General Question

whiteliondreams's avatar

Can the United States operate without income taxes?

Asked by whiteliondreams (1711 points ) June 23rd, 2012

In what ways would the United States be better off without income taxes? Vice versa.
Has there been a better system developed that can replace the current system or improve it?
How is the system fair or unfair?
Was the incorporation of income taxes justifiable in the sense that the people were satisfied with what Congress proposed and was it a justifiable decision for the whole?
How would You propose a better taxation system?
Should income tax be used to support both a state and federal Army; public schools; individual city taxes; property taxes, etc?

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27 Answers

Nullo's avatar

Not as we know it, it couldn’t. That may not be such a bad thing, though. Less money would necessitate a reduction in the size and scope of the thing, meaning a bit more freedom all around.

athenasgriffin's avatar

Without income taxes we would probably have to rely on increased sales taxes which would hurt the poor, who spend a greater proportion of their income than the rich. I believe we should have a progressive tax rate with no loopholes, no way for the very rich to wiggle out of them.

ETpro's avatar

There are certainly other models to finance a government. A Value Added Tax collects a percentage of the value added by each step in the manufacturing and distribution of the product. In its pure form, it’s a regressive tax because the basic staples of existence are the same for the pauper and the the multibillionaire.

lillycoyote's avatar

I suppose it could but the revenue would be have to be made up for some other way. Trillion dollar wars, e.g. need to be paid for somehow, don’t they?

wundayatta's avatar

The US could operate, but at a much lower level of government services. You’d have to give up the military and probably everything else except Social Security and Medicare. You’d probably have to raise some serious sales taxes in order to pay for those two. People would not be happy. But it would be possible. I’m not sure how long any government that created such a change would last, though. It would be a great time to be a rich person, though.

Income tax has the advantage that it can be applied in a progressive way. You can charge people according to their ability to pay. It is a fairer way of paying for government than any other way I know. This is important for the legitimacy of the polity.

jrpowell's avatar

I’m cool with taxing property at a higher rate. If you hate income tax we could simply tax the shit out of people that just bought 98% of a Hawaiian island or any other land owners.

edit: Property taxes are high in Oregon and we don’t have a sales tax. 99 cents for a bag of chips is 99 cents. If you can afford a house you can swing a few extra thousand a year.

Response moderated
bolwerk's avatar

The way the U.S. federal government operates, certainly not. If the scope of the federal government were scaled back, individual states would have to make up for the shortfalls in services, and the likely cost to the U.S. economy as a whole would be greater for the same services.

The likely outcome? The main price would be the loss of a unified fiscal policy, probably without any particular economic benefit. Most services would still be demanded, and states would have to provide them in an inconsistent patchwork manner. Some might behave foolishly, like the PIIGS, and tank themselves – and in turn need bailouts from other states that followed an otherwise sound fiscal policy.

Some things, like current U.S. military spending, would probably be impossible to sustain without a unified fiscal policy, of course.

The only advantage I can see is maybe it makes experimenting easier for localities, but I think that could be achieved anyway through selective deregulation.

Response moderated
Qingu's avatar

@Nullo, less government in no way equates to more freedom.

For example.

whiteliondreams's avatar

@ Everyone… So if people are unhappy now with the situation the economy is in, aside from income taxes or taxes in general, what would make the economy turn around, so to speak?

Qingu's avatar

The economy is suffering from a demand gap, creating a vicious cycle with high unemployment. The government can stimulate demand by spending money (such as on infrastructure) and directly employing people (such as teachers). But we are also hampered by high debt, both public and private. The government (public) has a huge debt, which means there’s hesitation to borrow money to pay for more stimulus measures. And private citizens are in debt, which means they’re spending income paying down debt instead of pumping it into economic activity.

So the question becomes what is a higher priority for the government: stimulating demand and fighting unemployment, or dealing with the debt.

The answer is that stimulating demand and fighting unemployment must be the higher priority, because you cannot pay down the debt with high unemployment. The “austerity measures” in Europe have proven this; European countries tried to pay down debt instead of stimulating demand, and the result was worse unemployment and worse debt.

Luckily, the US government is not a European country: we can still borrow money at incredibly low rates, even with our high debt. So we need to borrow money in the short term to finance another stimulus, aid to states, anything the government can spend to boost unemployment. Then once unemployment gets under control, then we can pay off the deficit (which will be easier since more workers = more revenue). Also, the Fed needs to pivot from its 2% inflation target; it needs to tolerate higher inflation since inflation always accompanies a growing economy.

wundayatta's avatar

@Qingu Is there any evidence that higher debt levels would create much higher inflation? Or rather, I guess the real question is how much higher can debt go without stimulating higher inflation? My sense is that even at the debt levels we have now, we are not close to seeing more inflation. There is still a huge amount of unused capacity that could be put into production (both factories and workers) before demand would start creating shortages. Until demand outstrips supply, we won’t have inflation, and we aren’t close to being there, yet.

ETpro's avatar

@johnpowell Property taxes hit small landowners and poor renters. They leave the mega rich untaxed. Landlords that buy up most of a town don’t pay the property tax. They collect it from their poor tenants and pass it on to the government. A strongly progressive income and capital gains tax is arguably the fairest possible tax.

Qingu's avatar

@wundayatta, er… I’m not sure that high debt levels are directly tied to higher inflation. The danger of having high debt is that the “bond vigilantes” will suddenly demand higher borrowing costs. Right now, we can borrow money (by selling Treasury bonds) at an extremely low rate. The fear is that if our debt keeps on growing, the market will suddenly be like “holy shit there’s no way they can pay back all those bonds” and demand a much higher rate—crippling our economy.

So that’s not inflation. Rather, the usual response to high debt—printing money with which to pay back bonds—leads to inflation. This is why the United States can still borrow money at a low rate despite a huge debt—because the market knows we can always print more money. In contrast, European countries like Spain and Portugal cannot print more money to pay back their debts, so their rates have skyrocketed.

So printing money to cover debt—not the debt itself—is what leads to inflation. Or at least, it does in normal times. But in a liquidity trap, characterized by very low velocity of money and depressed demand, it does not. That’s why the Fed has been able to triple the monetary base since 2008 without creating a significant amount of inflation.

whiteliondreams's avatar

@ETpro Exactly. There are so many tax breaks for real estate investors that it would be no surprise that they can be hit no taxes just by doing a 1031 exchange.

robmandu's avatar

@johnpowell, when you’re responsible for a mortgage, utility bills, as well as the maintenance and upkeep of a home and then combine that with feeding and clothing your family plus their day-to-day needs for well-being, then please come back and talk to me about how I can afford to “swing a few extra thousand a year”.

That’s the problem I have with Tax The Hell Out of People With More Money Than Me™ strategies… its doesn’t take into account real people with real issues in their real lives.

I still love ya, man. Even if you are a hippie. :-D

wundayatta's avatar

@robmandu So if I spend all my money, would you support a tax reduction for me? I mean, I’ve got nothing left to pay my taxes with, so what’s the point of making me pay them?

Qingu's avatar

@robmandu, if you make more than 250k I feel absolutely no sympathy for you—even if you think increasing your taxes would create financial hardships for yourself. If this is the case, I would suggest you try to get some perspective, and try to imagine what it’s like to feeding and clothing a family and upkeeping a home (or renting) on 30k a year, or minimum wage.

ETpro's avatar

@robmandu There was a time in America when the top earners were taxed at 91% on earnings over $200,000 per year. Know what that terrible, “Tax The Hell Out of People With More Money Than Me™” time was called? The post war boom. That’s right, we built the middle class and a whole boatload of new millionaires and billionaires in that time. We also saw the largest expansion in the US GDP in the nation;s history.

Now I will be the first to grant you that $200,000 was one Hell of a lot of money in 1946, and it is definitely not so much thanks to inflation today. I’d be fine with a highly progressive tax system that indexes the top rates to inflation. But looking at percentage of GDP growth over time, the US has done best when top marginal rates ranged between 80 and 94% and our worst performance was when top marginal rates were lowest. I’d guess this has to do with the fact that if you starve the government of the money needed to invest in basic research and infrastructure, there are predictable bad consequences of that policy.

The 400 highest income tax returns last year paid an effective rate of 17%, or about half that levied on upper middle class wage earners. These 400 families own more financial wealth than the bottom 50% of the American public. If you want me shedding tears for the suffering of the Forbes Billionaire List and condemning the working poor for their laziness, you need to come up with a far better set of bumper stickers than you have trotted out to date. And while you’re at it, you might come up with policies that actually work to build GDP and growth for more than the top 1%

bolwerk's avatar

@ETpro: that 91% is somewhat misleading. It encouraged all kinds of investment and spending through deducations that no longer exist. When the inadvertent Keynesian Reagan dropped the rates, he effectively raised revenue through a backdoor tax increase.

suspendedfromaskville's avatar

In a capitalist system, especially one that inadequately regulates business, income taxes must do more than merely finance the costs of governance. Income taxes must serve a critical purpose in slowwwwing the redistribution of wealth into fewer hands over time.

Income becomes wealth over time. Those who earn more income become wealthier. Wealth accumulates in the hands of the most powerful. Money is power, and, as we all know from the Citizens United Supreme Court case, wealth is ‘free’ speech. This is not merely theoretical, but mathematically certain.

As the wealthy become wealthier, the richest people attain great LEVERAGE. For example, the increasing wealth gap was used in the early 00’s to stifle the computer revolution by purchasing the good works of the many people who made the internet what it is. Once the economy slowed, the excess wealth at the top consolidated more businesses. Competition vanished, consumer choices were reduced, quality went down, and, ultimately, real prices are climbing.

Excess wealth also went to buying legislation such as the 1996 Telecommunications Act that allowed fewer owners of media outlets. Then, of course, the actual purchase of radio stations, key internet portals, TV stations and whole networks, magaizines, book companies, record companies, etc., takes place. A smaller and smaller group of people control the information and the public becomes misled and confused.

Next, excess idle money in the hands of the rich becomes useful in wild market speculation, unlike anything seen before. Market bubbles bounce around in a casino-like environment, and many get ruined as the large amounts of money shift around from one thing to another.

Does any of this sound familiar to you?

Insufficient taxation of the highest income earners played a major role in where we are. Overall taxes in the US are down in recent years, and taxation of the wealthiest is down more.

whiteliondreams's avatar

This is depressing.

robmandu's avatar

Wow… lots of knee-jerk reactions to my simple quip.

I’m not saying that rich people shouldn’t pay taxes. I’m not saying that poor people should be taxed to death. I’m not saying anything at all about tax rates in general.

My point was just that it’s really easy to look at people that have more than you and want what they got. And I think it shows lack sympathy and perspective on the fact that they likely worked very hard to get it when you extol the government to go and take it away just so you don’t have to come up with your own contributions.

I work hard. I expect you do, too. I have to pay the same prices for everything you do, too. And I have additional taxes on several things already because of the choices I make. You might as well. So, please don’t go around telling the tax man to come and take more from me. You don’t know what I’m responsible for anymore than I know what you’re trying to do with your life.

And I guess I’ve got all of @Qingu‘s sympathy in the world as my household doesn’t bring in anything like $250k/year. ;-)

Qingu's avatar

Who is asking you to be taxed more, @robmandu?

ETpro's avatar

@robmandu The current propposal is for the pre-Bush tax rates to reset ONLY for those earning and adjusted gross income of over $1,000,000 per year. So nobody is targeting you is you earn well under $250,000 per year.

robmandu's avatar

Jeez guys, it’s no wonder we can’t have any kind of a coherent discussion here.

@johnpowell wrote in part, “If you can afford a house you can swing a few extra thousand a year.”

I replied in part, “That’s the problem I have with Tax The Hell Out of People With More Money Than Me™ strategies… its doesn’t take into account real people with real issues in their real lives.”

You guys jumped on me with your spin.

I responded to each of you.

And here we are.


Sheesh.

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