All Commentary
Monday, July 1, 2002

If Americans Really Understood the Income Tax: Uncovering Our Most Expensive Ignorance

Just Another Book on "Tax Reform"

At first glance, John O. Fox’s book on the income tax, which has a dust jacket featuring the U.S. Capitol and a magnifying glass focusing on a 1040 form, promised to be a hard-hitting critique. I was eager to read what I hoped would be an insightful and penetrating analysis of taxation by a tax attorney who has been practicing his craft for nearly 40 years. Finally, I thought, a tax attorney is about to reveal the truth about the income tax: it is legal plunder, reduces our standard of living, wastes people’s time and energy complying with the code, and violates our privacy, among other things.

I eagerly turned to the bibliography. My high hopes were now about to be confirmed or dashed. There is no citation for Leonard Read’s Anything That’s Peaceful, Frank Chodorov’s The Income Tax: Root of All Evil, Charles Adams’s For Good and Evil, Sheldon Richman’s Your Money or Your Life, Murray Rothbard’s Power and Market, Amity Shlaes’s The Greedy Hand, or even my own Tax-Free 2000. There is no mention of the dozens of anti-tax books that have been published in the past 100 years, let alone Frédéric Bastiat’s The Law. In short, before I plunged into John Fox’s book, I had an inkling of what to expect: just another book on “tax reform.”

Fox’s tax reform proposal has three components: (1) the income tax should be simplified, (2) progressive tax rates should be lowered for everyone, and (3) tax revenue should remain at current levels. In addition, he asserts, “Income taxation must be fair if our nation is to be fair. While immensely complicated, fairness at a minimum means that our tax burdens must correspond strongly with our ability to bear them” (emphasis added). In short, the income tax should adhere to the principle: “From each according to his ability, to each according to his need.” Of course, many people have challenged that Marxist underpinning of our “progressive” income tax, but Fox doesn’t deign to argue the point. That magnifying glass never focuses on the right questions.

On a positive note, Fox does a credible job in explaining deductions, preferences, and exclusions in several chapters. However, he makes the egregious error of identifying tax deductions for home mortgage interest, pension plan contributions, and other things as “tax subsidies.” A tax subsidy implies that anytime a taxpayer gets to keep more of his own money because of a deduction, the government is getting ripped off. In other words, Fox reveals he is an unapologetic statist, a believer in big government.

Fox’s goal is to “simplify” the tax code and eliminate most if not all deductions so rates can be reduced for everyone. The 1986 tax bill signed by President Reagan promised this by dropping the top tax rate to 28 percent and ending many deductions. A simplified tax code would achieve many worthy goals–lower compliance costs, more economic growth, and more financial privacy–but 15 years after the 1986 “reforms,” the top rate is back up to nearly 40 percent, all wages and salaries are now subject to Medicare taxes, the tax code is still unbelievably complicated, and the IRS is as intrusive as ever. In addition, the evil Alternative Minimum Tax is still with us snaring more and more taxpayers in its web.

Throughout the book, Fox makes statements that reveal how Marxism has been embraced by mainstream Americans. “No one denies that unfettered capitalism, with its free-market outcomes, allows for extremes of wealth and poverty.” “Conservatives today recognize that society cannot rely entirely on a self-regulating economy.” “Capitalism rewards people who are best able to make money, even when the impact on society is unfavorable.” Fox doesn’t offer any evidence to support his assertions; he just makes them if they are self-evident. In his mind, such socialist blather supports the “need” for a massive government and wealth redistribution via the tax system.

The great shortcoming, among many, in Fox’s book is that he does not discuss federal spending. Taxation and spending are two sides of the same coin. Spending drives taxation. The more the federal government spends, the more it taxes. Yet Fox wants to make tax reform “revenue neutral.” Fox therefore is a “conservative”: he wants to conserve the leviathan in Washington, D.C.

For libertarians and real Old Right conservatives, the books that were not in Fox’s bibliography are the first and last words about taxation. Had Fox read them before he wrote his book, it could have been a gem instead of fool’s gold.

Murray Sabrin is professor of finance, Ramapo College of New Jersey.