The Astronomical Cost of Not Taxing Everything

Story Stream
recent articles

Calling all economists, Uncle Sam needs you!

As the debt ceiling debacle heaps embarrassment upon dysfunction, our confused and frightened leaders need you experts to sharpen your spreadsheets and comprehensively calculate the cost of not taxing. Don't laugh; this is the biggest economic topic in town, too big for even Paul Krugman to handle alone. Anti-tax zealots can't be forced to eat their peas until professional economists prove that our government is bleeding a river of revenue it could have already been collecting.

Scattered estimates of how much revenue the federal government "loses" allowing money to frivolously remain in the pockets of those that earned it are insufficient. Nor is bandying about the "costs" of tax deductions selectively rebranded as "loopholes" by the same people who call ethanol subsidies "investments." Any yahoo with a Tea Party hat can demand a cut in government spending, but it takes a bevy of trained economists to claim that reducing the extent to which we are not collecting potential taxes is both mathematically equivalent and intellectually superior.

Even then, why be satisfied with mere hundreds of billions when the President is calling for bold action? Bring out the big guns and calculate the cost of not adopting the greatest tax ever invented, the Value Added Tax (VAT)! Wise Eurocrats know that the goose can be plucked naked with nary a squawk by slathering a tax on every stage of a product's life. VAT-less Washington is annually "losing" trillions!

Allowing anything of value to change hands without a tax is such an abdication of fiscal responsibility that not counting this lost revenue borders on occupational negligence. Plus who but an economist could concoct a scheme where citizens are more directly incentivized to report on each other than the VAT, since those who neglect to rat out suppliers have to eat their taxes? What better way to spread civic responsibility into every nook and cranny of the economy while making each citizen a part-time tax collector?

And while we're thinking big enough to cover a fourteen trillion dollar hole, why limit calculations of "lost" tax revenue to income and transaction taxes? How much revenue is the government "losing" by not collecting a wealth tax? In such desperate times can economic shirkers, be they corporations or individuals, really be permitted to keep idle capital out of circulation? If cash-heavy corporations can't be jawboned into hiring and the rich can't be shamed into stimulating, bring on some economists to argue that it's just as effective to snatch their dough away and let Congress shovel it to work!

Estate taxes long ago established the principle that the same money can be taxed again and again. But why wait until death to coax hoarded private assets back into circulation? What better way to boost "aggregate demand" while ramping up "investments to win our future" than increasing the velocity of other people's money, particularly before an election when it's needed most? An annual wealth tax levied on the net worth of all greedy corporations, millionaires, billionaires, and private jet owners would instantly let the good times roll. Plus starting modestly, then raising rates while eventually casting the net wide enough to catch fiftythousandaires , as Congress did when it introduced the income tax, is a time tested technique to give the middle class a good dose of "reform."

You say too many members of Congress made a No New Taxes pledge? Recent polls show that three out of five Constitutional scholars agree that the Fourteenth Amendment has always empowered the president to set tax rates at 100% on everything, as long as he deems it necessary to avoid default. Any new tax bill that sets rates lower than 100% would then technically qualify as a tax cut. Boom, pledge problem solved.

Which goes to show that wise economic policy is not about doing the right thing, it's about properly explaining the things you do even though you're just making it up as you go along. How can anyone expect those of us bereft of PhDs to escape confusion when one set of Nobel Prize winning economists demands that we hit the brakes while another screams that we're doomed unless we step on the gas? If experts would just stop contradicting each other petty politicians would have no choice but to fall in line. Then the president can put it on his teleprompter and explain how we can all "sacrifice" for the "common good." Once His Eloquence makes it simple enough for even the dumbest voter to understand we can all get back to not working as the experts figure out how they're going to explain the next increase in the debt ceiling.

The time has come to cease the unseemly shucking and jiving lest people get the idea that no one is in charge. Obama should use his executive powers to bring every certified economist to Washington where he can lock them in a room until they all agree. How can a president who's never managed a candy store be expected to direct a national economy if citizens ignore his experts, and how will citizens know which experts to believe if they can't be commanded to reach consensus?

If the chaos in Washington continues people might desperately return to the outmoded belief that our country functions best when we all think for ourselves, have the liberty to dispense our own money, and enjoy the freedom to pursue our own happiness. And we know what happened last time that radical idea caught on.


Bill Frezza is a fellow at the Competitive Enterprise Institute, and a Boston-based venture capitalist. You can find all of his columns, TV, and radio interviews here.  If you would like to have his weekly columns delivered to you by e-mail, click here or follow him on Twitter @BillFrezza.

Show commentsHide Comments

Related Articles