The Cato Institute: Almost Libertarian

Since I almost never get mail of any kind, I was surprised to find an envelope from the Cato Institute in the mailbox today. I was doubly surprised because I don’t recall ever giving the Cato Institute my address. Perhaps it was one night when I was too drunk to remember what I was doing. But how they got my address is beside the point.

As you might expect, inside was a six-page fundraising letter from Cato founder Ed Crane detailing all of the good work the Cato Institute does. This is true: I’ve long been a fan of the Cato Institute’s work, and though Ian might say it’s dry and boring, it’s supposed to be. It’s aimed at influencing policymakers to more libertarian action. Reading the letter, I was again impressed by Cato’s solidly principled positions.

Except for one issue.

IRS regulations now number more than 60,000 pages, allowing government to treat you as the subject of social engineering and opening you up to extensive invasion of your private affairs. We suggest that replacing the current income tax with a flat-rate tax or even a consumption-based levy such as a national sales tax would be worth considering. You and other individuals would immediately gain more control over your income to use as you see fit, no longer subject to the prying eyes of government bureaucrats. That in turn would spur significant new economic growth with expanded consumer savings and investments.

Ed, we don’t need an income tax. You hear that? We don’t need an income tax. Nor a national sales tax.

When the federal government finally returns to being as small as it’s supposed to be, or even gets anywhere near the ballpark, the amount of money it will need to operate will be small enough as to make such taxes completely unnecessary, as they were for the first 150 years of this country’s existence.

One might be able to support a flat tax or national sales tax as an interim measure, while the government is being slowly downsized toward a more Constitutional size. But such a measure presumes that libertarians will control the beast long enough to actually get it done, and won’t be corrupted by power in the meantime.

Even with this one issue clouding my opinion of Cato, I still think they do excellent work in pretty much every other area of government policy, and I’ll continue to advocate their work to anyone who wants a pro-liberty viewpoint. But as I consider whether to send the Cato Institute the $100 it wants (and get a free book), I would suggest that it revisit these tax proposals.

  1. A national sales tax would be a lot closer to tariffs than the current system, and probably one of the biggest reductions of government in many decades, as well as scoring big for privacy. Just throwin that out there.

  2. You’re right on the money about needing to get federal spending back to acceptable levels, but I’m wondering what you see as the source of revenue for this leaner national government. Pre-income tax and the like, the government’s major sources of revenue (IIRC) were from the tariff, public land sales, and profit from the postal service. I don’t see the second two as viable in today’s world, are we left with the tariff as the only viable source of revenue? If so, doesn’t that get in the way of free trade?

  3. There is no law that says you have to pay your income tax, it is a big fraud set up by the semi private federal reserve bank. It is also unconstitutional, Americans are all slaves and they don’t even know it. You own absolutely nothing, stop paying for property tax and you will see who actually owns your house.

  4. One possible source of revenue is the same as that which the Cato Institute uses: voluntary funding from people who want it to continue to do its work.

    And there’s plenty of land still owned by the federal government that needs to be sold off.

    For ongoing revenue sources for the federal government, take a look at what it needs to do under a strict constitutional system: very little. So it really needs very little money to operate. But I suspect (optimistically, perhaps) that this is going to be a far-future issue that our descendants will deal with in detail.

  5. I thought you were going to cite Cato fellow, Patrick Michaels, who has written some of the most dismissive, knee-jerk pieces of global warming skepticism I’ve ever seen. It undermines those who have come up with more substantial skepticism about catastrophic predictions about climate change. Cato’s a pretty good organization, but Michaels is an embarassment.

  6. CATO does some good work…IMHO a lot more than the LP has ever done. Michael Tanner’s privatization ‘6.2 percent solution’ for the SS crisis was used essentially verbatim as the House bill last year. It did not get passed, of course, but it is much closer than the LP has ever gotten. That is influencing policy.
    I have been a supporter for the last two or three years. I will continue. The American people allowed this mess to be created incrementally, and that is the most likely route to use to get us out of it again.

  7. The federal government has levied excises on numerous products since the very first Congress under the Constitution of 1787. Contrary to your claims, the federal government was not funded by tariffs and duties alone- not even close.

    Further, the expenses of government, even its essential and explicitly Constitutionally mandated duties, have escalated massively- not only from waste and excess but from major technological and societal changes. Electric lights, and the bills thereof, did not exist in 1787. Telephones, automobiles, airplanes, broadcast media, ceramic body armor, nuclear weapons, aircraft carriers, none of these things existed back in the days before income tax.

    At a minimum the majority of voters will demand protection against pollution, prevention of radio and television jamming, maintenance of the national road network, a professional military, and a court system- among other things. It takes money to pay for those things- and we must find that money to be credible.

  8. Y’know, there is one thing that is oddly anti-libertarian sounding that just *might* be a partial solution to the problem…

    Permit government agencies to operate perpindicularly at a profit.

    An example of what I mean; sewage purification facilities selling the sludge remnants as fertilizer for whatever price they can get. (So long, of course, as other fertilizer producers aren’t restricted in *ANY* way from making sales as well.) The funds from these profiting enterprises could then be returned into the systems that created them, overall relegating the government to the not-for-profit entity it ought to be. I know that as things are now this is nowhere near an absolute solution. But it could certainly alleviate the problem.

  9. Meh. If Cato toed the firebreathing Murray Rothbard line, Ed Crane wouldn’t have split in the first place. It’s a policy think-tank that with a quarter-century track record of incrementally influencing real policymakers… it’s not a group of yokels “joking” about flipping over tables in IRS offices. It doesn’t seek to toe the LP line any more than the Club for Growth or Heritage Foundation tries to photocopy the GOP platform.

    “Almost libertarian”? Nice play for cheap-heat there.

  10. Stephen, I sent you a couple of them a few months ago. Maybe the tubes got clogged up and they’re lost in the internets. I’ll have to dig them up again.

    When are you going to open up LibertyMix? :)

  11. I’d prefer a national sales tax to our current federal income tax. I think it would cause outrage throughout the year (every time a purchase is made), instead of only once a year (April 15th), and get people to start thinking more often about getting the tax lowered…

  12. A national sales tax would be a disaster. Forget financial privacy — everyone would still have to file, to get their rebate checks from the government to offset the first X dollars of spending.

    The IRS would still be around, going after every small business in the country. Internet sales would be taxed, and don’t think EBay would be exempt for long.

    Reduction in government? The Fair Tax is a shell game to get the same amount of money from different sources. As such, it is a waste of time and energy, time and energy that could be focused on cutting spending.

  13. Good. I like the “temporary photo” better than my own face anyway. (You know what they say, I have a face for radio…)

  14. One step at a time. Getting rid of the income tax would be nice, but that isn’t going to happen anytime soon. I don’t think that their advocating a tax-payer friendlier version of the income tax in place of our current system kicks them out of the libertarian camp. Maybe out of the anarcho-capitalist camp, but not out of the libertarian camp.

  15. The file everyone would have to make, Lex, would be no different than the census(or rather what the census should be, not what it actually is right now). Simply name and number of people in your household. Of course that’s in theory. What congress could decide to put in there might be totally different.

    Actually, the vast majority of eBay would be exempt, as those are almost all used goods, or goods that have already been purchased at retail with the tax on them already paid. As far as other internet sites, if they weren’t taxed the same as the store down the street that would be giving them an unfair competitive advantage.

    Sales taxes are much easier and less painful to comply with and to enforce, so I believe you would see a substantial shrinkage in parts of the government that deal with taxation.

  16. “Sales taxes are much easier and less painful to comply with and to enforce, so I believe you would see a substantial shrinkage in parts of the government that deal with taxation.”

    Back up that statement. I found complying with sales taxes much more burdensome than filing my income tax return. I also found it much easier to cheat on sales taxes. What’s to prevent me from charging the tax and pocketing the proceeds? A nasty auditing process overseen by an agency very much like the IRS.

    Also, you’re assuming that compliance costs and the built-in cost of government will decrease. I don’t see any reason why it should (at least that much). Government will still be the same size and will still regulate in the same way. You’ll still have OSHA, the EPA, and many more. Businesses will still have countless forms to fill out, maybe more, will still have to submit employee info and income to the Social Security Administration, etc.

  17. Chris: The Fair Tax proposal funds SSA and Medicare directly from the general fund and eliminates -all- payroll taxation. They make a major point of that.

    Replacing income tax with sales tax lowers the number of people who have to file returns by about a factor of fifty. I don’t buy into the Fair Tax claim that the IRS will be abolished, but it’ll be that much smaller and less powerful- no longer having an excuse to pry into the lives of any and every American.

    As for sales tax versus income tax… for my tiny business, I have to file two pages maximum for quarterly sales tax returns, but eight or ten pages for federal income tax (no state income tax here- YET). There’s no deductibles, no itemization, no special schedules. How much did you sell in taxable sales? Multiply by the tax rate- pay us that- you’re done.

    A sales tax is not perfect- no tax is moral, on an absolute scale- but it’s better than income tax and more politically feasible than a no-tax anarchy.

  18. Just to clear up some potential confusion, there is a flat tax (generic) and the “Fair Tax” which is like a flat (sales) tax, only it has some provisions for tax rebates (credits) and some strange quirks.

    The Fair Tax calls for abolishment of the IRS (although realistically, an agency with a different name would still be needed) and abolishment of the 16th amendment (this is only a gesture of good will and would require a constitutional amendment).

    The fair tax would not require an individual to provide income documentation, since the tax prebate check would be the same regardless of income. Still, that probably wouldn’t stop the government for asking for the info (to fight terrorism).

    The libertarian part of the Fair Tax, or flat tax, is that it promises less government intrusion. The non-libertarian part is that is does not advocate any downsizing of government. The tax may hurt enough that people would pay attention.

  19. Any steps towards ridding us of the evil IRS would be a step in the right direction IMHO. Purist libertarians ideals of NO taxes will never happen overnight. It took many years to bloat the federal government to the out of control beast it is and it will take time to debloat it. The Fair Tax is the most well thought out plan to get rid of the IRS and move towards a less punishing tax system I have seen in a long time. Let’s push towards reforming the abusive and intrusive tax system and THEN address chopping the federal government down. Sometimes a practical approach is needed that will take us towards liberty in increments.

    The same stumbling block occurs in other areas of libertarian endeavor. Many want marijuana legal marijuana and yet some purists will not accept an incremental approach to this goal and unrealistcally support total legalization or nothing. When there are proposals to legalize marijuana but heavily tax and regulate it some oppose this on idealistic ground

  20. Chris Moore was correct, however, that employers would still need to submit employee income levels. Even though the payroll tax would be gone, social security benefits and the like would still be calculated the same way, as if you were paying the payroll taxes out of your paycheck even though you aren’t, so the government would still need that information.

  21. “The Fair Tax proposal funds SSA and Medicare directly from the general fund and eliminates -all- payroll taxation.”

    How do you think the SSA is to know how much you are entitled to receive? You or your employer will still have to send the federal government information about your income under a national sales tax system.

    “A sales tax is not perfect … but it’s better than income tax and more politically feasible than a no-tax anarchy.”

    It may appear better than an income tax, but I’m not sold. I also don’t see why institution of a national sales tax is any more politically feasable than say an increase in the income tax personal exemption — a real tax cut. The choice isn’t National Sales Tax vs. Anarchy. It’s National Sales Tax vs. Actual Tax Cuts.

    I don’t dislike the FairTax (or similar proposals) because it is incremental. I dislike the FairTax exactly because it is NOT incremental. It’s a shell game.

  22. While I can understand both the Flat & Fair tax as steps to abolish the authority of the IRS — which is a firmly libertarian action even if taxation levels remain the same, and I think everyone can agree in that light…

    I almost think a better action would be to demand that the tax exemption numbers be adjusted for inflation from their WWII numbers, after being restored to the non-emergency level. ($5,000.00 USD1940 v 500.00 USD1940).

    That ought to get a little bit of attention… heheh.

  23. A sales tax violates our natural right to the free exchange of goods and services.

    A personal income tax violates our natural right to keep the fruits of our labor.

    A property tax abolishes private property and makes gov’t our landlord.

    However, a corporate income tax violates no natural rights since corporations are not natural persons. As creations of government, let corporations bear its cost. Drastically reduce the size and scope of government, implement user fees where possible, and corporate income taxes should cover it. Of course, the cost would still be passed on to consumers as higher prices but this could level the playing field for mom & pop proprietorships.

    Any sales tax is regressive and folks like me who have largely “opted out” will be “opted back in.” I won’t vote for ANY candidate who advocates a national sales tax. Period.

    CATO? well, they get it right more often than not.