Taxation 102: What do you suppose would happen to the U.S. Economy if…?
By D. Turner Givens Ph.D.
PROBLEM: We are taxed to death! I’m not going to inflict a list of all the taxes we pay on you. I will just remind you of my essay “Taxation 101,” in which I point out that taxation and the cost of regulation restrains the economy and are paid for by all of us, hidden in what we consume.
SOLUTION: Imagine the government could take not more than 15% from the consumer of all goods and services consumed and no other taxes? According to the “Final consumption expenditure,” in 2014 Americans used $14,422.2 billion in “Consumer Spending.” It’s more now but but 2014 is the year I found at the World Bank. [http://data.worldbank.org/indicator/NE.CON.TOTL.CD]
Fifteen percent according to economist Arthur Laffer, will give the government maximum production and maximum revenue. As you raise the percentage, you will get less consumption and less revenue and as you reduce the percentage you will get maximum production but less revenue.
Fifteen percent of $14,422.2 billion is $2,163.33 billion. In 2004, U.S. government spent $3.506 thousand billion according to Wikipedia [https://en.wikipedia.org/wiki/2014_United_States_federal_budget] In a static market, the government would receive a little under a third of what it spent.
But this won’t be a static market. Much of this government spending is spent in regulation. Economists estimate that an average of from 25 to 35 percent of everything you buy is tax and regulation. No one must participate in investigating himself. There is no government regulation. If the government wants to forbid a behavior, it outlaws it. The government must pay for any reports it asks a company to submit.
The only people who would pay taxes would be the actual end consumer. The plumber does not pay taxes on pipe, the carpenter does not pay taxes on nails and lumber. None of the suppliers will have to submit reports or comply with nonsensical regulation. So the house will be much cheaper — by most economists’ estimates about 50% cheaper. Because construction is labor intensive and highly regulated, a larger percentage of the cost of building is consumed by these expenses. When I buy the house I pay a 15% tax on the house. So I buy a house that would costs $100,000 with all the producer taxes and regulation for $57,500 with no producer taxes or regulation. What a deal! I’ll take two! I get more for my money and according to Art Laffer, the government gets more revenue.
The consumption tax would be one of two taxes that the government can collect. There would also be a mandatory import tax on goods from or through any country that puts obstacles in the way of U.S. imports into their country. This duty is punitive. It is intended to encourage importers into the U.S. to play fair.
When a product is exported from the United States it is considered consumed and taxed.
In year one, we pay 15% and freeze all federal hiring, pay/benefit increases and spending except for national defense — the only federal action that the Constitution requires the federal government to provide. We close all regulatory offices. All excess is used to pay off the national debt. Suddenly, the federal government will get smaller.
We freeze the budget at the first year’s numbers and use the excess to pay off the national debt. When the national debt is paid off, we put an item on the ballot at every national election asking the American people if they want the consumption tax to increase by 1%, to stay the same or decrease by 1%. We continue this until the people have exactly the amount of federal government they are willing to pay for.
HOW WOULD THIS WORK?
As soon as this taxation program was initiated, the U.S. economy would take off. The $4 trillion that people are sitting on in the U.S. waiting to find out what will happen would immediately be invested in the U.S eonomy.
If we made this a constitutional amendment, the estimated twenty trillion that international investors are sitting on would go into the American market.
Foreign producers would have to pay value added taxes, corporate taxes, license fees, income taxes etc., etc., etc, ad nauseam as well as whatever onerous regulation and reporting their own government requires in their own country. Then they would have to ship the product to America where the 15% consumption tax would be added to the price. Then they would compete against products manufactured by companies that paid a 15% consumption tax only.
This is a win for foreigners too! All foreigners are not stupid. They will begin to move their production facilities to the U.S. Foreign governments facing rapidly falling tax revenue will at first squeal that the U.S. is unfair. They will eventually have to mirror American taxation or be replaced by governments that will. Free markets would spring up all over the world!