Among many other trial balloons, President Trump has floated the abolition of the income tax — perhaps to blunt resistance to his using tariffs as a bargaining tool in dealing with our trading partners.  George Will has written that the income tax was made necessary because of Prohibition, since the tax on alcohol amounted to 30% of federal income.  However, the Sixteenth Amendment, which allowed for taxes on incomes, was ratified almost six years before the Eighteenth Amendment that outlawed the sale and purchase of “adult beverages.”  Prohibition was repealed at the end of 1933, whereas the income tax remains a major source of federal funding.

Now, the Sixteenth Amendment does not compel the government to tax incomes — it just allows for such a levy.  An act of Congress would be sufficient to end the process, and another act of Congress could start it all over again.  In 1935, the introduction of Social Security marked the first ever government-mandated deduction from a worker’s pay, much to the displeasure of hard pressed Great Depression sufferers.  Shortly thereafter, a young New Dealer named Milton Friedman was instrumental in imposing withholding tax for incomes on top of Social Security, much to his later regret.  Should this sound unbelievable, I can attest that I was in the room when Dr. Friedman issued this mea culpa.

Now we come to the big, big lie about income tax: the rich don’t pay their fair share.  Sounds compelling, but in fact, the small group at the top 5% of income earners pay about 65% of the income tax that is collected.  The bottom half of U.S. income-earners pay only 2.3% of the total.  An old leftie true believer complained to me about how Trump is rewarding his billionaire buddies with sweetheart tax rates, so I gave him the above statistic.  He said “No, no, no...I’m talking about the rate they get taxed.”  And I said, “The real issue is the actual amount of money they have to pay.  It’s a quantitative question and answer.  And you are relying on a feeble hoax to form your opinion.”  End of that discussion.

Various schemes for an income tax replacement have circulated for years.  Best known, I suspect, is the “flat” tax, where everybody pays the same percentage.  This is politically impossible.  It also would rally immense opposition from the vast number of cottage industry tax preparers, who rely on at least a certain amount of tax law complexity for their survival.

A national sales tax would collect revenue at the point of purchase.  My fear is that such would be imposed without the abolition of the tax on incomes.  Were the national sales tax really to replace the tax on income, it could well facilitate other avenues of government largesse.  For example, seriously poor and/or disabled people could be issued an ID card that would discount or exempt them from the sales tax.  Our European “cousins” have a value-added tax, the dreaded VAT, which collects revenue on every transaction — not just the sale to the final consumer, but all exchanges between manufacturers, wholesalers, and retailers as well.  Talk about accumulated price and tax revenue increases.

Lurking behind all of this is what is known as the off-the-books economy — the underground economy that has been developed to avoid various government impounds.  India recently tried to eliminate the higher-value components of its currency in order to suppress this practice.  It failed.

Enter cryptocurrency.  I have no idea what this stuff is, other than a means to avoid government-issued “money” and its contrivances.

Image: Gage Skidmore via Flickr, CC BY-SA 2.0.