The substitution of a tariff for the income tax would re-create free Americans
Paul Craig Roberts
On February 25, I wrote on this website that the most important part of President Trump’s State of the Union address was the refusal of Democrats to stand if they agreed with his statement: “the first duty of the American government is to protect American citizens, not illegal aliens.”
Actually, there is an equally important element in his address, perhaps more important, and that is President Trump’s statement that tariffs would eventually replace the system of income taxation. This is perhaps the most important sentence ever stated in a state of the union address. As far as I can tell, the only attention it received was that the Supreme Court had recently invalidated Trump’s tariffs.
As I have pointed out for decades to no avail–not even libertarians have noticed–the income tax enacted in 1913 converted free Americans into serfs or slaves. The reason I can say this is that the historical definition of a free person is a person who owns his own labor. Serfs and slaves do not own their own labor. Serfs owed a portion of their labor to their feudal lord. Normally it did not exceed 30% of their labor. Slaves owed 50% of their labor to their owners, the other half of their labor going to their own maintenance as an effective and loyal workforce.
There is no way around the fact that the historical definition of a free person is a person who owns his own labor. The land enclosures freed serfs from their obligation to feudal Lords, and created a labor market in which untaxed wages were paid to laborers for their labor. Free men appeared once they owned their own labor and sold it at market wages.
The income tax that passed in 1913 did not materially enserf or enslave Americans, because the tax rate was so low and applied to such a tiny percentage of incomes that it had no material effect. That is how they got it in place. But once in place, the income tax grew quickly, both up in the tax rate and broadly in the percentage of the population subject to income taxation. By the time of the John F Kennedy administration the tax rate on middle income Americans exceeded the tax rate on the labor of medieval serfs, and the tax rate on upper incomes exceeded the tax rate on 19th century slaves on American cotton and tobacco plantations. As the Kennedy tax rate reductions were not indexed, by the time of the Reagan administration the tax rates again exceeded those on medieval serfs and 19th century slaves. The Reagan administration indexed the new tax rates, and this has held the appropriation of the labor of the middle class to that appropriated by feudal lords. For the upper income class, the official tax rate is higher than that on medieval serfs, but there are methods depending on the economic activities of the upper income class that keep the tax rates for some of them below that of medieval serfs. Regardless, the upper class does not own all of its own labor and is no more free than the lower class.
A tariff is a tax on your purchases, not on your labor. If you purchase domestic products made from domestic resources, you do not have to pay the tariff. If you purchase imported goods or domestic goods made partially from imported products, you pay a tariff based on the content of foreign input in to the product. The purpose of tariffs is to protect domestic production from foreign competition, not as Trump uses them to bludgeon foreign countries to obey his orders.
Tariffs are in effect a consumption tax, not a tax on labor and capital. Therefore, a country with a consumption tax instead of an income tax will have higher growth and higher living standards.
All of this completely obvious and correct information has been ignored in the United States since 1913, a period of 113 years. For over a century American GDP and personal incomes have been held down by the liberals and leftists who have the outlook of communists and prefer equal incomes in poverty to higher incomes with inequality.
It is extraordinary that Donald Trump, a real estate developer, understands this, but the American Economic Association is incapable, being brainwashed as it is by a century of indoctrination.
When you read economists, you learn that their only concern about the income tax is that it is fair. By fair, they mean that it must fall heaviest on the higher incomes. A flat tax rate that taxes everyone at the same rate, which seems consistent with the Constitutional mandate of equal treatment under the law, is considered unfair. The fact that a tax on income means that the taxpayer has lost his freedom and now owes part of his labor to the government, the equivalent of a feudal lord or 19 century plantation owner, is beyond the comprehension of economists.
The consequence is that we will remain serfs and slaves with only a partial ownership of our own labor.