support for Biden’s proposed tax increases while advancing a progressive inequality narrative. Political capture of federal agencies is nothing new or shocking; that’s what presidents do (or have done to them). Nor is it particularly scandalous that the wealthiest people sometime pay little in federal income tax, at least relative to their income. After all, elites by definition tend to wield power rather than fear it, especially when it comes to state power. And they have lobbyists and accountants to make sure taxes remain something the little people pay.

No, the real scandal is this: federal income taxes are almost entirely about control and not revenue. The byzantine rules and selective enforcement are perfectly designed to keep ordinary people with limited means in mortal fear of the IRS. A tax audit, like cancer, can come out of nowhere and ruin your life. In some cases it can land you in jail. Tax enforcement is the ultimate check on the public’s behavior; after all, who takes up the cause of a tax cheat? For middle-class Americans the IRS is an existential threat, but for Jeff Bezos it is another business expense to be minimized.

And as for revenue, consider that Uncle Sam borrowed nearly half of the dollars spent by Congress in fiscal 2020. With covid shutdowns, federal income taxes amounted to about $3.42 trillion, while spending was $6.55 trillion. If the federal government can finance 50 percent of its annual spending through deficits, why not 80 percent or 100 percent? Why do we need the IRS terror regime at all?

Again, this is about control. Progressives will never give up the income tax for this very reason. Proponents of modern monetary theory, for example, are almost uniformly left progressive in political outlook. These are the people cheering Biden’s >$1 trillion infrastructure spending bill because of their fervent belief that deficits don’t matter.

MMT rests on two central assertions.1 First, sovereign governments with their own currencies can print as much money as needed to fund operations without fear of insolvency or bankruptcy—unless a purely political decision is made to go broke. Government deficits per se do not matter, because the only real constraint in any economy is the amount of real resources available rather than the amount of money. In fact, MMT views government debt as private financial wealth—money inserted into the economy by the central state but not taxed back. 

Second, sovereign governments with their own currencies can require tax payments to be made in that currency. Therefore any overheating in the economy in the form of inflation resulting from too much money can be fixed by pulling some money back to the Treasury via tax increases. This is the ostensible reason MMTers are not quite ready to give up on taxes altogether.

Yet I’ve never heard an MMTer express support for even a one-year moratorium on taxes to stimulate a bad economy (after a shock such as a worldwide covid pandemic). Why is this? If inflation really is so low, with the economy struggling in postcovid recovery mode, why pull any money back into federal coffers? Just damn the torpedoes! The bigger the deficit, the more “private wealth” we all have! Perhaps there is a political element to all the MMT jargon after all, one which relies on taxes both for control over people and to advance an advantageous but hollow trope about taxing the rich.

Federal income taxes have always been a tool for compliance. The IRS has always been a tool for presidents to go after rivals—or for rivals to go after presidents. Why would we expect otherwise?

  • 1. See Dr. Robert P. Murphy’s definitive critique of MMT and Professor Stephanie Kelton’s book here.

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Ohio Residents Just Abolished Two Villages Over Tax Increases

Posted by M. C. on December 8, 2019

Last week, a New York Times reporter reached out to ask if I had heard that the village of Amelia, Ohio was dissolving over a tax increase. Facing an unpopular new tax, voters went to the polls and just… abolished their local government.

I wasn’t aware of the drama bubbling up in Amelia (or in nearby Newtonsville, also dissolving over a new tax), but I wasn’t surprised, either. As the resulting Times article notes, at least 130 municipalities dissolved between 2000 and 2011, without, presumably, seeing the communities descend into anarchy. The loss of Amelia and Newtonsville brings the count of recently dissolved Ohio municipalities to 14. So what’s going on, and what do taxes have to do with it?

In most of the country, the governmental hierarchy is relatively straightforward: states are divided into counties, and those counties contain some range of municipalities—cities, towns, villages, boroughs, townships, hamlets, and the like. But, especially outside more densely populated regions, you can also find vast tracts of unincorporated land, where no (or limited) municipal government exists below the county level. Here, core services like police, fire, and emergency services, along with road maintenance and other government functions, are provided by the county or even the state, while more municipal-oriented services—water and sewer or waste management, for instance—are either privately provided or non-existent.

For many rural areas, this works reasonably well. Many of the amenities offered by a city or even a town aren’t necessary for or even suited to a rural community, and even a village like Amelia may not need much that higher tiers of government cannot provide. (In Amelia’s case, it will not become wholly unincorporated, but instead partitioned among two townships.)

Sometimes, in fact, having too many layers of local government introduces a great deal of complexity. Ohio is an example of this; so is neighboring Pennsylvania, where there are eight classes of counties (with five different property tax codes), four classes of cities, two classes of townships, and two configurations of borough government, and where each township holds elections for local offices all the way down to local tax collector and municipal assessors. This does not always make for effective, professional administration, and residents can find it frustrating to comply with local taxes and administration that are often idiosyncratic and duplicative.

If Ohio is not quite so bad in this regard as Pennsylvania, it is almost certainly second worst. Local income taxes, the bane of Amelia and Newtonsville, are heavily concentrated in the two states situated at the Forks of the Ohio, with Pennsylvania “boasting” 2,978 local income tax jurisdictions and Ohio claiming another 848, together accounting for 77 percent of local income tax jurisdictions nationwide, more than ten times their share of the U.S. population. It’s fair for Ohioans to ask why they’re paying local income, sales, and property taxes when vast swaths of the population nationwide only face property taxes as a major local tax. And it’s not like they’re getting a break on the property taxes, either: Ohio’s property taxes are the 9th highest in the country as a percentage of owner-occupied housing value…


In other words, the new municipal income tax increased a typical family’s state and local tax burden (among major taxes, at least) by 11 percent, and their state and local income tax burden by 44 percent. That’s significant, especially if the benefits of living in a small incorporated municipality aren’t that substantial.

It’s hard to give up a local identity, but you have lightly populated counties in Plains States constrained in size by the ability to take a horse and buggy to the county seat within a day’s time; you have towns in the Midwest that have lost most of their population and could gain economies of scale by joint service agreements with neighboring jurisdictions. You have levels of government that are sometimes no longer suited to 21st century needs.

This is not always just about taxes, but taxes are a major part of it. People are willing to pay for local services—but they want to get something for their money. And there will be times when that perfectly reasonable expectation is in tension with the smallest units of government.

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