Recently, Republican leaders in Congress unveiled a "tax reform" plan that
they claimed would provide the American people with a simpler, fairer, and
more efficient tax system. While this plan does lower some tax rates and contains
some other changes that may make next April a little less painful for Americans,
there is little in it to excite supporters of liberty.
Taxes may even increase under this plan for some Americans, as it eliminates
some of those tax deductions labeled "loopholes." When I served in Congress
I opposed bills that "closed loopholes" because closing loopholes is just a
fancy way of saying raising taxes. Anything that leaves more money in the hands
of the people is beneficial to both liberty and economic efficiency. As economist
Thomas DiLorenzo put it, "...private individuals always spend their own money
more efficiently than government bureaucrats do," therefore sound economics,
as well as a concern for liberty, requires opposition to any proposal to "let
government bureaucrats spend more of the people's hard-earned money."
Tax reformers also stray from sound economics when they endorse a tax system
that is designed to direct consumption and savings. I share the concern that
the current tax system distorts people's behavior by discouraging savings.
However, the solution is not for the government to create a tax code that punishes
consumption in order to encourage savings. A truly efficient market is one
where individuals are completely free to determine how to allocate their incomes
between consumption and savings. No politician or bureaucrat can know the proper
allocation of savings and investment that meets the needs of every individual,
and government policies designed to cause individuals to devote more of their
income to savings than they otherwise would distorts the market just as much
as policies that encourage excess consumption.
The Republican tax plan adopts what is called "dynamic scoring." Dynamic scoring
is designed to recognize that tax cuts, by incentivizing work and investment,
can increase revenue to the government. This is the argument of the famous
Laffer curve. It has always seemed odd to me that a supposed free-market economist
would argue for tax cuts on the grounds that it would enrich the state's coffers.
After all, the more money the state has the greater its ability to violate
our liberties. Does this mean that those concerned with liberty should vote
against tax cuts? Of course not; the solution is to make sure tax cuts are
big enough that they cost the government revenue.
Sadly, politicians in Washington refuse to consider any tax plan that would
decrease government revenue. This is because the prevalent attitude in DC favors
protecting the welfare-warfare state over protecting our liberties. As the
obsession with the Laffer curve shows, even many alleged supporters of the
free market only pretend to support liberty as a means to enhance the well-being
of the welfare-warfare state.
Many politicians in Washington also forget that deficit spending is itself
a tax. When the government runs deficits it uses money that could be more efficiently
used by the private sector. Deficit spending also leads the Federal Reserve
to monetize debt, thus burdening people with the inflation tax.
Instead of worrying over the latest plan to enable the government to more
efficiently take our money, people who want to advance liberty must focus on
breaking the intellectual and political consensus in support of the welfare-warfare
state. Only then can we radically reduce all taxes, including the most insidious
and regressive of taxes -- the inflation tax.
