Why is There an Income Tax?

Why do we have a Federal Income Tax? The income tax is no longer just a tool to support necessary government; it is now a tool to “nudge” citizens into actions approved by politicians.

There is a long-held view that it is okay to tax cigarettes to reduce their usage—the idea being taxes increase cost, so fewer people will be able to afford cigarettes and they will quit smoking. There is a gas guzzler tax on high powered performance cars—the idea being these cars create more smog, and by taxing the cars, fewer buyers will be willing to pay the extra cost to own such a vehicle. It is clear the federal and state governments understand increasing the tax on any item reduces its demand. This “nudging of” people, using the tax code, is seen as protecting citizens from their bad lifestyle decisions.

Now there is a strong push by the Democrats to raise tax revenues for the second time this year. One avenue is raising tax rates. What is it the government is trying to keep us from doing? Is the plan to reduce our income, are we earning too much? Is the plan to reduce our efforts to get better jobs and improve the lifestyle of our families? If it is known to politicians they can affect the usage of something by increasing taxes, what are they trying to affect with higher income tax rates?

There is a move to increase the minimum wage. By increasing the minimum wage fewer lower-paid people will get jobs. By increasing the minimum wage, in the name of fairness, the price of products will rise. The people hurt most by rising prices and fewer jobs are the poor. Is the thinking to make it harder to be poor, therefore people will work harder? Seems like an unfair burden to force on people who are already facing serious challenges. We should be asking to reduce the minimum wage to help struggling people get jobs.

An article in CNN.com tells us of one trillion dollars in offshore, untaxed corporate earnings. It mentioned Pfizer had an untaxed $48.2 billion in offshore profits in 2010. There are good arguments on both sides as to the cost of a tax holiday. But there can be little doubt: The 35% federal tax on earnings (one of the highest corporate income taxes in the world) deprives the U.S. government of billions of dollars each year. If a higher tax reduces the income to the government, why would they keep the tax high? The government’s actions prove they understand taxing something decreases tax receipts.

So the questions becomes, if it is a known fact an increase in taxes decreases the usage of an item, if it is a known fact high corporate tax rates encourage companies to keep their offshore profits offshore, then why high taxes? Many have pushed for a flat tax, a tax that is equal for everybody and puts a similar burden on everyone. Other people have pushed for a consumption tax to replace the income tax. One reason these have not become our tax policy: It takes the power away from the government to influence citizen’s actions.

Taxes are used in this country to punish behavior identified as unacceptable. Taxes are used to reward actions the government wants to promote. Taxes are used to reward industries the politicians decide have earned a favorable position. The question might be, why do we have taxes? Did we decide taxes are a social engineering tool, or did we decide taxes are a reward system for companies politicians like? Or did we decide taxes are to pay the bills necessary to protect our country and provide necessary services? Or, did we not decide, and these changes were made by politicians to further their own influence over our lives? Who is going to step up and tell the truth?

Why do we have income taxes?

To have John Webb speak to your group or function contact him at conservativespeaker.1@gmail.com