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A Few Thoughts About Replacing the IRS with Excise Taxes and Tariffs

3551 sats \ 35 comments \ @Undisciplined 28 Feb econ

I've been very hopeful that the proposal to replace the IRS, and all of the taxes it collects, with a combination of sales taxes and tariffs, will go through, but just this morning some of the secondary effects of such a change occurred to me. Now, I'm even more hopeful that this happens.

The Obvious Benefits

My initial reasons for excitement were the obvious ones: consumption based taxes have better incentives than production based taxes (I know tax incidence muddies the waters, but this is still true) and consumption taxes are more avoidable than the slew of individual and corporate taxes currently in place.

Financial Privacy

One second order benefit occurred to me immediately: Without taxes on income/payroll/inheritance/capital gains/etc. the state loses most of its rational for its rampant invasions of our financial privacy. Since most businesses are already subjected to the invasion of their financial privacy (through state and local sales taxes), this is a huge net positive.

Not only is this better for its own sake, but all of the monitoring that goes into current financial surveillance is costly. Getting all of those transactions costs out of our financial system will be a huge positive.

No More Benefits Tied to Employment

This is what hit me this morning. The reason Americans get so many benefits through their employers is because they're tax exempted.

Having our healthcare tied to our employer, and largely decided by them, is a huge distortion in the health care market and it radically reduces competition. Without preferential tax treatment, we would just be paid out that money in our salaries and make our own health care choices. As such, expect the current medical-industrial complex to fight this tax reform tooth and nail.

The other element of this that I realized is that retirement accounts will lose the tax penalty, come withdrawal time (obviously depending on which type you have). That'll be a huge boon for many of us, and make up for the impending collapse of Social Security.

What Else?

I haven't spent much more time thinking through other implications. What other effects will there be if the current tax regime is replaced with sales taxes and tariffs.

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339 sats \ 0 replies \ @kepford 28 Feb

I think you covered it pretty well. Entrenched interests would oppose it.

I have been surprised by the speed and depth of Elon's cuts. I was not surprised that the republicans approved a massive budget that doesn't cut spending. While I favor any government cut it is crazy that spending is not being cut in the budget. Why? Because the average voter does not care at all about spending. I mean they don't want taxes spent of things they don't like but duh... that's everyone.

So no one is opposed to massive tax on our children (deficit spending). Every congressional budget is a sentence of slavery for our decedents. People just don't see it. The people are just comfortable in their fancy digital cages, driving their cars. They don't want freedom. They don't want liberty. Not really at least. They don't understand free markets. They need daddy government to make them feel safe. They have prostrated themselves at the feet of the false god of the state.

I've long accepted this. It sounds negative and it is. But understanding this is freeing. The fact that we have bitcoin is hopeful. Personally, my faith in Jesus is at the center of my hope. I'm an alien, a citizen of the kingdom of God. I'm not gonna change the minds of the masses but I can influence my family and friends. Maybe I can peak the interest of someone on SN or Nostr. That's enough for me.

53 sats \ 1 reply \ @028559d218 1 Mar

How on Earth do we replace 'the IRS' with tariffs? The math absolutely doesn't add up and where did people possibly get these weird notions?

IIRC import duties (import 'tariffs') would need to be around... 300% to make the math work. At which point there would practically be no imports except for things that can't possibly be made in the US.

So with no imports, there are no 'taxes paid' because the trade volume is so much less there's no revenue.

And if things 'are' imported (because they're no available domestically) they are like... 4x the price of before. Who does this help?

Furthermore, replacing income taxes with 'consumption taxes' is wildly regressive. I mean I GUESS if the American people vote for it then OK... but it's essentially saying 'hey if you have a large income your income taxes go down A LOT'.

But if your income is small... your 'income tax' stays the same but your taxes for purchases (sales) go up probably a lot.

Are people really going to support that if they understand it? And if they 'don't' support that and they vote for it anyway... is that ethical?

0 sats \ 0 replies \ @Undisciplined OP 1 Mar

The proposal is a 23% sales tax, with rebates per household to cover the additional cost of taxes on basic necessities. So, it's not "wildly regressive" and it does cover the current amount of revenue.

People don't like or understand the current tax system, so how would it be ethically different to replace that with another system they don't understand?

There's a whole literature on optimal tariff rates. For a large country, it's not right to assume that the world price stays the same after tariffs are levied. The reduction in quantity demanded from the importing country drives down the overall price, so the ultimate price paid is higher, but not by as much as the tariff rate.

Btw, I tried to zap your comment, but it doesn't appear to be going through. Is your wallet malfunctioning?

42 sats \ 1 reply \ @BlokchainB 28 Feb

I can’t stand the income tax. It’s regressive and it hurts overall productivity. The fact the most skilled people of society (brain surgeon) get taxed at the highest rates (40 to 70% depending on state and local taxes) is cuckery to the max and people wonder why the best and the brightest go into banking and finance because of the tax structure.

The argument against this is that it hurts low income citizens. Paying for consumption on every day items like bread and apples rubs most politicians the wrong way and all of sudden want taxes to stay to stop the wealth inequality not realizing how the fed can grow a $9T balance sheet having done absolutely nothing to earn and buy $9T worth of anything!

If this tax can be rolled out and be regressive for human daily needs than I would be for it. But we both know that will never happen. The income tax is never going away

136 sats \ 0 replies \ @Undisciplined OP 28 Feb

I didn't mention it in this post, but the proposal includes a rebate to account for exactly the concern you raised. It would be a household rebate that's based on number of people in the household and scaled to cover the taxes on basic necessities.

I'm not at all confident that it will never happen, but it certainly might not happen soon.

49 sats \ 2 replies \ @kepford 28 Feb

The reason Americans get so many benefits through their employers is because they're tax exempted.

Man people don't get this. Why is health insurance so tied to employers... its all for reasons and they aren't for your good. Its sick.

50 sats \ 1 reply \ @Undisciplined OP 28 Feb

My recollection is that employees generally cost about 60% more to their employers than their take home pay. That means many people would be getting 60% raises, which would more than cover their new expenses.

0 sats \ 0 replies \ @kepford 28 Feb

Yeah, that sounds about right.

38 sats \ 1 reply \ @Coinsreporter 28 Feb

If we start thinking too seriously, we'll find faults in everything. I'm not an economics professor but I've a feeling deep down that Trump won't be lowering any taxes.

0 sats \ 0 replies \ @Undisciplined OP 28 Feb

It's not about lowering, although he did lower taxes last time. It's about changing the type of taxation.

37 sats \ 3 replies \ @Satosora 28 Feb

The healthcare system is so messed up. They have improved it by offering hsa for people that are more healthy.

10 sats \ 2 replies \ @Undisciplined OP 28 Feb

True. HSA's would be unnecessary in this scenario, as well. You could just earn money and then decide what to do with it. No more of these weird tax created hoops to jump through.

37 sats \ 1 reply \ @Satosora 28 Feb

Right. I just feel it is better than the alternative. For now.

0 sats \ 0 replies \ @Undisciplined OP 28 Feb

Absolutely. It's a taste of what no tax (dis)advantaged services would be like.

59 sats \ 3 replies \ @0xbitcoiner 28 Feb

So, suddenly I see that there could be a big impact for people with low income.

22 sats \ 2 replies \ @Undisciplined OP 28 Feb

And that's before considering the rebate part of the proposal.

36 sats \ 1 reply \ @0xbitcoiner 28 Feb

I don't get it

40 sats \ 0 replies \ @Undisciplined OP 28 Feb

The proposal in Congress includes rebate checks that would go out to households based on how many people live in them. The point is to offset the higher prices they're facing at the grocery store, to an extent.

Conceptually, that makes this more of a tax on luxury spending than a true general sales tax.

32 sats \ 0 replies \ @itsrealfake 1 Mar

benefits tied to employment

This would be such a huge cultural rewrite. I'm in favor

48 sats \ 1 reply \ @freetx 28 Feb

Without taxes on income/payroll/inheritance/capital gains/etc. the state loses most of its rational for its rampant invasions of our financial privacy.

Exactly, most of the hysteria around KYC / AML is not because they are trying to stop terrorist....most of it is tied to tax evasion concerns. I would say thats 90% of the reason.

There is a corollary to this point: The gov will now capture all the revenue lost by gray market activities. Someone who sells a boat for cash and never deposits it because they are worried about the tax impact.....now that person spending will still generate tax revenue no matter if its cash or otherwise.

I suspect the "shadow economy" is an order of magnitude bigger than they think, and by ending the war on income they will capture much more revenue than their initial calculations tell them.

21 sats \ 0 replies \ @Undisciplined OP 28 Feb

That's an interesting point. The sales tax will be a pseudo-VAT on grey market activity, too, since many of their inputs will have been purchased and taxed.

26 sats \ 4 replies \ @Aardvark 1 Mar

A consumption tax would only work in America if the elderly didn't have to pay it. They don't pay income tax on SS so it eould negatively impact them. Regardless of how you feel about SS old people vote hard, you can't screw with their money.

42 sats \ 3 replies \ @Undisciplined OP 1 Mar

The proposal has a rebate that covers the amount of taxes on basic necessities. That should work out to about break even for those folks.

The group that would fight it vehemently are Boomers like my parents, who have no more taxable income, but spend like drunken sailors.

23 sats \ 2 replies \ @Aardvark 1 Mar

Most boomers pay income tax on their 401k i believe. Unless they did a Roth.

42 sats \ 1 reply \ @Undisciplined OP 1 Mar

True, but only if they're selling enough to get into a non-zero tax bracket.

21 sats \ 0 replies \ @Aardvark 1 Mar

I didn't really consider that. Either way, I'd love to see income tax done away with.

26 sats \ 3 replies \ @denlillaapan 28 Feb

My initial reasons for excitement were the obvious ones: consumption based taxes have better incentives than production based taxes (I know tax incidence muddies the waters, but this is still true) and consumption taxes are more avoidable than the slew of individual and corporate taxes currently in place.

...but also more regressive ("oppressive," I wanted to write...), penalizing the poor over the rich.

One second order benefit occurred to me immediately: Without taxes on income/payroll/inheritance/capital gains/etc. the state loses most of its rational for its rampant invasions of our financial privacy. Since most businesses are already subjected to the invasion of their financial privacy (through state and local sales taxes), this is a huge net positive. YES! This, more than any fiscal/economic benefit, is worth doing it for

24 sats \ 2 replies \ @Undisciplined OP 28 Feb

I should have put it in the post, because people keep bringing up regressivity.

Payroll tax is also regressive
The plan includes a rebate to offset new sales taxes on basic necessities.

25 sats \ 1 reply \ @denlillaapan 28 Feb

hm... payroll tax is only regressive bc there's a (pretty high) top-cap, no?

with 2., then I guess the total effect is neutral/non-regressive.

14 sats \ 0 replies \ @Undisciplined OP 28 Feb

Sort of yes on the first point. There are some middle income jobs with benefits setups that don't have to pay as much of the payroll tax as entry-level workers.

The rebate makes it progressive-ish. Up to a point, lower income people will be effectively paying less, but at some point it will switch to wealthier people paying lower rates because they spend a lower percentage.

Like everything, it will be structured to bone normal workers the worst.

23 sats \ 1 reply \ @SimpleStacker 28 Feb

I like it, especially the third point.

Though I would worry that they'll just start doing shenanigans with the new consumption taxes.

30 sats \ 0 replies \ @Undisciplined OP 28 Feb

I'm sure it will be horrible in myriad ways, but I doubt it will be as horrible as the status quo.

46 sats \ 1 reply \ @IamSINGLE 1 Mar

And how do you think America will deal with inflation for necessary goods that are being imported including many medicines?

0 sats \ 0 replies \ @Undisciplined OP 1 Mar

Fine, because most of our prices, especially medicines, are artificially inflated to begin with.

0 sats \ 0 replies \ @Solomonsatoshi 28 Feb

Removing taxation on Capital Gains benefits the wealthy far more than the poor.

Taxing everyday consumption via sales tax and tariffs impacts the poor far more than the rich.

Much higher sales taxes increases the incentive for businesses and consumers to make cash sales to avoid them.

Sales taxes are a tax on value added- ie a tax on productive enterprise.