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How to fund the federal govt

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AntiNeoFascist posted on Mon, Jan 24 2011 2:27 PM

I recognize the problems with current taxation at the federal level. However, I have no problems with local/state govts taxing however they see fit. As I see it, as long as people have the freedom to move, those cities/states with overly oppressive taxes will push their people away. 

In fact, I feel that it would be better to have the majority of taxes going to local (where the taxpayer would benefit most), then some % less to state, then some % less to federal. However, I'm against direct taxation by the federal govt. 

So my question is, in an Austrian-style world, with a minimal Federal level govt that deals with protecting individuals against force/fraud and especially protecting private property, what is the Austrian approach to funding a federal/national govt?

I've done some searching but I can only find the critical analysis against much of modern tax policies, but can't really find anything that gives a good explanation of the Austrian approach. I have some ideas of my own that would seem to align themselves with an Austrian philosophy, but I'd rather hear from the community.

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Gero replied on Mon, Jan 24 2011 2:47 PM

The majority of Austrian economists and libertarians here seem to be anarcho-capitalists. They believe “protecting individuals against force/fraud and especially protecting private property” can be done privately.

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From a pure Rothbardian perspective, the answer is that all "taxation is theft."  Thus, no taxation is justifiable.

However, there are certain kinds of taxation which are less bad than others.  The best form of taxation would be a single tax on voting.  Since voting is a choice, everybody would be able to avoid taxation merely by not voting.  On the other end, the worst taxes tend to be ones that greatly hinder capital accumulation (which is what causes wages to rise).  For example, the death tax (called the "estate tax" by its supporters) is especially bad because it is a heavy tax on all of a person's accumulated wealth.  This encourages wealthy people to consume rather than to try to produce more wealth.  Taxes on businesses (such as corporate taxes) are also particularly bad, as they are a tax on productive activity.  Taxes that are extremely complicated and require large amounts of time to comply with them are another very bad kind of tax.  The present income tax in the United States wastes a great deal of time and money on the unproductive industries dedicated to tax preparation.  A VAT-style sales tax is another one that is very bad, as it is a tax that is collected at every stage of production.  This would cause a great increase in prices which would likely be blamed on "price gouging" businessmen and would lead to calls for price controls.

If we are going to have a government (and government is objectively unnecessary), then it should be funded by voluntary contributions, user fees, and a voting tax.  If we have no choice but to fund the government coercively, then I would prefer to finance it through either tariffs or excise taxes, as it is possible to avoid these kinds of taxes by refusing to buy foreign products or not buying the products that are taxed under the excise tax.  In the 19th century, the federal government was financed through a tariff (the libertarians of the time wanted it to be limited to "revenue only" while the statists of the day wanted a higher "protective" tariff), excise taxes, and land sales.  If we restored constitutional government in this country (and defaulted on the national debt), we would be able to fund the government the same way it was funded in the 19th century.  As a short-term proposal, I would suggest abolishing income tax withholding and requiring people to pay their full amount of taxes to the government.  At present, thanks to this brilliant idea of that Keynesian Milton Friedman, many people actually think that the government gives them "free money" every year.  This was a "temporary wartime measure" when it started in the 1940s, but "temporary" turned out to mean permanent.

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Economically speaking, the only tax that makes sense is the property tax, since in theory the purpose of government is to protect property, and thus the more property you have the greater the cost to government to protect you.

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unless it is voluntary, it is theft.

humanity will never evolve past the slavery model as long as "legitimate" theft is a concept that is acceptable.

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From a pure Rothbardian perspective...

Clearly. And I recognize that, but I'm interested in what ideas exist for (hopefully non-coercive) taxation revenue generation, for a small (albeit admittedly non-purist) Federal govt environment. 

then it should be funded by voluntary contributions, user fees, and a voting tax.

What do/would "user fees" look like? Is this like DMV type fees?  What type of fees would exist at the federal level in a minimal federal govt?

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Economically speaking, the only tax that makes sense is the property tax, since in theory the purpose of government is to protect property, and thus the more property you have the greater the cost to government to protect you.

Interesting. I've never thought about property taxes that way, but that makes sense.

What do/would "user fees" look like? Is this like DMV type fees?  What type of fees would exist at the federal level in a minimal federal govt?

People would voluntarily pay the government (or whoever is protecting the property) a certain amount each year, or any amount of time. Those who are confident enough in protecting their own property wouldn't pay the insurance for protection, but that's okay because it affects no one else. A "minimal" federal government is disputable depending on each person, but, aside from property tax, you would have judicial and military fees, and some other things. What services would your idea of a minimal government provide to the people?

"Every normal man must be tempted at times to spit on his hands, hoist the black flag, and begin to slit throats." - H.L. Mencken.

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Ok, then how about simply discussing some interesting or innovative revenue generation ideas that adhere to the principle of non-coercion of individuals. Here are a couple of the ideas I've had. (again, keep in mind I'm picturing a stop-gap society between current (US-style) structure and pure anarcho-capitalism. That is, 1) still have a federal govt, but it's small and limited 2) state govts can do whatever they want [i.e. within the confines of a Federal constitution], with the check that people can emmigrate to other states)

 - Selling high-yield bonds and tax the "cash-in" value? 

 

  • This makes it more of a voluntary contract vs coercive method of garnering revenue
  • By taxing the cash-in value, bonds wouldn't be pure debt like most current low-yield bonds
  • Could be
    • flat tax (e.g. Will take $1000 at cash-in) thus incentivizing long-term holding
    • % rate (e.g. Will take 5% at cash-in) 
  • If they truly wish to sell the bonds, would have to keep the yield rate relatively high and the tax relatively low

 

- Taxation of Govt-Lottery winnings

  • Again, voluntary participation
  • High yield for govt
  • No debt
  • Would have to compete against potential private lotteries

 

- Direct taxation of the state govts

  • E.g. 2% of state tax revenue
    • Consider only tax revenue and not entire revenue, thus incentive for state govts to generate revenue by means other than coercive taxes 
  • This avoids state+federal compounding of taxation
  • By having one govt taxing another, there's a check against the federal govt hiding taxes from uninformed people or rationalizing it with platitudes and encourages pushback against oppressive or unfair taxation
  • My only concern with this is that with such a minimal federal govt, what would keep a state from deciding the value it got from such a small fed govt wasn't worth the tax and so would choose to secede?

 

 

I'm sure there are some (dis)incentive elements that may make these not work, but what do you think?

Anyone have some other ideas?

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