Who Pays Taxes – and How?

Mr. Boulware, now retired, is noted for his edu­cational approach to industrial relations at General Electric. This article is excerpted by permission from The Truth About Boulwarism, reviewed on page 760.

Everyone is demanding a rapidly rising level of living. And most citizens expect their take to mount much faster than their contribu­tion… with government paying the difference.

They seem vaguely to assume that government will recover most of its costs from a very few in­dividuals or from the owners of business or from future genera­tions or from some magic source. Public servants in both parties, as the price of getting and staying in office, are forced to appear to be getting a lot done, and trying to get a lot more done, in this di­rection demanded by the majority. But most citizens—including most college graduates—seem not to know where the money is to come from.

Government can and does get money in only two ways. The first is from current taxes assessed as taxes. The second is from what appears to be borrowing against future taxes. But most all such borrowing now turns promptly into the very current tax of in­flation.

Government collects this money through both direct and indirect taxes. Both kinds wind up being paid almost entirely by consumers. But taxing consumers directly and visibly is unpopular and very bad politics. The electorate keeps forc­ing government to minimize direct taxes and collect its major rev­enue indirectly through taxes hid­den in prices and collected from consumers in two ways.

The first is through the levies on business which are erroneously believed by most citizens to be levies on the owners. These taxes are not and cannot be paid by the owners in any business that sur­vives. They are merely collected for government by business in prices which have had to be in­creased enough to cover the hid­den indirect tax.

The second way government collects money indirectly through consumer prices is by inflation which, historically and now, is simply a tax of the most deceitful, most brutal, and most debilitating kind. How it comes about is this:

Government does not dare tax to equal expenditures, because that would require disillusioning the majority of voters who believe something-for-nothing can be ob­tained for the many through gov­ernment or other gang force.

So government borrows. If it can borrow from individuals —with a proven history of paying back loans—this would not nor­mally be inflationary since the arrangement is self-correcting. But government quickly finds it can­not borrow enough from individ­uals since they know government is on an inflationary course and will not pay back as much value as it borrows.

So government is forced to bor­row from the banks. The money is put on deposit. This results in creation of new money to match the amount of the borrowing but not matched by any new supply of goods. This is politely called “monetizing debt.” Actually, it is just printing worthless money which is added to the existing sup­ply and dilutes the value of exist­ing dollars by just that much. The consumer pays his part of this as a hidden tax in every purchase thereafter.

So, who pays taxes? Everybody does. No few do or could supply the enormous sums which govern­ment is spending and which long since exceeded the total income of everybody west of the Missis­sippi.

Such huge taxes cannot be sup­plied from any few considered wealthy. Even the best-off 10 per cent of all families—down to in­clude the $1,000 a month level —pay only 28 per cent of the na­tion’s tax bill. The rest has to come from the remaining 90 per cent of the population. These 180 million persons—while as a group receiving 85 per cent of benefits to individuals—have generally no idea they are themselves supply­ing 72 per cent of everything gov­ernment spends.

The further down the income, savings, and even the relief scale a citizen is—that is, the poorer he is—the greater is the relative impact on him of the taxes levied on business and of the tax of in­flation levied on him through gov­ernment cheapening his money.

Consumer tax and price prob­lems are not solved by what ap­pears to be a shift of the burden to business. Borrowing hardly de­lays at all their impact to the con­sumer. The only remedy to stop inflation is at its source. The best way to start is to cut out the futile and wasteful part of the govern­ment spending and to tax openly to match the remaining expendi­tures. Public servants will do this once they become convinced that a majority of their constituents knows the facts and wants it done.