Americans complain endlessly about income taxes. And yet we hardly ever reflect on the heart of the matter: that even if every tax dollar were wisely spent, the very principle of the income tax is unfair.
The purpose of taxes is to pay for government. In exchange for taxes we get highways, soldiers, and diplomats. However, tax payments are unlike any other kind of payment. We can choose whether to buy an apple or an automobile, but as Americans we are forced to buy highways in Hawaii and soldiers in Germany whether we want them or not. Taxes are the obligatory cost of citizenship, and while even at our present high rates most people would consider citizenship cheap at the price, there remains the nagging question that since the government forces us to buy its products, shouldn’t it price them fairly?
The very products we have no choice but to buy are the ones that are priced the most unfairly. The problem is this: what the consumer pays has nothing to do with how much he consumes, but with how much money he happens to make. A man with a high salary pays more for the same soldiers and diplomats than a man with a low salary. It’s hard to see how people who make a lot of money get more out of the US State Department, for example, than people who make a little, but they pay more for it. And if a man makes more money this year than he did last year, the price of the State Department goes up; graduated taxes make us hand over a larger proportion of our income as incomes rise. Once more, the rationale is the baldly exploitative theory of “ability to pay,” rather than any principle of fairness. Nor does the price of the State Department have an upper limit. Its, price never stops going up unless a man stops making more money.
Is this fair? In every other transaction, citizens are treated equally under the law and under the accepted practices of commerce. The rich pay no more for the same tube of toothpaste than the poor. Anyone can choose to buy toothpaste or not, and its price is the same no matter who buys it. If income or “ability to pay” is the wrong criterion for setting the price of toothpaste, why is it right for the State Department?
In fact, as more and more tax money is spent on social programs, those who pay no taxes at all—the legitimately needy and the morally lax—receive far more government services than the people who pay the most taxes. Thus we have the doubly ridiculous spectacle of government not only selling the same goods at different prices, but giving away the most to the citizens who pay the least.
“Ability to pay” is as idiotic a pricing theory for government services as it would be for anything else. Since productive citizens all benefit more or less equally from government, they should pay for it equally. The fairest tax is a fixed amount per person—a capitation or head tax. It’s not hard to figure out how much that tax should be. According to the IRS, the average 1986 individual income tax return netted the government $4,280. This does not include Social Security, because that tax doesn’t pay for common public goods and services. However, this figure is close to the theoretical federal head tax, or the amount that each citizen should pay for his share of government.
With a head tax, if there were variable pricing, it would be based on inability to pay. A citizen with an income of less than $4,280 clearly couldn’t pay his share, nor could one with an income of not much more than that. For incomes below a certain level, there could still be a sliding tax scale based on inability to pay. The actual head tax would therefore have to be somewhat higher than the average tax, in order to make up for people who couldn’t pay in full. However, anyone who could pay in full would have delightfully simple relations with the IRS. He wouldn’t have to disclose any information about his wealth or income, and a personal check would be his only tax form.
A head tax has two great advantages over an income tax. It’s fair: most citizens would pay the same price for the same government services. And it’s simple: the nation would save billions of dollars wasted on figuring out taxes that are unfair to begin with.
Hardly anyone recalls that Karl Marx was one of the first and most vigorous advocates of graduated income taxes. It is only because income taxes have been part of our lives for so long that we have gotten used to them. The pain of even the most arrant injustice is dulled by habit.