A hypothetical elimination of Federal Taxes

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Mark Leavy
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A hypothetical elimination of Federal Taxes

Post by Mark Leavy » Mon Aug 31, 2020 5:46 pm

I'm resurrecting something I had been pondering years ago. Stay with me on this...
I'm going from memory on the numbers, so if they are wrong, please correct me.

Federal Spending typically runs about 20% of GDP. Inflation typically runs about 2%.

It turns out (if I remember correctly) that 2% of all USD based assets is roughly equal to about 20% of GDP (annually).

What would happen if the US Federal government stopped collecting taxes in any form? Congress passes a law that they can print the money they need, capped at (say) 20% of last year's GDP.

We would have 2% (?) inflation, no income taxes, no paperwork. How is that not better all the way around?

Obviously, in the real world, income taxes are not just a source of revenue but also a thumb on the scale of policy. (Deductions for solar, penalties for no health insurance, better rates if you are married, encouraging education, etc.) All of that would be lost, but I argue that neutrality is better in the long run...

This, in essence, exchanges the current federal tax system for a wealth tax. Inflation is a wealth tax. It is also a progressive tax - in that people that don't save anything and live paycheck to paycheck, essentially are not affected. (Assuming annual cost of living raises).

In general, I'm not in favor of a wealth tax, but if I'm going to pay 2% annual inflation anyway... I may as well not have to fill out the forms.

Mark
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technovelist
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Re: A hypothetical elimination of Federal Taxes

Post by technovelist » Thu Sep 03, 2020 4:33 pm

Mark Leavy wrote:
Mon Aug 31, 2020 5:46 pm
I'm resurrecting something I had been pondering years ago. Stay with me on this...
I'm going from memory on the numbers, so if they are wrong, please correct me.

Federal Spending typically runs about 20% of GDP. Inflation typically runs about 2%.

It turns out (if I remember correctly) that 2% of all USD based assets is roughly equal to about 20% of GDP (annually).

What would happen if the US Federal government stopped collecting taxes in any form? Congress passes a law that they can print the money they need, capped at (say) 20% of last year's GDP.

We would have 2% (?) inflation, no income taxes, no paperwork. How is that not better all the way around?

Obviously, in the real world, income taxes are not just a source of revenue but also a thumb on the scale of policy. (Deductions for solar, penalties for no health insurance, better rates if you are married, encouraging education, etc.) All of that would be lost, but I argue that neutrality is better in the long run...

This, in essence, exchanges the current federal tax system for a wealth tax. Inflation is a wealth tax. It is also a progressive tax - in that people that don't save anything and live paycheck to paycheck, essentially are not affected. (Assuming annual cost of living raises).

In general, I'm not in favor of a wealth tax, but if I'm going to pay 2% annual inflation anyway... I may as well not have to fill out the forms.

Mark
That would probably be better than the system we have now.
But if the federal government just limited its activities to those authorized by the Constitution, they wouldn't need nearly so much money in the first place.
Another nod to the most beautiful equation: e + 1 = 0
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Re: A hypothetical elimination of Federal Taxes

Post by Mark Leavy » Thu Sep 03, 2020 9:24 pm

technovelist wrote:
Thu Sep 03, 2020 4:33 pm
That would probably be better than the system we have now.
But if the federal government just limited its activities to those authorized by the Constitution, they wouldn't need nearly so much money in the first place.
I agree. But neither of our hypotheticals are likely to happen. I do so like exploring different "what ifs", though.

For instance, I don't push any political agenda but I love hearing how different models might work. Your thoughts make me think, much the same way that Heinlein makes me think. I don't have to believe it could ever happen, but it helps me to look at the world differently.

Mark
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Maddy
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Re: A hypothetical elimination of Federal Taxes

Post by Maddy » Fri Sep 04, 2020 7:51 am

If Trump were to declare an end to federal income taxes, he could win in a landslide. Anyone care to place bets on whether that's exactly what's in store?
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technovelist
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Re: A hypothetical elimination of Federal Taxes

Post by technovelist » Fri Sep 04, 2020 8:08 am

Mark Leavy wrote:
Thu Sep 03, 2020 9:24 pm
technovelist wrote:
Thu Sep 03, 2020 4:33 pm
That would probably be better than the system we have now.
But if the federal government just limited its activities to those authorized by the Constitution, they wouldn't need nearly so much money in the first place.
I agree. But neither of our hypotheticals are likely to happen. I do so like exploring different "what ifs", though.

For instance, I don't push any political agenda but I love hearing how different models might work. Your thoughts make me think, much the same way that Heinlein makes me think. I don't have to believe it could ever happen, but it helps me to look at the world differently.

Mark
That's a tremendous compliment, as I'm sure you know. Thanks.

I've read everything he has written, and several of his books are on my all-time favorites list. The most obviously relevant one with respect to political philosophy in general is The Moon Is a Hash Mistress.

However, another one that isn't nearly as well known is very topical right now: Friday. If you haven't read that, I recommend it highly: in addition to being a a rip-roaring adventure story, it depicts a dystopian America that has fractured into numerous mini-states.
Another nod to the most beautiful equation: e + 1 = 0
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