WEBVTT NOTE The Myth of a Fair Tax 1 00:00:00.000 --> 00:00:02.440 Good morning and welcome to everyone in attendance 2 00:00:02.440 --> 00:00:04.000 and viewing online. 3 00:00:05.520 --> 00:00:09.080 If you are viewing online, you can post a question 4 00:00:09.080 --> 00:00:11.640 on the Mises Academy page by registering 5 00:00:11.640 --> 00:00:13.380 and it's free to register. 6 00:00:14.960 --> 00:00:17.680 An unhappy tax day to everyone. 7 00:00:19.120 --> 00:00:22.320 Let me introduce the program for today. 8 00:00:22.320 --> 00:00:24.960 I'll be giving the first talk, I'm Joe Salerno, 9 00:00:24.960 --> 00:00:27.940 I'm the Vice President of Academic Affairs 10 00:00:27.940 --> 00:00:29.260 for the Mises Institute. 11 00:00:30.000 --> 00:01:00.000 I'll be talking on the myth of a fair tax. After me, Matthew McCaffrey, who's a doctoral candidate in economics at the University of Angers, will be talking about taxes and the black hole of government spending, and Daniel Sanchez, our editor of the Mises website, will be talking about taxes and history. After that there'll be a discussion in which you can pose questions and we'll go from there. 12 00:01:00.000 --> 00:01:08.200 So, my talk is entitled, The Myth of the Fair Tax, and you could substitute for that the 13 00:01:08.200 --> 00:01:15.680 myth of the just tax, those words aren't exactly interchangeable, but they're used 14 00:01:15.680 --> 00:01:19.120 that way. 15 00:01:19.120 --> 00:01:26.560 For centuries, people, economists, argued about what the just price was, what was the 16 00:01:26.560 --> 00:01:30.560 What was a correct price? What was a price that could be considered just? 17 00:01:30.560 --> 00:01:39.560 Finally, in the late Middle Ages, this actually led to the development of economics, the attempt to answer this question. 18 00:01:39.560 --> 00:01:46.560 And interestingly enough, the answer that was finally settled upon by almost everyone in the economics discipline 19 00:01:46.560 --> 00:01:52.560 was that the just price was simply the price that was agreed upon on the market, the market price. 20 00:01:52.560 --> 00:02:01.560 The reason being that it was voluntarily agreed upon and therefore benefited both parties, made both parties better off from their own point of view. 21 00:02:01.560 --> 00:02:08.560 Unfortunately today, well actually let me just say a little bit more about that. 22 00:02:08.560 --> 00:02:12.560 We can look at it from the point of view of buyers and sellers for a moment. 23 00:02:12.560 --> 00:02:19.560 In every exchange the buyer always values what he or she receives more than the price paid. 24 00:02:19.560 --> 00:02:30.560 So, for example, if I purchase this from a vending machine for $2, that indicates, that demonstrates that I prefer the water to the $2 given up. 25 00:02:30.560 --> 00:02:40.560 And on the other hand, the seller always values the money price received, that is the $2 in this case, the vending machine company, to the water that they're giving up. 26 00:02:40.560 --> 00:02:44.560 So both parties give up something that they value less for something they value more. 27 00:02:44.560 --> 00:03:03.560 And that applies to everything, not just a bottle of water, but if you pay $599 for an iPad or $30,000 for a car, it demonstrates that you as a buyer expect to benefit, expect to improve your welfare by giving up the price and getting something that you consider subjectively more valuable. 28 00:03:03.560 --> 00:03:13.560 And on the other hand on the market, people who don't value a good as much as the price are not forced to exchange. 29 00:03:13.560 --> 00:03:14.560 Change. 30 00:03:14.560 --> 00:03:18.600 So if you stood by a vending machine where they were selling soda and water, you would 31 00:03:18.600 --> 00:03:23.640 see some people making the purchase and other people just walking by. 32 00:03:23.640 --> 00:03:28.040 Those people aren't forced to buy because they believe that the $2 is more valuable 33 00:03:28.040 --> 00:03:31.560 to them in some other use than the water. 34 00:03:31.560 --> 00:03:36.320 So that's sort of a capsule summary of what the just price is. 35 00:03:36.320 --> 00:03:42.200 Now, what about the just tax that economists are still arguing about today? 36 00:03:42.200 --> 00:03:52.200 There is still no settled principle of how you determine if a tax is just. Economists are still at odds with one another. 37 00:03:52.200 --> 00:03:58.200 I suggest that there is a reason for this, and Austrian economists in general point this out. 38 00:03:58.200 --> 00:04:10.200 All taxation involves coerced exchange. That is, you are forced to give up the money, in this case the tax, for a good, whether or not you value the good more than the money. 39 00:04:10.200 --> 00:04:29.200 And by the very fact that you're forced, that is, there's a threat of force, in the U.S. for example, if you don't pay your taxes, your income will be forcibly garnished, your assets will be seized, and if you continue to resist, you could ultimately be shot. 40 00:04:29.200 --> 00:04:40.200 The SWAT team will surround your house and drag you out and if you resist, it could involve a fatal force against you. 41 00:04:40.200 --> 00:04:48.200 So the presumption then obviously is that people, for the most part, value the tax money more than the goods they're getting. 42 00:04:48.200 --> 00:04:54.200 They don't value the government public schools as much as the, let's say, $5,000 in property taxes that they're paying for it. 43 00:04:54.200 --> 00:05:00.760 But there's something else that's important before we can judge the justice of taxation 44 00:05:00.760 --> 00:05:08.160 and that is it always involves redistribution of income and wealth because it always involves 45 00:05:08.160 --> 00:05:13.880 taking the money from the taxpayers and someone has to receive those monies or those revenues. 46 00:05:13.880 --> 00:05:21.320 The revenues are received by the government politicians, bureaucrats and those in society 47 00:05:21.320 --> 00:05:26.880 who receive government, very lucrative government contracts or are subsidized by government. 48 00:05:26.880 --> 00:05:38.280 For example, agribusiness involved in producing ethanol, large defense contractors, banks 49 00:05:38.280 --> 00:05:46.680 that are bailed out using these funds, welfare recipients, people building stadiums, rich 50 00:05:46.680 --> 00:05:53.680 Rich investors in sports teams who have public stadiums built for them, and so on, and on, and on. 51 00:05:53.680 --> 00:06:01.680 So, those people are the net tax consumers. They don't pay taxes. They receive the tax monies. 52 00:06:01.680 --> 00:06:09.680 So, there are some people who benefit from taxes, but other people are necessarily made worse off. 53 00:06:09.680 --> 00:06:14.680 Unfortunately, most economists overlook this distinction. 54 00:06:14.680 --> 00:06:19.120 and they just say well you know we want we want to find the tax that's more or 55 00:06:19.120 --> 00:06:23.360 less is consistent with the market doesn't disturb the marketplace and we 56 00:06:23.360 --> 00:06:27.200 call that a neutral tax it allows people to do the same things they would have 57 00:06:27.200 --> 00:06:30.760 done without the tax well obviously they have less money to begin with so they 58 00:06:30.760 --> 00:06:35.280 can't do everything that they would have done so that that's the first problem 59 00:06:35.280 --> 00:06:40.720 but so what happens is they don't focus on the exchange itself whether it's 60 00:06:40.720 --> 00:06:44.440 voluntary or coercive and everything that follows from those two different 61 00:06:44.440 --> 00:06:51.320 ways of obtaining money. Remember, there's only two ways of obtaining money in society, either through production and voluntary exchange, 62 00:06:52.560 --> 00:06:59.400 which benefits both parties, or through the political means, which is through force, which makes some parties worse off. 63 00:06:59.840 --> 00:07:04.520 Even if you build a charitable hospital, okay, with tax funds, 64 00:07:05.120 --> 00:07:10.600 it still makes the person who's forced to give those tax funds worse off, despite the fact that the intentions 65 00:07:11.120 --> 00:07:13.440 are good, let's say, okay. 66 00:07:14.440 --> 00:07:18.760 that's not being built for political reasons, but it's being built to really help other people. 67 00:07:18.760 --> 00:07:22.800 On the other hand, if a charitable hospital is set up 68 00:07:22.800 --> 00:07:27.320 through donations, through voluntary donations, well then the giver improves his or her welfare, 69 00:07:27.320 --> 00:07:34.200 otherwise they would not have made the donation, as well as the people receiving the charity. 70 00:07:34.200 --> 00:07:38.960 So what have economists done to try to find 71 00:07:38.960 --> 00:07:42.840 sort of a principle of a just tax? 72 00:07:42.840 --> 00:07:46.840 What they focused on is the fair distribution of the tax burden. 73 00:07:46.840 --> 00:07:52.040 Notice the word burden right there to tell you that this has nothing to do with the market. 74 00:07:52.040 --> 00:07:54.840 In the market, no exchange involves a burden. 75 00:07:54.840 --> 00:07:56.440 It involves costs. 76 00:07:56.440 --> 00:08:00.340 A cost is something you give up that you value less to get something that you value more, 77 00:08:00.340 --> 00:08:02.040 but there's always a net benefit. 78 00:08:02.040 --> 00:08:08.340 Okay, there's not a burden, but people do treat taxes as burdens as they should. 79 00:08:08.340 --> 00:08:14.780 and economists recognize this. 80 00:08:14.780 --> 00:08:18.460 Okay, so by focusing on this fair distribution, 81 00:08:18.460 --> 00:08:22.420 what happens is that you ignore the coercion involved in taxation 82 00:08:22.420 --> 00:08:26.700 and the fact that the tax consumers are not burdened with taxes. In other words, 83 00:08:26.700 --> 00:08:28.300 the politicians, bureaucrats 84 00:08:28.300 --> 00:08:31.380 and those who are subsidized by the tax money, 85 00:08:31.380 --> 00:08:34.860 they don't bear any burden. They're the tax consumers. 86 00:08:34.860 --> 00:08:40.260 They're consuming the fruits of other people's burdensome taxes. 87 00:08:40.260 --> 00:08:43.140 So those two things are left out of account. 88 00:08:43.140 --> 00:08:56.220 And by the way, even if a bureaucrat files a tax return, let's say for $100,000 and pays $20,000 in taxes, that's an accounting fiction. 89 00:08:56.220 --> 00:09:02.100 The bureaucrat ultimately receives $80,000 in tax revenues. 90 00:09:02.100 --> 00:09:04.180 He doesn't pay taxes. 91 00:09:04.180 --> 00:09:24.180 He consumes taxes. In fact, that adds to the burden on taxpayers because you have to go through, the resources are used up that involve him sending in the taxes, carrying through with this fiction, sending in the tax monies and so on, and having the IRS then process his forms and so on, so we have to pay even more for this fiction. 92 00:09:24.180 --> 00:09:29.180 Now, the UN, for example, if you work for the UN, you don't pay any taxes on your income. 93 00:09:29.180 --> 00:09:34.180 Obviously, that money comes from the country's taxpayers, okay? 94 00:09:34.180 --> 00:09:37.180 And I think that might be true of the IMF, too, the International Monetary Fund, okay? 95 00:09:37.180 --> 00:09:48.180 It would be much more honest and genuine if politicians and bureaucrats just received the money that they were going to receive in net payment, okay? 96 00:09:48.180 --> 00:09:52.180 They do not pay taxes, okay? They consume taxes. 97 00:09:52.180 --> 00:10:01.180 Now, every economist who deals with taxes all agrees with one principle, okay? 98 00:10:01.180 --> 00:10:08.180 Whatever principle of justice of taxation they hold, they all agree that everyone should be treated equally. 99 00:10:08.180 --> 00:10:16.180 There should be equality of treatment. It's sometimes called uniformity of treatment. 100 00:10:16.180 --> 00:10:20.180 What that means is everyone should be taxed in accordance with, 101 00:10:20.180 --> 00:10:50.180 If you believe in the ability to pay principle, his ability to pay, or if you believe in the benefits that he receives, people should pay in proportion to the benefits they receive, then everyone who receives the same benefits should pay the same amount, everyone who has the same ability to pay, if that's your criterion, pays the same amount, or if you believe that everyone should pay proportionally to their income, the same percentage, then everyone in the same income class pays the same amount. Everyone accepts this. It sounds fair. 102 00:10:50.180 --> 00:10:53.980 on the surface superficially, but of course it's not at all 103 00:10:53.980 --> 00:10:57.140 because think about it, let's say 104 00:10:57.140 --> 00:11:01.460 everyone is enslaved, right, everyone is treated equally 105 00:11:01.460 --> 00:11:06.460 by the master, but the master occasionally will release one slave 106 00:11:06.460 --> 00:11:10.700 okay, well I mean they're not, people aren't being treated equally 107 00:11:10.700 --> 00:11:14.700 or maybe he'll allow the slave to work part-time for himself and only be 108 00:11:14.700 --> 00:11:15.980 half-time enslaved 109 00:11:15.980 --> 00:11:19.660 so fifty percent slave, well should the other slaves all get together and say 110 00:11:19.660 --> 00:11:28.940 Well, this is terrible. He has a slavery loophole. He has a special exemption. That's ridiculous. 111 00:11:28.940 --> 00:11:40.180 The point is, slavery is unjust. So who cares how the burdens of slavery are distributed? 112 00:11:40.180 --> 00:11:45.380 Or another example is, in the old days, and maybe even today, in some of the bigger cities 113 00:11:45.380 --> 00:12:15.380 where the mafia operated, they would operate a protection racket where every store would have to, in the neighborhood, would have to pay them a certain amount not to have their windows broken or their store set on fire, and they would actually, the mafia would prevent crime from occurring, that is from other criminals, okay, and peace would reign in the neighborhood, but everyone would be forced to pay that $400. Well, what if the local pizza place and the bar and 114 00:12:15.380 --> 00:12:21.880 Social clubs and so on, where the mobsters hung out. What if they were given an exemption? 115 00:12:21.880 --> 00:12:27.180 They only had to pay $200 a month, okay, because they were the mob's favorite hangouts. 116 00:12:27.180 --> 00:12:32.580 Okay, do we suddenly say, this is not fair? They should pay $400 too? Of course not. 117 00:12:32.580 --> 00:12:39.680 You're reducing injustice, okay? You should be calling for exemption of everyone from the whole $400, 118 00:12:39.680 --> 00:12:44.580 because it's a coerced exchange, okay? 119 00:12:44.580 --> 00:12:52.580 So, it's not clear that everyone should share the burden, in fact, it's quite the opposite. 120 00:12:52.580 --> 00:13:01.580 If it's a burden, why would people want to get involved in that kind of an exchange, that is the forced exchange? 121 00:13:01.580 --> 00:13:13.580 So, all this talk that we hear today of people who are exempted from taxes having these loopholes that they sneak through or being subsidized, 122 00:13:13.580 --> 00:13:17.580 Not taxing someone is not necessarily not subsidizing them. 123 00:13:17.580 --> 00:13:22.580 A subsidy from government involves taking money from one side of the room, for example, 124 00:13:22.580 --> 00:13:25.580 and then paying it to the other side of the room. 125 00:13:25.580 --> 00:13:29.580 An exemption is someone on this side of the room is simply allowed not to pay me. 126 00:13:29.580 --> 00:13:34.580 I'll just take the other four people there and take their money and pay this side of the room. 127 00:13:34.580 --> 00:13:36.580 That person should be blamed for a loophole. 128 00:13:36.580 --> 00:13:42.580 In fact, Mises had a very good quote on this. 129 00:13:42.580 --> 00:13:48.340 Yes, he said, Ludwig von Mises, the great Austrian economist and teacher of Murray Rothbard, 130 00:13:48.340 --> 00:13:53.740 he said, what is a loophole? If the law does not punish a definite action or tax a definite 131 00:13:53.740 --> 00:13:59.180 thing, this is not a loophole, it is simply the law. The income tax exemptions in our 132 00:13:59.180 --> 00:14:03.820 income tax are not loopholes. Thanks to these loopholes, this country is still a free country 133 00:14:03.820 --> 00:14:10.900 and that was written in the 1950s, early 50s. So, to conclude about this principle, uniformity 134 00:14:10.900 --> 00:14:17.900 Equality or Equality of Treatment in Taxation is a self-contradiction. It's impossible to bring about in the real world. 135 00:14:17.900 --> 00:14:25.900 And one of the reasons is because the very act of taxation creates two classes. One class is the tax payers. 136 00:14:25.900 --> 00:14:31.900 The other class are those who receive the tax monies. The monies have to go somewhere, the tax consumers. They are not burdened. 137 00:14:31.900 --> 00:14:39.900 They live off the fruits of the tax burden that is placed on other people. So at least they are not treated equally. 138 00:14:39.900 --> 00:14:51.900 The second reason why you can never realize this is because the tax, as we'll see in a moment, is never ultimately paid by the people who are initially taxed. 139 00:14:51.900 --> 00:15:02.900 The tax is what's called imputed to others in society. The burden is pushed in different directions and sometimes it's very difficult to figure out who's actually paying the tax. 140 00:15:02.900 --> 00:15:09.580 Tax. Let me give you a great example of this. There was a luxury tax that was 141 00:15:09.580 --> 00:15:18.900 passed in 1990 by the first President Bush and a Democratic Congress. This is 142 00:15:18.900 --> 00:15:23.780 the same President Bush who said read my lips, no new taxes. So this luxury tax 143 00:15:23.780 --> 00:15:34.260 tax, which was passed in January 1990, would place a 10% tax on all yachts that cost more 144 00:15:34.260 --> 00:15:39.960 than $100,000. So on all luxury boats that had a price of more than $100,000. And also 145 00:15:39.960 --> 00:15:49.660 on all airplanes whose price exceeded $250,000. The aim of the tax was to raise revenue from 146 00:15:49.660 --> 00:15:57.660 millionaires and billionaires, that's how it was framed, that we're going to use this tax to make the millionaires and billionaires pay their fair share, 147 00:15:57.660 --> 00:16:03.660 because they assume those are the people that purchased these items, so you're going to make the rich pay. 148 00:16:03.660 --> 00:16:14.660 So for example, I'll focus on the luxury boat tax, or rather the luxury boat tax, so a yacht selling for $300,000, 149 00:16:14.660 --> 00:16:20.940 You would tax the $200,000 above the $100,000, you tax that at 10%, so that person would 150 00:16:20.940 --> 00:16:23.940 have to pay $20,000. 151 00:16:23.940 --> 00:16:28.280 But what wasn't counted on is that wealthy people have a lot of opportunities to spend 152 00:16:28.280 --> 00:16:30.940 their money on many, many different things, okay? 153 00:16:30.940 --> 00:16:37.500 They can easily substitute expensive art, European vacations, larger mansions, okay, for the 154 00:16:37.500 --> 00:16:41.500 purchase of a yacht, and in fact, that's exactly what they did. 155 00:16:41.500 --> 00:16:45.940 So then, they bought very few yachts, is all I'll show you, all right? 156 00:16:45.940 --> 00:16:50.620 So people who were very different from the millionaires and billionaires actually wound 157 00:16:50.620 --> 00:16:54.020 up paying this tax. 158 00:16:54.020 --> 00:16:59.860 First of all, the employment in the boat building industry was 600,000 people in 1988. 159 00:16:59.860 --> 00:17:03.660 It fell to 400,000 in 1992. 160 00:17:03.660 --> 00:17:09.340 Now not all of that loss, the 33% loss of jobs was due to the tax because we also had 161 00:17:09.340 --> 00:17:38.700 In 1991, the sales of luxury boats fell by 70% from the 1990 level, but overall boat sales fell only 16%. 162 00:17:38.700 --> 00:17:46.700 So the tax definitely put a damper on the yacht or luxury boat market. 163 00:17:46.700 --> 00:17:55.700 From 1989 to 1992, boat sales fell from 42%, from $17 billion to $10 billion. 164 00:17:55.700 --> 00:18:00.700 Now I come from New Jersey, and I remember a lot of articles on this, and I went back and looked them up. 165 00:18:00.700 --> 00:18:06.700 New Jersey is one of the largest producers of yachts, and it devastated the luxury boat business. 166 00:18:06.700 --> 00:18:10.700 Business. Let me just give you three sort of micro examples, three firms that 167 00:18:10.700 --> 00:18:16.460 suffered. There was a Viking yacht company, cut its workforce from 800 to 150 168 00:18:16.460 --> 00:18:20.740 and closed down a facility. It also owned something in Tampa, Florida, closed down a 169 00:18:20.740 --> 00:18:25.420 facility in Tampa, Florida, which caused another 800 workers to lose their jobs. 170 00:18:25.420 --> 00:18:30.060 The Hague Harbor Yacht Company, which is the oldest boatyard in New Jersey, shut 171 00:18:30.060 --> 00:18:34.900 down completely and laid off 250 workers. It used to build 120 yachts per 172 00:18:34.900 --> 00:18:54.900 for a year. Finally, Ocean Yachts had sales of 60 million per year in 1988. It was a new up-and-coming business and it would build 12 boats a month. But by 1992, the plant was closed and the workforce was cut from 325 to 55. 173 00:18:54.900 --> 00:19:12.900 And let me mention Maryland is another state with a large maritime industry, about 300 of the 1,500, so 20% of the boat related businesses in Maryland closed down, again part of it was due to the recession, but a lot of it was due to the luxury tax. 174 00:19:12.900 --> 00:19:42.900 So who paid the luxury tax? Very few millionaires and billionaires bought boats, okay? There were some that still bought the boats, so they had to pay a partially higher. Oh, and prices came down. So prices came down. So let's say the price comes down by $10,000. So instead of paying $300,000, there's this $20,000 tax on there. You would think that, well, according to most people, or the way most people think, that the seller 175 00:19:42.900 --> 00:20:12.900 and then he passes the tax on to the buyer so that the person would have to pay $320,000 but boat prices fell so let's say the boat price fell to $285,000 and then with the $20,000 in tax the millionaire wound up paying only $5,000 because overall the boat cost was sold to him for $305,000 because the demand for boats fell so much their prices fell so part of the tax even after it was sold was born by the boat sellers themselves 176 00:20:12.900 --> 00:20:27.900 So, who paid most of the tax? The small entrepreneurs who owned these companies. Their capital, in some cases, disappeared. In other cases, it was tremendously shrunk in value. 177 00:20:27.900 --> 00:20:38.900 And tens of thousands of skilled workers who lost their jobs and incomes and did find jobs, but lower paying jobs, that did not use their higher valued skills. 178 00:20:38.900 --> 00:20:46.900 So the people in the boat business, in the luxury boat business, were the ones that paid most of the tax, were burdened by most of the tax. 179 00:20:46.900 --> 00:20:53.900 But since so few boats were sold, the government raised very little revenue, much less than it thought. 180 00:20:53.900 --> 00:21:02.900 So not only do we not know who ultimately pays any tax, economists can figure it out. 181 00:21:02.900 --> 00:21:07.940 and you can figure out the groups that ultimately wind up paying a tax and it's not the groups 182 00:21:07.940 --> 00:21:11.700 that are initially taxed. 183 00:21:11.700 --> 00:21:17.140 But secondly, it devastated a sector of the economy. 184 00:21:17.140 --> 00:21:20.220 The power to tax is the power to destroy. 185 00:21:20.220 --> 00:21:27.140 Fortunately, the boat industry was on the way to just completely collapsing. 186 00:21:27.140 --> 00:21:36.140 President Clinton finally repealed the tax in 1993 and then the sector began to de-flourish again. 187 00:21:36.140 --> 00:21:41.140 Let's talk about the underlying principles very briefly. 188 00:21:41.140 --> 00:21:47.140 How do economists justify these coercive taxes? 189 00:21:47.140 --> 00:21:53.140 These taxes that supposedly, even though they involve coercion, duplicate the market. 190 00:21:53.140 --> 00:21:56.140 That is, they're just like the market according to these economists. 191 00:21:56.140 --> 00:22:01.140 Let's call the ability to pay principle. People should pay taxes according to their ability to pay. 192 00:22:01.140 --> 00:22:07.140 It's very, very ambiguous. There's no clear standard about someone's ability to pay. 193 00:22:07.140 --> 00:22:12.140 Let me give you an example. Let's say two people both earn $50,000 per year, A and B. 194 00:22:12.140 --> 00:22:19.140 A has no savings. B, who earns the same income, has $200,000 in his 401k. 195 00:22:19.140 --> 00:22:33.140 Okay, A is in perfect health, B has $20,000 of medical bills every year, A has no children, B has five children, who has a greater ability to pay? 196 00:22:33.140 --> 00:22:38.140 B has more wealth, he has $200,000, but he has higher medical bills and he has five children. 197 00:22:38.140 --> 00:22:46.140 There's no way, there's no unit to measure people's ability to pay, it's an absurd standard, yet economists uphold this. 198 00:22:46.140 --> 00:23:09.140 One way they try to justify it is by saying, well, when people give money to their churches or to the Red Cross or to food banks or charities, they're expected to give it according to their means, okay, you're told by your pastor, your priest, to give what your means allow. 199 00:23:09.140 --> 00:23:16.140 And according to these economists, well, that's the same thing with government, right? It's a common organization. We should all give what our means allow. 200 00:23:16.140 --> 00:23:24.140 However, the pastor or priest doesn't come to your house if you don't give 10% of your income and hold a gun to your head, okay? 201 00:23:24.140 --> 00:23:32.140 The government does. There's no way to resign from the government. There's no way not to get out of that organization, okay, whereas all the other organizations you can get out of. 202 00:23:32.140 --> 00:23:38.140 But also, why do people voluntarily contribute to charity? Because they're able to? Of course not. 203 00:23:38.140 --> 00:23:42.140 Because they believe they're receiving a benefit by being charitable. 204 00:23:42.140 --> 00:23:54.140 So people pay according to the benefits they expect to receive from gifts, not according to their ability to pay. 205 00:23:54.140 --> 00:24:02.140 Many people will contribute to certain types of charities for moral reasons. 206 00:24:02.140 --> 00:24:07.140 So even if they have the means, they don't expect to get a benefit from it. 207 00:24:07.140 --> 00:24:22.140 Finally, market prices obey the law of one price. Everyone, regardless of wealth and income, pays the same amount of money for a loaf of bread, for an iPad, for steak dinner, for cell phone. 208 00:24:22.140 --> 00:24:31.140 The rich don't pay more or people with a greater ability to pay don't pay more. Imagine if everybody had to pay a price in proportion to their income. 209 00:24:31.140 --> 00:24:38.980 So then someone who is 10 times richer than someone else would have to pay not $20 for steak dinner but $100. 210 00:24:38.980 --> 00:24:49.660 Everybody would have to pay according to the proportion or a higher price according to how much higher their income was in the average, let's say. 211 00:24:49.660 --> 00:24:56.340 And there would be no reason then for people to work harder, to invest more and to acquire money income. 212 00:24:56.340 --> 00:25:02.340 If everybody had to pay according to their income, it would, in effect, equalize everybody's income. 213 00:25:02.340 --> 00:25:08.340 Therefore, there would be no reason to try to work hard for money income, and the economy would collapse. 214 00:25:08.340 --> 00:25:16.340 It's a ridiculous and absurd principle that leads to the collapse of the market economy. 215 00:25:16.340 --> 00:25:22.340 It's certainly not neutral to the market if it destroys the market, this ridiculous ability to pay principle. 216 00:25:26.340 --> 00:25:29.340 So how could that be neutral to the market? 217 00:25:29.340 --> 00:25:34.340 Let me just talk briefly about the last principle. There's a few others, but these are two of the big ones. 218 00:25:34.340 --> 00:25:41.340 The Benefit Principle. So the tax is supposed to be levied according to the benefits that people receive from society. 219 00:25:41.340 --> 00:25:46.340 Number of things wrong with this right off the bat. 220 00:25:46.340 --> 00:25:54.340 Immediately, benefits are equated with money. So if A earns more than B, then he receives more benefits from society. 221 00:25:54.340 --> 00:26:00.940 Well, let's put that aside for a moment. There's a couple of things wrong with that. 222 00:26:00.940 --> 00:26:07.460 A earns more than B in a market economy because A has provided goods that are of greater value 223 00:26:07.460 --> 00:26:12.940 to consumers than B has. That's why A earns more. So in some sense, if you want to use 224 00:26:12.940 --> 00:26:18.940 this terminology, A is giving back more to society already by his productive efforts 225 00:26:18.940 --> 00:26:25.060 and it's simply getting paid in proportion to how productive he or she is and secondly 226 00:26:25.060 --> 00:26:31.960 society is not government okay everybody participates freely in society when they go to work when 227 00:26:31.960 --> 00:26:37.460 they exchange goods and services okay that's not true of government and government is not 228 00:26:37.460 --> 00:26:44.460 society government is the tax consumers not the taxpayers and also on the market people 229 00:26:44.460 --> 00:26:50.460 So, on the market, people do not pay according to benefit, received, okay? 230 00:26:50.460 --> 00:26:54.460 They don't pay according to ability, ability to pay, nor according to benefit received. 231 00:26:54.460 --> 00:27:00.460 Let me give you an example. Let's say A is willing to pay up to $200 to see a rock concert, okay? 232 00:27:00.460 --> 00:27:05.460 He really loves this band. B was willing to pay up to $60, okay? 233 00:27:05.460 --> 00:27:09.460 Do they pay different prices? No, they both pay the market price of $50. 234 00:27:09.460 --> 00:27:30.460 Marketers Each one values a ticket more than the money they're giving up. It's true A would give up the $200 and B would give up the $60 for a ticket, but that's not relevant. Market price is uniform for everyone. 235 00:27:30.460 --> 00:27:35.980 The other point is that market exchanges, because they're voluntary, demonstrates benefit, 236 00:27:35.980 --> 00:27:44.260 it shows that everyone is benefiting, whereas, and by the way, it also shows the fact of 237 00:27:44.260 --> 00:27:49.980 the benefit, so it shows the fact of the benefit, but it does not measure it, it doesn't measure 238 00:27:49.980 --> 00:27:50.980 the benefit. 239 00:27:50.980 --> 00:27:55.460 That's subjective, how much people benefit from things, we just know that they do benefit. 240 00:27:55.460 --> 00:27:59.820 But on the other hand, taxes, because they're not voluntary, do not demonstrate any sort 241 00:27:59.820 --> 00:28:15.820 The presumption is all the other way, right? If there's this threat of force, that if you don't pay your taxes, you could be coerced, well then, in fact, we assume that the person actually would not have paid the taxes unless this threat existed. 242 00:28:15.820 --> 00:28:25.700 And finally, I might say that tax consumers benefit from the tax revenues they receive, 243 00:28:25.700 --> 00:28:30.100 but they don't pay according to the benefit. If this principle was applied to all government 244 00:28:30.100 --> 00:28:35.620 officials and the people who receive subsidies, they'd have to give back all of their salaries. 245 00:28:35.620 --> 00:28:44.180 That's the benefits that they get. So in conclusion, what I want to say is there is no just tax. 246 00:28:44.180 --> 00:28:48.180 The closest you could get to a neutral tax, though even here it's not neutral, is everybody 247 00:28:48.180 --> 00:28:50.620 pays exactly the same price for government services. 248 00:28:50.620 --> 00:28:55.300 Rich and poor alike, we all pay a couple hundred bucks to the federal government, or whatever. 249 00:28:55.300 --> 00:28:59.040 But that would have to be a very, very low tax, because very poor people couldn't pay 250 00:28:59.040 --> 00:29:02.500 very much, which would be great, so it would be a very, very low tax. 251 00:29:02.500 --> 00:29:07.300 But it's still not neutral to the market, because some people don't believe that government 252 00:29:07.300 --> 00:29:08.980 schools are worth even a penny. 253 00:29:08.980 --> 00:29:09.980 I don't. 254 00:29:09.980 --> 00:29:16.980 The only way to provide defense and courts and other public services that are now provided by government, if you want a way of doing it that is neutral to the market, is simply to allow the market to provide these defense services and courts. That is just to have just prices. Thank you. 255 00:29:39.980 --> 00:29:41.980 Thank you very much.