By Murray Rothbard
The
Alleged Superiority of the Income Tax
Orthodox neoclassical economics has long
maintained that, from the point of view of the taxed themselves, an income tax
is "better than" an excise tax on a particular form of consumption,
since, in addition to the total revenue extracted, which is assumed to be the
same in both cases, the excise tax weights the levy heavily against a
particular consumer good. In addition to the total amount levied, therefore, an
excise tax skews and distorts spending and resources away from the consumers'
preferred consumption patterns. Indifference curves are trotted out with a
flourish to lend the scientific patina of geometry to this demonstration.
As in many other cases when economists
rush to judge various courses of action as "good,"
"superior," or "optimal," however, the ceteris paribus
assumptions underlying such judgments — in this case, for example, that total
revenue remains the same — do not always hold up in real life. Thus, it is
certainly possible, for political or other reasons, that one particular form of
tax is not likely to result in the same total revenue as another. The nature of
a particular tax might lead to less or more revenue than another tax. Suppose,
for example, that all present taxes are abolished and that the same total is to
be raised from a new capitation, or head, tax, which requires that every
inhabitant of the United States pay an equal amount to the support of federal,
state, and local government. This would mean that the existing total government
revenue of the United States, which we estimate at $1.38 trillion — and here
exact figures are not important — would have to be divided between an
approximate total of 243 million people. Which would mean that every man,
woman, and child in America would be required to pay to government each and
every year, $5,680. Somehow, I don't believe that anything like this large a
sum could be collectible by the authorities, no matter how many enforcement
powers are granted the IRS. A clear example where the ceteris paribus
assumption flagrantly breaks down.
But a more important, if less dramatic,
example is nearer at hand. Before World War II, Internal Revenue collected the…
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Source: Mises.org
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