1 in 3 Dollars Earned Goes to Taxes. Why?

Most Americans were glad to get another Tax Day behind them this month. It’s galling to hand over a third of everything you earned last year to government to waste, fraud, and abuse.

Consider the raw numbers. Last year, the federal government took just over $5 trillion. States and localities took another $2.5 trillion. Out of a total personal income of just $26 trillion, that’s 1 in 3.

For perspective, you work for the Feds Monday, you work for your state and locality Tuesday, and you don’t get to put anything in your pocket until hump day.

For perspective, a third is roughly 20 times more than the British were trying to tax in the Boston Tea Party.

Free at last.

Notably, we don’t have tea parties anymore. Partly because they don’t make Americans like they used to, but also because that lost third is hidden: The devil’s brew of income tax withholding, employer taxes that come out of salaries, embedded taxes where the trucker bought diesel, Publix paid property tax, but it’s not listed on the bananas.

So, where did it go wrong, and how do we make it right?

The original sin, of course, was the income tax, passed right before World War I. Indeed, it’s a big reason we had a world war—governments didn’t used to be able to afford them.

It was originally billed as a tax on the rich, with a top rate of 7% starting around $15 million in today’s dollars.

Perhaps you’ll recognize the sales pitch—billionaires will pay just a few percent, and all will be well.

Of course, “tax the rich” was bait as it ratcheted up the rates and ratcheted down who pays, so today the income tax hits everybody over $15,000 and takes a quarter of everything we earn. This does not include the billions of hours Americans spend trying to figure out their taxes under threat of imprisonment if you get it wrong—which is, at least, slightly less painful than a root canal.

So, what would it take to get rid of federal income tax? It’s actually very easy—Congress could literally pass a bill tomorrow. After all, the 16th amendment allows an income tax; it does not require one.

Congress won’t do it. It exists to pillage.

But what would happen if the income tax were eliminated?

The federal government would lose about $2.5 trillion of funding. It would have to slash foreign aid, Treasury bailouts for bankers, welfare for the able-bodied, grants to left-wing rioters, overseas wars (one Iran per generation, pace yourself). Even the tax-funded gender reassignment surgeries for inmates and illegal aliens—they’ll have to get Guatemala to pay.

In concrete terms, the federal government would shrink to half what it was between the 1920s and the 1950s, back before the welfare industrial complex and the fraud industrial complex it built.

In return, you keep the nearly $1,500 a month the median family pays in taxes.

But more important, every American would benefit from an enormous boost to economic growth and wages that could triple that to $4,500 a month per family.

The reason is that, just like cigarette taxes reduce smoking, income taxes reduce income. They discourage work, entrepreneurship, job creation, and business expansion.

And the more productive somebody is, the worse they’re hit. Why would a neurosurgeon work weekends, or a successful rib joint franchise for that matter, if most of it’s going to taxes?

President Donald Trump has repeatedly endorsed repealing the entire income tax—the first president in history to do so.

Polls show overwhelming support for abolishing the IRS and replacing it with a sales tax—including 70% of Republicans and most Democrats.

Sadly, Congress has more fun pillaging the republic, even if its voters want to throw the entire tax code into Boston Harbor.