Will Taxes Solve America’s Problems? Probably Not

In his State of the Union address, President Obama called for $320 billion in tax increases and adjustments. He proposed raising the capital gains rate, repealing the step-up tax basis for inherited assets, a new financial transactions fee on Wall Street banks, repealing the Student Loan Interest Deduction and Section 529 education savings plans, and limiting contributions to individual retirement accounts (IRAs).

He won’t get any of this, of course. Like most pundits, I reckon he was just trolling Republicans and positioning his party for the 2016 elections. It was just one installment in the endless tax wars, led by generals like Grover Norquist on the right and Robert Reich on the left.

But in this time of high dudgeon over economic decline, government debt, inequality and other structural ills, one thing is almost universally overlooked: Why are we talking about taxes anyway? If the economy is producing outcomes that require corrective taxation (Democrats), or is held back by too much taxation already (Republicans), why don’t we talk about the things that cause those problems instead?

After all, taxation is just a smokescreen for the real issues at stake … one that gives rise to much greater evils.

No Sympathy for the Tax Devil

My view of taxation is much like that of the great Austrian economist F.A. Hayek: It’s a necessary evil, but only insofar as the problems it’s meant to solve can’t be addressed in any other way. It’s far better to address economic and social problems at the source than to use state power to forcibly redistribute income to compensate for them after the fact.

That is so for two reasons, both rooted in the essentially involuntary nature of taxes.

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First, taxes expropriate resources from (mostly) unwilling individuals, which is something that should be reserved only for the most extreme problems in society.

Second, by endowing the state with the coercive power to expropriate, taxes create a dynamic that seems to lead inevitably to unrestricted abuse of that power. Civil asset forfeiture, about which I wrote earlier this week, is a prime example.

So when politicians on the left or right talk about taxes as though they’re the only tool available to address the great economic and social issues confronting us, my thoughts turn to the reasons why they have to try to convince us that taxes seem necessary … which in turn reveals why politicians prefer to focus on taxes rather than our real problems.

What They Should Be Talking About

Consider just a few of the things that give rise to the apparent “need” for corrective taxation and big government — blame for which is generally fully bipartisan:

  • The massive distortion of our food and agricultural markets, courtesy of special laws and regulations favoring giant corporations over small producers. Poor nutrition rooted in the distorted relative prices of good and bad foods drives the widespread health problems that the current government is trying to fix via Obamacare. Why not fix the food supply system instead?
  • Grotesquely distorted U.S. financial markets, which have come to resemble feudal rack-renting operations rather than the “efficient” resource allocation mechanisms we are told they are. Heads they win, tails we lose: To-big-to-fail Wall Street sucks up money via lobbyist-written financial laws in the good times, and via the taxpayer in the bad times, as in the 2008 bail-outs.
  • The hollowing out of the U.S. middle class, driven in part by perverse tax and other incentives that encourage U.S. firms to invest offshore rather than here at home where they would create jobs, making redistributive taxation and state-based pensions and medical insurance unnecessary.

Don’t Hold Your Breath!

I read about these horrors every day. I have a deep interest in these largely hidden dynamics of the U.S. economy that are leading it to collapse. But I have little faith that our elected leaders will do anything about them.  They will continue to focus on taxing people like you and me to cover up for the mess they’ve created via their corrupt relationships with big business and big finance.

That’s why I recommend — and personally practice — the only sure strategy to avoid the inevitable resort to taxation to “solve” our national problems. I look for ways to store some of my wealth offshore, in foreign real estate, offshore precious metal and collectible storage, and in personal asset trusts in secure jurisdictions.

Not all of these solutions are for everyone, but as the storm-clouds gather, everyone — I’m looking at you — needs at least one of them.

Kind regards,
Ted Baumann Sovereign Investor
Ted Baumann
Offshore and Asset Protection Editor