PrintJune 30, 2010
Leviathan's Loot
Last week the British government announced that the VAT -- a form of a sales tax -- will go up from 17.5 percent to 20 percent.
This is bad news for the Brits. It comes only two months after it was announced that the top income tax bracket would be 50 percent. That bracket includes everyone who makes more than £150,000 ($220,000) per year.
This means that every British citizen who earns more than £150,000 will see a half of his income confiscated by the government straight off. From what remains, he will have to pay an additional 20 percent on most purchases.
There are also numerous other fees and duties -- such as the local council tax -- that must be paid to the government. The result is that some people will end up turning close to seventy percent of their income in to the state.
Serfs throughout history were not ripped off to this degree. Pharaoh's subjects in ancient Egypt were taxed at 20 percent. And even though tax collectors in that ancient land were as abundant as "the sands of the seas," they were instructed not to be brutal. According to one of their manuals, "If a poor farmer is in trouble with his taxes, cut two-thirds of them." They were even told to "cheer up everyone and to place them into good humor." When was the last time a friendly IRS agent made an effort to lift up your broke(n) spirit? The ancient Egyptians also had to donate a few weeks of their labor to Pharaoh each year. These days, we work for the federal government almost four months out of the year.
It is revealing that the sales tax in Britain is being increased by conservatives. Both the Prime Minister and the Chancellor of the Exchequer -- the equivalent of our Treasury Secretary -- call themselves such.
This brings us to a larger point: There is no such a thing as a genuine political right in Europe anymore. Europe's classical liberals of yesteryear strove for a limited state and enlargement of freedoms, which in practice mainly meant economic freedoms.
Today, no major political movement in Europe aims for this outcome. Virtually all mainstream parties keep growing government at the expense of economic freedom. They also all raise taxes to finance their ever greater spending.
Nicholas Sarkozy and Angela Merkel are often cited as examples of resurgence of the political right in Europe. This is surely a joke. Even as we speak, the people of France and Germany are being taxed blind. The public sector is large and oppressive in both countries.
Yet Sarkozy and Merkel are blithely unbothered by this. Quite to the contrary, they just keep piling on. Last Friday, it was announced that the Sarkozy government would be further increasing taxes in France. Some conservatives, indeed. Now they are joined by Britain's David Cameron -- another "conservative" -- whose first significant domestic act was to raise the country's sales tax.
To think of the European political paradigm in terms of right and left is simply wrong. All that remains in Europe is the left. In Europe, there are only greater statists and smaller statists. They both grow government and raise taxes. The only difference is the pace at which they are doing it.
Even though this may surprise some, the same dynamic is increasingly applicable to the United States as well. The difference between Republicans and Democrats is only in degree, not in kind. They differ only in the pace at which they spend and grow government.
Democrats are greater statists, and Republicans are smaller statists. But it is a close call. George Bush grew government more than Bill Clinton did. He also started us on the bailout frenzy. Tellingly, most congressional Republicans voted in support. Bush 41 likewise did a good job of government expansion. Besides growing government, he also raised taxes.
Richard Nixon was another great expansionist. The Environmental Protection Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Council on Environmental Quality were all his creations. And so were a host of other bodies and initiatives of the federal government. Herbert Stein, one of Nixon's economic advisors, observed that "probably more new regulation was imposed on the economy during the Nixon administration than in any other presidency since the New Deal." If truth be told, Nixon did more to expand the federal government than Jimmy Carter did.
Of the last five Republican presidents, only Ronald Reagan pushed through some real cuts. Reagan's efforts, however, failed to stop the relentless march of the state.
The advent of the arch-spender Obama has secured the "big statists" label for Democrats for the foreseeable future. But you never know. Should they regain power, the Republicans may try to pull a fast one on us once again.
In 1971, Richard Nixon is supposed to have said, "We are all Keynesians now." In 2010, we can truly say: "We are all statists now."
This is why American politicians of both parties drool when they see what's happening in Britain. They have been tossing around the idea of a national sales tax in this country for some time. The idea naturally appeals to Democrats, because it will bring in more money for the federal government. It also appeals to conservatives, because it makes the taxation process appear fairer. This appeal, however, blinds conservatives to a great danger. A sales tax should be implemented if and only if the Sixteenth Amendment is repealed. If it is not, we will end up in the same fix as the Europeans: We will get a high income tax and a high sales tax.
We must not fall for the ploys of the politicians. They will say that a national sales tax will be good for us. They will also promise that it will only be a small percent. Do not believe it for a minute. Taxes are good only for politicians, bureaucrats, and assorted rent-seekers. If you are a productive person who earns living by honest toil, taxes are not good for you. They are a scourge.
Do not believe either that a national sales tax would help to close our deficit. New taxes rarely accomplish this task. They, in fact, usually make matters worse, because more money only whets politicians' appetite for additional spending. Sending money to politicians is the same as sending lollipops to kindergarteners. Neither is able to handle the goodies responsibly. Besides, the federal government gets enough money already. Last year it extracted more than $2.1 trillion in taxes. This is more than the annual output of the whole Italian economy. The cause of the deficit is not a lack of money, but the spending insanity that afflicts America's political establishment.
Let us also never forget what was said when they lobbied for the income tax. They claimed it would affect only one percent of the population, who would pay only one percent of their income. It was, therefore, nothing to really worry about. We can see today how that worked out. The same thing is bound to happen with a sales tax.
If the lessons of history fail to impress, we can still look across the pond. The British have just had their sales tax raised to one-fifth of the cost of their purchases. And that by "conservatives." This is what we'll get if don't learn from the misery of others.
