by For a video version of this article, see here and below. Donald Trump created some excitement last week when he suggested that he might abolish the income tax and replace it with taxes on imports. Understandably, Most of the excitement came from the prospect of abolishing the income tax. Of course, the Trump plan isn’t to simply abolish the income tax, it’s to replace it with another tax. Moreover, the Trump proposal, like most so-called tax reform programs, is designed to be revenue neutral. That is, the federal government doesn’t experience any actual drops in tax revenue, and thus, experiences no actual threats to its power. Also, Americans don’t see any true drop in their tax burden under so-called tax reforms like this. Much of the excitement rests on
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For a video version of this article, see here and below.
Donald Trump created some excitement last week when he suggested that he might abolish the income tax and replace it with taxes on imports.
Understandably, Most of the excitement came from the prospect of abolishing the income tax.
Of course, the Trump plan isn’t to simply abolish the income tax, it’s to replace it with another tax. Moreover, the Trump proposal, like most so-called tax reform programs, is designed to be revenue neutral. That is, the federal government doesn’t experience any actual drops in tax revenue, and thus, experiences no actual threats to its power. Also, Americans don’t see any true drop in their tax burden under so-called tax reforms like this.
Much of the excitement rests on misconceptions about income taxes. For example, the proposal only mentions getting rid of what is commonly called “the income tax” by which is almost always just meant the graduated income tax that about 60 percent of Americans pay. Many Americans seemed to think that getting rid of this tax gets rid of the IRS.
Trump’s tax reform is only worth getting excited about if ALL income taxes -including payroll taxes- are abolished and the IRS with it. Otherwise, it’s just another “reform” that replaces one tax with another, and is also probably a bait-and-switch. More here:… pic.twitter.com/S1hkP03Lcq
— Ryan McMaken (@ryanmcmaken) October 29, 2024
Follow the Mises Institute on Twitter.
But that’s not true at all. The IRS enforces payroll taxes, the Social Security and Medicare taxes that are taken out of every paycheck. So long as there are payroll taxes, the federal government and the IRS will be monitoring your income and making sure you and your employer pay up.
So, if we’re going to get rid of the IRS, all taxes on income will have to be abolished, not just the so-called income tax.
Anything less than that, and we’ll end up with the worst of both world’s under the Trump tax reform. We’ll get higher taxes on imports, and we won’t even get rid of the IRS.
On top of that, Tax reform packages have huge potential for being a bait-and-switch. Realistically, the only way the Trump reform isn’t a bait-and-switch is if the repeal of the IRS and all income taxes comes first, and then, only after that is all signed into law, then comes the increase in import taxes, also known as tariffs.
On the other hand, it would be absurd for anyone who claims to be opposed to state power to accept a reform that goes in the opposite direction. Imagine, for example, the Trump administration saying, well, we’ll raise tariffs big time now and then we’ll introduce some legislation in a little while to abolish the income tax.
You see how that works and you can guess where that ends. You get the big increase in import taxes, and then maybe later, Trump and his friends get around to lowering income taxes. Maybe.
Unfortunately, it would also be very easy for a Trump administration to do this because the presidency has managed to take control of tariff policy and go around the Congress. Somehow, tariff policy became a matter for administrative law even though Congress is clearly given the power over taxes in the constitution. This is why Senator Rand Paul recently introduced legislation to make it so that the executive branch cannot raise import taxes without Congressional approval.
Ridiculously, many Trump supporters on social media condemned Rand Paul’s effort saying that no, the president should be able to raise taxes unilaterally. If these are the people who represent the rule of law and the constitution, we’re in deep trouble.
In any case, many apparently accept that presidents should be able to raise taxes without any vote in Congress, so we can expect increases in import taxes in a Trump administration no matter what. Will this be followed by the abolition of income taxes? I’m not holding my breath.
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