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Category: Trey Smith

The Decivilization of the Income Tax

While reading a short essay by Frank Chodorov called the Income Tax: Root of All Evil, I came across an interesting, succinct point.  On page 22, Chodorov states:

“If we examine the income tax carefully we find that it is not a tax on income so much as it is a tax on capital. What the government takes from me is not what I consume but what I might have saved. To be sure, I might have spent some of it for a new suit or to paint my house, but some of it I might have put in the bank, where it would have become available, at interest, to someone who would have used it to build a new factory, enlarge his plant, open a store, or buy a farm. That’s what generally happens to savings. Certainly, a good part of the earnings of a corporation are put to plant improvement or expansion, which it cannot effect if the earnings are confiscated. Hence, the effect of income taxation is to impair the capital structure of the country.”

Chodorov makes an excellent point in regards to the state’s attack with the weapon of the income tax on the capital structure of the country.  The capital structure of a country is the key to advancing the civilization of the country.  The greater the capital structure the higher the division of labor, the higher the standard of living, the higher the wealth.  The income tax clearly is a weapon of decivilization.  It must be stopped.

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Inflationary Booms Without Price Inflation

From the Austrian perspective, it can be tempting to make predictions in regards to increases in prices due to the massive amount of credit expansion and inflation in the US. Furthermore, one might wonder how to answer critics of the Austrian theory of the business cycle, who point out inflation is not manifesting itself in aggregates like the CPI. However, Murray Rothbard makes an invaluable point in regards to our economic history looking at two of the greatest booms and busts in US history. Rothbard states the following:

“As “Austrian” business cycle theory points out, any bank credit inflation creates a boom-and-bust cycle; there is no need for prices actually to rise. Prices did not rise because an increased product of goods and services offset the monetary expansion. Similar conditions precipitated the great crash of 1929. Prices need not rise for an inflationary boom, followed by a bust, to be created. All that is needed is for prices to be kept up by the artificial boom, and be higher than they would have been without the monetary expansion. Without the credit expansion, prices would have fallen during the 1820s, as they would have a century later, thereby spreading the benefits of a great boom in investments and production to everyone in the country.” Murray Rothbard, The Mystery of Banking, p. 209

Could it be our economic history is repeating itself 200 years and 100 years after our prior inflationary booms and busts?

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How Currency Debasement Increases Taxation

That moment when you realize not only is taxation theft and debasing the currency is a tax and thus theft, but since accounting practices do not account for currency depreciation, a false accounting exists of higher than otherwise would be income and profit perpetually increasing said theft.

Ludwig von Mises writes in The Theory of Money and Credit, pages 204-205, the following:

This disregard of variations in the value of money in economic calculation falsifies accounts of profit and loss.  If the value of money falls, ordinary book-keeping, which does not take account of monetary depreciation, shows apparent profits, because it balances against the sums of money received for sales a cost of production calculated in money of a higher value, and because it writes off from book values originally estimated in money of a higher value items of money of a smaller value.  What is thus improperly regarded as profit instead of as part of capital is consumed by the entrepreneur or passed on either to the consumer in the form of price-reductions that would not otherwise have been made or to the laborer in the form of higher wages, and the government proceeds to tax it as income or profits.  In any case, consumption of capital results from the fact that monetary depreciation falsifies capital accounting.  Under certain conditions the consequent destruction of capital and increase of consumption may be partly counteracted by the fact that the depreciation also gives rise to genuine profits, those of debtors, for example, which are not consumed but put into reserves.  But this can never more than partly balance the destruction of capital induced by the depreciation.

 

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Mises v. Hayek

An excellent article to check out is this Hans-Hermann Hoppe article in regards to the difference between Ludwig von Mises and F.A. Hayek.

In the article Hoppe briefly discusses the popularity of Hayek over Mises, concluding that the difference is one of political philosophy.  Hayek was a social democrat.  Mises was a laissez-faire radical.  In regards to Mises’ political philosophy, Hoppe states as follows:

In distinct contrast [to FA Hayek – TS], how refreshingly clear — and very different — is Mises! For him, the definition of liberalism can be condensed into a single term: private property. The state, for Mises, is legalized force, and its only function is to defend life and property by beating antisocial elements into submission. As for the rest, the government is “the employment of armed men, of policemen, gendarmes, soldiers, prison guards, and hangmen. The essential feature of government is the enforcement of its decrees by beating, killing, and imprisonment. Those who are asking for more government interference are asking ultimately for more compulsion and less freedom.”

How refreshing indeed!  So read Mises!  Even Forbes recommends it!  His many works can be found  for free at www.mises.org.

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Consumption Tax?

Part of Gary Johnson’s tax reform plan is implementation of a national sales tax, what he calls a consumption tax, while he repeals all income tax.

However, a national sales tax is an income tax which not only reduces consumption but also savings and investment. As Rothbard states on pages 1161-1162 in Man, Economy, and State with Power and Market:

“It should be carefully noted that the general sales tax is a conspicuous example of failure to tax consumption.  It is commonly supposed that a sales tax penalizes consumption rather than income or capital.  But we find that the sales tax reduces, not just consumption, but the incomes of original factors.  The general sales tax is an income tax, albeit a rather haphazard one, since there is no way that its impact on income classes can be made uniform. Many “right-wing” economists have advocated general sales taxation, as opposed to income taxation, on the ground that the former taxes consumption but not savings-investment; many “left-wing” economists have opposed sales taxation for the same reason.  Both are mistaken; the sales tax is an income tax, though of more haphazard and uncertain incidence.  The major effect of the general sales tax will be that of the income tax: to reduce the consumption and the savings-investment of the taxpayers.  In fact, since, as we shall see, the income tax by its nature falls more heavily on savings-investment than on consumption, we reach the paradoxical and important conclusion that a tax on consumption will also fall more heavily on savings-investment, in its ultimate incidence.”

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