Monday, December 16, 2019

Why Wages Should Not Be Taxed

Wages are Zero-Sum

We can only earn wages by sacrificing our time i.e. 8 hours at work is 8 hours we don’t have for leisure or self-improvement. We can’t get this time back; thus, any tax assessed on our wages is time we are forced to work for free. If the notion of “wage slavery” has any valid meaning, apart from the poorly conceived labor theory of value, then it is being forced to work for free to pay withheld taxes. Taxes on wages also reduce our standard of living by leaving us with both less disposable income for say paying the rent, which is not tax deductible or paying for car repairs.

Federal Taxes Don’t Fund Congressional Spending

The common retort is that federal taxes like the FICA tax and income tax fund programs
that will benefit us in the future. The truth is that congress doesn’t extract money from us to fund their budget anymore than the Federal Reserve extracts money from private banks to buy treasury bonds during QE; both institutions are the issuers of new money. The real purpose of federal taxes is to curtail inflation. Just as the Federal Reserve sells treasury securities back to the banks it bought them from congress also taxes to reduce the amount of money in circulation.

The moral argument

If we are entitled to keep anything it’s the product of our labor or the equivalent earnings in our paycheck or profits for the self-employed. Although we don’t legally own the money in our paycheck or bank account in the same way we own a car or house, it is nevertheless the only form of credit we can use to buy necessities and pay for these other forms of property.


How would we fund (i.e. fight inflation) congressional spending without a personal income or social security tax? Tax revenue would come from duties on imports, user fees for public infrastructure (e.g. highways, bridges, ports etc.), excise taxes, severance taxes on extraction industries (e.g. oil, gas, mining etc), royalties for federal land leases, royalty income from patents and copyright, or just tax the banks. Of course, all of these forms of taxation already exist. States and municipalities that do need taxes to literally fund spending could replace income, sales, and property taxes with a land value tax, which I have described in lengthy detail in previous posts (see Real World Examples of Land Value Taxes part 1 and 2.

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