Fairness, part 4

For the past month, I have been addressing in my column the issue of fairness in human relations, specifically in the area of taxation.

In the first column of this series, I argued that so-called “progressive” and “flat” taxes aren’t remotely fair and proceeded to make the case in the second column that the use of such taxes is to be expected from a government involved in so many areas of its citizens’ lives in which it doesn’t belong.

Last week, I briefly discussed examples of the unconstitutional actions taken by each branch of our federal government in order to illustrate the need for scaling government back to its proper, constitutionally enumerated powers.

Today, I will be discussing potential paths toward reducing the unfairness and coerciveness of taxation and government financing more broadly, with an eye toward the long-term goal of completely voluntarily financing government.

First, allow me to offer the two major problems relating to unfairness and coerciveness that I see with the current methods of government financing.

The primary problem, as I see it, is the fact that almost every form of government financing is currently mandatory. Also unfair is the fact that, as a result of almost every tax in effect, certain citizens are punished disproportionately for their productivity, i.e. the value they contribute to society.

These problems should be reason enough to advocate change even before it is observed that taxation creates disincentive effects that discourage the creation of wealth at almost every turn.

At this point, before turning to possible policy changes, I should note that none of the following is to be taken as a blanket endorsement for any particular policy.
Rather, the following thoughts are to be taken as suggestions of ideas worth considering and worthy of further discussion.

In order to address the first problem, we can begin by moving toward forms of taxation that are increasingly less mandatory. One possibility would be the Fair Tax proposal, which would replace the federal income and payroll taxes with a national sales tax.

This proposal, while it would still make payments to government mandatory for people who purchase goods in the United States, would nevertheless be more avoidable than the taxes it would replace.

Eventually, after further much-needed reductions in the size and scope of government have been enacted, it might be possible to move toward completely voluntary financing of government.

In her essay entitled “Government Financing in a Free Society,” novelist and philosopher Ayn Rand suggests two intriguing possibilities: a state-run lottery (such as our Hoosier Lottery) and payments made by parties to contracts who wish to have their contract enforced by law.

Her proposed contract-enforcement fee would take the form of an insurance premium that would finance the agency tasked with enforcing insured contracts.

State-run lotteries, of course, already exist in many areas and are completely voluntary. The notion of voluntary payments for contract enforcement, however, strikes me as a novel idea.

Rand notes that such a plan could allow people to enter into contracts without paying the government a fee with the knowledge that said contracts would not be enforced by the government.

Those who did want to make such payments would have the benefit of having their contracts enforced while providing a spillover benefit to the rest of society by contributing to the strength of the contract-enforcing regime.