Kansas’ Governor and G.O.P. Seek to End Income Tax

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34. Income taxes are NOT FAIR????

Now, you have to understand how the Income Tax came about, England was fighting the Napoleonic Wars and needed money. The English traditional source of revenue, raiding Spanish Gold shipments from the New World were used, but found NOT to be enough to raise the money needed. High Tariff;s were adopted, but encouraged smuggling which undermined the whole Tariff's effort AND permitted the Enemies of France to continue to trade for English Goods even while they were in all out war with England. The landed aristocracy fought against any tax on land, thus England turned to the Income Tax to raise the revenue they needed to defeat Napoleon.

After the Napoleonic Wars, the Tariff was dropped in favor of Free Trade (and leading to the death of Smuggling in England), land taxes were still opposed, and sales taxes were found NOT to bring in the money needed (In fact without the sales of Automobiles in the 20th Century, Sales Taxes tend NOT to bring in the money needed). Thus the Income Tax was retained, for it was the only reliable way to raise revenue. The US adopted an Income Tax in 1862, which lasted till 1874 when the GOP congress repealed it after paying down the Civil War Debt (a pay-down that lead to the economic problems of the 1870s and 1880s including the General Strike of 1877, the closest thing to a Marxist revolt the US ever had, extended from Baltimore to St, Louis, including Chicago and Pittsburgh).

The "Long Depression" lasted longer then the Great Depression of the 1930s (and was called the "Great Depression" by writers who wrote before the 1930s), the reason for the Depression, the Government insistence that debt be paid back and the gold standard restored. Since you did not need an Income tax to do both, Income taxation was opposed, but Tariff's were supported in the US (and would remain high through WWII, when it became apparent that such tariff were hampering the growth of industry in Europe and thus helping the Soviets Spread Communism).

Notice, without auto sales, Sales taxes do NOT bring in the revenue needed, In fact one of the problems in recent years is more and more lower income people are keeping their cars longer, and as such paying less sales tax. That along with reduction in driving due to high Gasoline prices have affected the States when it comes to revenues.

We have to remember Taxation reduces money available for other things, but also that Governments need Revenue from taxation to pay for services provided by the Government. Thus taxes are needed, the real question is what to tax for the maximum amount of revenue AND the least affect on the economy?

Sales, taxes as long as it remains a nuisance tax, is generally paid, but once you go over certain thresholds people start to avoid paying it (i.e. cheat). The threshold appears to be about 10%, under 10% no great cheating for the savings is not that much, over 10%, the amount of money saves starts to become significant enough for people to cheat. Thus most States try to keep their Sales tax below 10%, but most states are close to that cut off and thus increase Sales tax will NOT bring in more revenue due to the effect of increase cheating to avoid the Sales tax.

States can NOT do Tariff's and taxes on personal property has the effect of people hiding what they own. Again not a great source of revenue.

The above are similar to the problems England faces around 1800 and the US faced in 1862, and in both cases the solution was the Income Tax. It brought in the revenue needed and if you exclude people making less then median income ($50,000 today) you do not waste time auditing low income people. In fact the early income taxes were aimed at the 1%, for then you can hire the accountants to check on those people's income (In fact the present Federal Income Tax was designed in the early 1930s under Hoover to include low income people, on the theory that if you exclude them, low income people would demand income taxes to be raised, for they did not pay them). With Computers, if you use 1040A or 1040EZ your income tax is audited by Computer (in fact one proposal about 10 years ago was to abolish 1040A and 1040 EZ and just leave the Federal Government fill out the forms, for the Government Computers can and do, do those forms to check if they are correct, the proposal was lobbied against by those agencies that do people's income Taxes).

The real test for modern Income Tax is the 1040 which is more complicated due to the demand that it reflect non-earned income (i.e. income from investments). There 1040 is complicated due to the efforts to make the Income Tax fairer And to encourage various efforts to improve this country via the Income Tax system.

The real problem with the Federal Income Tax system is that under Reagan, the top rate was reduced from 70% to 25% and the 50% income disregard for long term Capital Gain was eliminated. Prior to that change, the 70% top tax rate ended up discouraging speculators, for the simple reason any gain, 70% went to the Federal Government. Now if you held an investment for five years or longer, then the gain was reduced by the 50% long term capital gain exception, then taxed at 70% (i.e. 70% of 50% or 35% real rate). The pre-Reagan system encouraged long term investments and discouraged speculation. His elimination of the Long Term Capital Gain exception AND the Reduction of the top rate to 35% lead to the increasing speculation in stocks, which we are paying for today. FDR's solution, gain due to speculations goes to the Government was the better way to handle the economy then the system today, when speculators get to kept almost all of their gain.

If a state has a graduated Income Tax, and excludes most people and just go after the Rich (For that is where the money is), income taxes work, they are fair and they produce the revenue needed by the State. Thus Income Taxes tend to be the fairest tax, if they are concentrated on the 1%, for that is where the money is.

Now. Henry George advocated the use of taxes on Real Estate, taxes NOT on the improvements on the Real Estate (i.e. housing or a business) but the land itself and its value based on what is around it, including where it is. Henry George called such taxes the "Fairest" taxes in the world, for it gave to the state the revenue from the land, independent of the use of that land. i.e. if a piece of land is at the corner of two intersections, its value is high for who ever owns that land can have a business that produces a lot a revenue. The Value of the land is NOT based on what someone does independent of the land, but the location itself. George asked "Who should get that value, given the community was the one who paid for the roads and thus the intersections?".

Henry George advocated taxes on land, based on its value independent of what was built on it. George viewed any improvements as something someone did and should get any value of that improvement, on the other hand improvements done by others, namely the state in regards to the road, if that increased value of the land, that increase value should go to the State. i.e. whoever did the improvement should get any increase in value, not some speculator who happens to be the title holder of some property.

In fact one of the main problem with the Third World is the concept of the Rentier, someone who gets money from owning land, but does nothing to improve the land or even use the land. George was NOT the first to oppose the Rentier, other economists before him also attacked those Rentiers.

Now Marx attacked Rentiers, but so did Adam Smith, thus George attacked a group that had been attacked for over 200 years before he did it. The best way to attack such Rentiers is to tax income or property, for as income goes up, how much people invest in property goes up. This was one of the reason England could NOT raise property taxes in the early 1800, the property owning classes control Parliament and refused to increase such taxes, ending up opting for the Income Tax for Birmingham and its industry would pay income taxes, even while they land taxes stayed low.

http://en.wikipedia.org/wiki/Henry_George

His Book: Progress and poverty:
http://www.henrygeorge.org/pcontents.htm

More on Rentiers:http://krugman.blogs.nytimes.com/2011/06/07/who-are-the-rentiers/

http://www.nytimes.com/2011/06/10/opinion/10krugman.html?_r=0