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Abolish Income Tax

Comment 6th July 2010

I think that income tax is a poor one because:

  1. It represents an intrusion by the state into the affairs of the individual; and
  2. It is not an efficient tax from an economic perspective.

Why does this matter?

Rather than read my own discussion below, you may prefer to listen to the eloquent Peter Schiff discuss the subject on youtube.

The point on privacy speaks for itself, so I will expand on the second.

Income tax is an inefficient tax because it requires a great deal of administration and record keeping by both individuals and companies. Think of the number of accountants whose sole function is to help people administer their taxes. This resource represents a drain on the economy. By contrast, a tax on consumption is easy to administer.

Furthermore, by taxing income, the government discourages investment. If taxation were more directed at consumption then this would represent an incentive to save and invest. It is investment and savings which provide capital for business growth – just think how much the government has been complaining about the banks' lack of provision of credit recently.

The argument that tax on consumption affects the poor disproportionately is fallacious. Consider what the point of having money would be, if one were never to spend it. If the rich save/invest their income rather than spend it then surely they do so with the goal of growing their wealth and spending it at a later date. Hence they pay the tax eventually anyway, whilst creating capital for the wider use of the economy in the meantime. (Note that economists call saving "deferred consumption".)

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