A Cosmic Visitor's Take on Taxes

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Tax.com

A Cosmic Visitor's Take on Taxes

It is a human tendency to assume the world we are born into is as it should be -- a Panglossian assumption that colors our understanding of the abstract, like tax policy.

To get grounded in what is, without assuming it is natural, let's try a thought experiment. Imagine you are a researcher from a distant planet, part of a team sent to stealthily observe and report your findings. Telemetry has revealed the watery and volcanic nature of our planet, so you focus on the organized activities of Earth's top sentients. Your protocol requires you to identify the biggest common enterprises first and then work your way down.

So what would lead your report? What is the biggest human enterprise? Industry? Digital activity? Military? Healthcare? Food production? No, the biggest enterprise, by far, is tax.

Tax accounts for close to 30 percent of economic activity in the United States, 40 percent or more in much of the modern world, and in some countries more than half the economy.

Not being from another planet, it may come as a surprise to you that tax is number one. After all, tax has become a vile word in America, an epithet and a feared label. And because it's a vile word, rational discussions about tax and how to get the most benefit for the least levy are about as likely as a team of extraterrestrials conducting stealth research.

But there it is, number one. Because we devote so much to tax, we must love taxes, right? Or at least what taxes buy. Either that or we are crazy because it doesn't make sense to put first that which you hate. Yet our focus as a society is on far smaller components of our economy.

Take profits. Profits are Lilliputian compared with the gargantuan size of tax. Interest is only about three-fourths the size of profits and virtually unknown as a source of income to those below the top 2 percent of earners.

Or consider new vehicle sales, a giant business whose total domestic revenue when you count both cars and light trucks equals less than four months of federal income taxes, which in turn are less than a fourth of all taxes in America.

Yet anyone taking the measure of America or the world from popular media, be it television or magazines, would think tax was nothing and automobiles were huge. Indeed, from the ads in print and on the air, one could easily be misled into thinking that beautiful people with costly ornaments rank very high in importance, while taxes are unheard of.

This results in a series of paradoxes:

2. The countries with the highest overall taxes tend to be better off and report the highest degree of happiness, but there is a global trend to reduce taxes.

3. Washington is full of claims that high taxes are killing business, yet manufacturers rush to leave America for a high-tax country called China.


  • 1. Humans devote the largest single part of their economies to taxes, yet generally hate taxes and avoid thinking about them in serious ways.


These contradictions are, with apologies to Winston Churchill, a riddle wrapped in a mystery inside an enigma.

When words and deeds are so far disconnected, it suggests a kind of craziness. And craziness does not beget rationality or good decisions. And an amalgam of irrationality and bad decisions is a prescription for a very bad economic headache.

Now let's ponder where taxes come from, geographically speaking, and where wealth is held, although not necessarily made. Imagine your report back to the home planet includes hologram-type three-dimensional images of Earth, virtual globes with spikes and valleys to show the contours of economics.

The world of wealth would include vast flat expanses -- Africa, Siberia, large parts of Australia and Brazil -- and lots of spikes at Bermuda, the Caymans, and cities like London, Beverly Hills, Calif., Zurich, and Monaco.

Even in a nation as wealthy as America, the spikes would stand out against a mostly flat landscape, wealth being highly concentrated not just in a relatively few hands, but in a relatively few places. Lower Manhattan would be a sharp spike rising far above the planet, while vast areas of Appalachia, the South, Midwest, Rockies, and the western parts of New York state would be mostly flat. Wyoming would be as flat as Kansas, except for the sharp spike rising from Jackson Hole.

A parallel hologram of where taxes are paid, however, would not look the same. Even if the globe scales were proportional to global shares, the tax globe would not rise nearly so high in its spiked places.

The Caymans and Monaco would be spikes on the wealth globe, flat on the tax globe, although both would be flat on a third virtual globe showing population.

How much does our crazy, disconnected debate about taxes have to do with the mismatch between these twin three-dimensional images of where wealth resides and taxes arise? How much does it have to do with the fact that Kiplinger's, Money, Smart Money, and dozens of other magazines operate from an antitax bias, as shown by their focus on how to cut your individual taxes rather than on taxes as a whole? How much does it have to do with policies that have made a growing minority of Americans exempt from federal income taxes, although that portion of the populace will shrink some starting next year?

There is an old truism that what you think about is what matters to you. The same is true about your money. Taxes must matter, or else why would we spend so much time on them?

Yet we treat taxes and public finance like a reliable and familiar spouse ignored in favor of the excitement of an illicit affair, our hearts and minds focused on the baubles and not the substance of life.

In three years of writing this column, I have enjoyed the time and reason to think deeply about the role of tax in life, in sustaining our democracy, and about the growing mismatch between our debased national debate on taxes and how we make society work.

The top conclusion I have come to, the one that like our imaginary intergalactic researchers report must come first because it matters most, is that America with all of its greatness, its freedoms, and its potential, is, like democracy itself, the child of tax.

Two centuries of debate and thoughtful consideration by the ancient Greeks gave us the moral basis for progressive taxation and, in turn, the radical ideas that people could govern themselves and that just because a man had money he was not entitled to a larger voice in the body politic.

Seven years under a central government without the power to tax or regulate commerce destroyed the first American republic and created the need for the second, with its strong powers of tax and regulation.

We are abusing our child -- which is to say we are abusing America -- with all of the hate-filled, nonsensical, demagogic talk about tax that dominates one of our political parties and intimidates the other.

We have forgotten the wise words of Edmund Burke, the founder of modern conservatism, who in his 1793 letter made the telling observation that "the revenue of the state is the state."

We seem to think we can raise generations to hate tax, when hate is never a good emotion. We spread tax illiteracy, with no regard for how it undermines America, the liberties of the people, and the very idea of self-governance. If you doubt that, just remember the total disconnect between what the Boston Tea Party was about and what modern Tea Partiers say is their cause.

Tax is not a pleasant subject and never will be. Neither are the responsibilities of child care, like calming bedtime fears about imagined monsters lurking in the shadows. Parents who perform these duties, showing their love by their actions, make for productive adults, while those who shirk the unpleasant realities of parenting often discover what a nightmare a child can grow up to become.

We need to nurture America. We need to do the hard work of changing our tax system to fit the times, of comforting those afflicted by change, and conquering the imaginary monsters perpetuated by politicians consumed by anti-tax ideology and the pursuit of power. We need to remember all six noble purposes in our Constitution's preamble, and we need to take care of our common property, forgetting neither our purposes nor our investments in the commonwealth.

Without taxes there is no America. Taxes are the foundation of the commonwealth, of the goods and services that make society work, and on which private wealth is built. Unless we build a sturdy foundation, we cannot prosper, we cannot remain free. Skyscrapers built on sand will fall.

Too few Americans know these simple truths. When too many fail to even care about them, our society will begin to die, until one day students will open a history text to a chapter that begins with these awful words:

The United States of America was. . . .

David Cay Johnston

David Cay Johnston, a Pulitzer Prize winner, is the author of The Fine Print: How Big Companies Use "Plain English" to Rob You Blind.

He is president of the journalism organization Investigative Reporters & Editors Inc. and teaches at Syracuse University College of Law. His other bestsellers are Perfectly Legal and Free Lunch.

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