The US is toying with tariffs and possibly getting ride of the income tax, but taxes in its many forms come with their own implications.
February 3, 2025
By: Bobby Casey, Managing Director GWP
It’s no secret that I loathe taxes. I do my level best to only pay what is absolutely necessary. People are essentially paying their own ransoms each year. It’s ridiculous.
When you talk to people who insist that taxes pay for essentials, how deep is your eye roll? Honestly if that were true, most people wouldn’t try to avoid taxes. Moreover, we wouldn’t see the kind of neglect throughout the country if taxes only went toward the right things.
We wouldn’t see the amount of corruption, scandal, wars, fraud, debt… so I think it’s silly to pretend that taxes are helping people. Even if you could point to people that benefited from taxes, the question remains: At what cost? If you got a sandwich, how much waste and fraud did it take to get your that sandwich?
Taxes in its many forms are still taxes no matter how we couch it. The issue isn’t whether there will be taxes. Of course there will be. The issue is how much and in what form. That requires understanding the trade-offs, because those are as inevitable as the taxes themselves.
State and Local
In the US, the states have a lot of their own taxes. There’s a lot of political posturing around those taxes too. Liberal states are proud of their taxes, and all the projects they pay for. Conservative states are proud of all the taxes they don’t have, and all the economic freedom that allows.
It’s all a ruse, though. They all get their pound of flesh one way or another. New Hampshire gets a lot of praise for being a low tax state. That’s because they have no sales tax or income tax. But take a look at their property taxes and corporate taxes some time, and you’ll see why many people in New Hampshire work in neighboring states.
Many think that the property taxes come in lower than what people would pay on income and sales tax in other states. But if you did the math, it doesn’t really come out much differently.
House valued around $400,000-$450,000, and income around $150,000/year.
Property Tax:
Income Tax:
- New Hampshire 0%: $0
- Arizona 2.5% flat rate: $3,750
Sales Tax:
- New Hampshire 0%: $0
- Arizona 8.25%: $990 (Assuming $1,000 per month on taxable items)
New Hampshire comes in slightly lower than AZ, but it makes up for it from corporate taxes:
- New Hampshire 7.9%
- Arizona 4.9%
There are higher tax states, for sure. Don’t get me wrong. The combined taxes in California or New York are much greater on all fronts.
The question is, when taxes are concentrated in one place or another, what is the state trying to encourage or discourage? If you make sales tax-free, then it is encouraging consumption. If it has heavier corporate taxes, then it might be discouraging business. Taxes are a real social engineering grift on people.
Government has an assortment of revenue streams. The taxes in its many forms present in other ways such as fines, fees, and forfeiture.
The smaller the jurisdiction the more their revenue depends on fines and fees. A smaller tax base or lower tax rate means they need to make up the difference because none of these places cut spending.
There are also jurisdictions that supplement their revenues with fines and fees that often disproportionately affect poorer communities.
There’s also our old friend asset forfeiture. Some jurisdictions have indeed regulated themselves better on the matter. But others, not so much.
National
Of course there are the income and corporate federal taxes that most folks know about. I wouldn’t say anyone is familiar with it, but all American persons are forced to contend with it. It’s convoluted and deliberately complicated. People make fun of it all the time: The IRS knows how much you owe, but won’t tell you. You have to pay someone to figure it out. If you get it wrong, and you’re over, nothing happens, and the IRS doesn’t refund you the difference. You have to pay someone to find that error. If you get it wrong, and you’re under, they come for you.
The US by no means has the worst tax regime. There are much worse. Sadly, its tax regime is worse to its people than it is to foreigners.
Of all the taxes in its many forms, the worst tax the US has is inflation. The monetization of debt through inflation of the money supply. This ridiculous card has been in play since 1913, and needs to go away. This isn’t in the state and local arsenal, but is absolutely in the federal one.
The US has become a debt based society. In the early 1900s, the US didn’t have a central bank. It didn’t have an income tax. I hardly had any real regulations or fines and fees. It didn’t have the New Deal or the Great Society welfare programs. It didn’t have endless wars and international entanglements.
What I like to remember about that time is: there were still people complaining that the government was too big even then!
A very interesting observation made by Dave Smith in his interview with Tucker Carlson was that the small government side is always shifting. There were people who opposed the New Deal vehemently. They lost. And now you can’t find a politician willing to get rid of it. There were people who fiercely opposed entering either Vietnam or Korea. They lost, and now you can’t find anyone who will call either of those two things a mistake.
And people opposed the central bank and income taxes. They lost. And you can’t find a politician willing to get rid of either. (Although, to Trump’s credit, he is looking to eliminate the income tax in favor of tariffs. Not sure how serious that proposition is, or how far it will get, but he did say it.)
International
The US is so favorable to foreign investors, that it instituted FATCA to track down its own tax subjects, but won’t reciprocate and rat out the foreigners who invest in the US to their home countries.
This brings us to the tariffs. Jeffery Tucker from FEE writes:
The last time government was funded entirely by tariffs, government spending was a mere 0.05 percent of what it is today.
And you have no idea how much I support reverting back to that level of spending. If in fact, the US intends to fund itself entirely on tariffs and abolish the income tax, and it in fact did cut its spending to a level where that could be afforded, I could live with the trade off. I think most Americans, save the hardcore ideologues, could live with that.
The problems are in tariffs compounded onto income taxes. That gets dicy, as evidenced by the Smoot-Hawley tariffs. It’s untenable to draw from everywhere and leave people with nothing. If you take their income AND increase prices through tariffs you’re getting them on the way in and on the way out.
Taxes in its many forms has a hierarchy. Some are more bearable than others.
Inflation is the worst. Bar none. It’s not just a tax. It’s a tax in the form of debt. There’s no excuse for it.
Capital gains is the next worst because you don’t have the actual liquid cash to pay on appreciation of a non liquid asset. That basically traps people into selling off their shares or ownership and destroys private property rights.
After that is the income tax. The only thing that makes it slightly less worse than capital gains is, it is paid off a liquid asset. So if you lose your source of income, you don’t still have to pay a tax on what you would’ve made. Still it is a massive private property violation, and created subjects and put inordinate amounts of control in the hands of the central government. The idea of the government having a claim to your earned wealth prior to you earning it is a far worse condition than many people recognize. Income taxes have since been used to leverage states to comply with the federal government and to dance for their supper, as it were. The states level their taxes. Then they go with their hands out to the federal government for MORE. The strings attached have led to the very oligarchy you hear many complaining about now.
The consumption tax is the least worst of the worst. Taxes at the point of sale stink. But we can control how much we buy, and rather than encouraging consumerism, it encourages frugality. Moreover, everyone pays. Traveler, foreigner, resident, citizen… it just applies to everything taxable regardless of your status.
The tariff is last and much like the consumption or sales taxes, it reflects in the cost of goods and everyone who buys them pays regardless of their status. Tariffs only apply to foreign goods and raw materials. It’s no small thing, however, this also not only encourages frugality, but encourages buying used goods, repurposing and recycling existing goods. The odd byproduct being a less wasteful economy.
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