I was reading this historical summary of how income tax has evolved in the United States over the last 200 years. What struck me was the notion of citizens not paying any income taxes (as was originally the case). When you do the research, it’s actually viable that we could pay zero in income tax today, yet raise all the same revenues for the federal government to maintain current spending levels (although our government should spend less anyway!).
First let’s consider the two biggest problems that burden our economy today:
- The Foreign Trade Deficit. American’s send $1,000,000,000,000 (one-trillion) more overseas each year than we bring into the US. There is no funny-math here. Certainly everyone can understand that if they spend $100,000 more than they make each year, it won’t be long before they are so far in debt that they can’t repay their loans, will go bankrupt, and will spend the rest of their days unable to get a loan due to poor credit. Our government’s ledger has bigger numbers, but the concept is the same. Our spending pattern is simply NOT SUSTAINABLE.
- Massive Federal Debt. America has amassed a nearly $10T debt. This is money we owe that needs to be repaid. We currently have no plan for how to repay it. That’s $33,000 for every man, woman and child in America.
Unfortunately, with our shopping mall culture, we think we need to buy cheap $4 dolls made in china so we can have a Merry Christmas. We buy so many of those stupid dolls that we end up sending $250M more each year to China than they send to us.
If we were to switch our government’s revenue basis from income tax to import tax, we could solve both of these massive economic problems. The prices of foreign goods would go up, having a temporary impact on our standard of living (ability to buy lots of $4 dolls). But, those dollars would be directly put back into the pockets of Americans. This means you’d have more money to spend. New American businesses would be built offering prices competitive with their foreign counterparts, and within a few years, you’d still have your $4 doll again for Christmas, but it would be made in America. Plus, you wouldn’t have had to earn $6 to afford the $4 doll in the first place.
Does the math add up?
It would be silly to say this is simple; but a rough cut says yes:
Currently, we import $2.2T of goods each year (2006). We export $1.4T.
US Revenues from income tax in 2006 was $2.4T.
This means that if we phased in a 200% import tax over 8 years, we could eliminate income tax and maintain federal spending. It means the price of your $4 doll would now be $12. Of course, you’d have to expect the increased price of foreign goods to decrease American demand for them, which would further increase their price.
If America were to institute a policy like this, we’d have to expect other countries to react. Of course China wouldn’t like it – they just want our money in their pockets. Even with taxes, most of the trade with China would still occur, but the net export:import ratio would drop significantly, especially a American businesses grow.
Is there an alternative?
There is no doubt that this change would be scary. But, is there a choice? We can’t continue to spend like we do. We have to pay off our debt. What other policy do we have available to us which can decrease our spending while simultaneously paying off our debt and putting money back into American’s pockets so that we can live? I haven’t heard of any.
Sadly, we’re going to “spend till we die”. We’re too chicken to do this.
Tell me what is wrong with my plan; other than that you want your $4 doll.