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By now, you may be tempted to dismiss this whole idea as impractical ranting about things that are too big to change. Let's test by example.
Our rational examination of taxation in Part Two carried with it some profound implications. If you were surprised to consider the possibility that taxing labor is irrational, you can guess where my solutions are headed. For generations, we've lived with this tax on labor, pretty much without question. Oh, occasionally somebody will ask why those who earn very high wages and salaries are exempt, but that's about as far as our critical thinking has gone on this matter. In order to get to real solutions, new solutions, we need to start with fundamentals; we can't just build on accepted conventional wisdom. After all, accepted conventional wisdom has gotten us to where we are today.
So taxing labor -- a commodity we want to be in strong demand -- is irrational. Irrational public policies need to be changed -- rationalized, made reasonable. If our governments need money to function, it should be raised by processes that don't wreak harm to the economy. Makes sense, no? Public policies that make sense may also make for good, efficient government. Public policies that do not make sense beg to be eliminated, further simplifying the whole system of government.
If income or wealth is taxed, it has no effect upon the demand for income or wealth. Since neither is a commodity that can be bought or sold, neither has a price associated with it. Since neither has a price, tax changes cannot affect a market price. The argument that higher income taxes will discourage income loses a leg of support. The argument that taxes on wealth will discourage people from getting rich loses another leg of support.
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To carry this line of critical thinking into actionable solutions, create a new system of taxation and evaluate its expected effects.
Begin by eliminating the tax on labor. The immediate effects of this change would be to raise the income of everybody earning less than $110,000 by nearly 7%, and to eliminate direct taxes on business payrolls by a similar amount. This in turn will stimulate the economy by reducing unemployment and placing more money into the hands of workers to spend, thus further increasing aggregate demand and inviting additional capital investment to satisfy that demand. All of these consequences generate additional personal and corporate income, a part of which would be converted to tax revenue!
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