What percentage of lifetime earnings will you get to spend on yourself or your family? Combining federal, state and local income taxes, Social Security and Medicare, the average American pays around 30 percent right off the top of annual income, but that’s hardly the whole story: combined local and state sales taxes can add as much as another ten cents on every dollar spent. Corporate tax rates—35 percent federal plus a state rate of as much as 12 percent—cut margins, which raises prices. (Remember that consumers pay the corporate tax rate, included in their price of purchase.)
Then state and local property taxes make you pay for continuing to own things that were already taxed when the money was earned and taxed when it was spent: in most states, you can expect over the course of a lifetime to pay the entire value of your house in taxes and more than the entire value of your car. Which means that, for every dollar you spend on the most significant purchases you’ll ever make, you pay another dollar to the government for the privilege. Imagine what a nice house you’d buy and what a nice car you’d drive if you’d had twice the money to spend on them.
But we’re not finished: another five to ten percent goes to now-mandatory health insurance. The states add a surtax, beyond the sales tax, on things you need, like gasoline (the top rate is Pennsylvania’s, at 58 cents a gallon). They also add a surtax on things you enjoy, like beer and cigarettes. You pay tolls for driving on roads that were built with your money. Your plane ticket includes the cost of the tax on jet fuel. And if you want to bring anything expensive back from your vacation, there will be—a slight tax.
When you’re finished, the government will assail your heirs with the moral disgrace known as the estate and gift tax: We would argue that working to save money for your family’s future is a noble thing and is, at any rate, your prerogative. But the government sees only a big sum of money changing hands, and it wants a chunk of that too. No matter how many times it’s been taxed already.
Added to all this, at every stage from sales to corporate to income tax, is the cost of compliance: in the case of the estate tax and gift tax, for example, federal revenues for 2016 were estimated at $20 billion, and the cost of compliance at $19.6 billion. So that’s the effective tax rate doubled.
Adding all those layers of taxation, it’s likely that you will keep less than a quarter of every dollar you make. So consider this: if you spend seven or eight years out of every decade of your working life serving the government, are you not in fact an indentured servant? Would anyone call you free, except by comparison to those even less free? It’s no wonder the welfare register has swollen so prodigiously.
And this is before factoring in the assault on freedom via regulation, permitting, and fines. If you want to add a deck to the house you already own, you have to get government permission, and pay to ask for it. The deck needs a fence at least three feet tall, and the fence can’t have any gaps big enough to push a four-inch ball through (that is the actual rule). The fence is required, however, only on decks that are more than 30 inches above the ground—30 inches apparently being the maximum height a government official can fall without hurting himself.
Real tax reform is unlikely, now that the Republicans seem intent on demonstrating that they, too, are a party of subsidies. So suppose we take a suggestion from Rand Paul, and institute an “economic freedom zone.” The concept comes via China, an unlikely source: When Great Britain ignominiously handed Hong Kong back to the PRC in 1997, the Chinese promised to maintain Hong Kong as a “special administrative region” with a low tax rate and simple regulatory code. It worked so well that China has since designated a half-dozen cities as special economic zones, and they have prospered furiously.
A specially deregulated town in the United States would operate with minimum federal interference, something like an Indian Reservation. There would be a 15 percent federal income tax . . . and nothing else. No federal regulations of any sort: no food regulations, health regulations, driving regulations, medical regulations, safety regulations, or gun regulations. While this would sound horrifying to the governmentally inclined, the nice thing is that no one would have to live there: citizens move in at their own option, accepting both the risks and the rewards of self-sufficiency. We could set up a trial zone on an empty patch of land in the Midwest, or let a failing city vote to be free-zoned. If it didn’t work, people would leave and the project would fail all by itself. But no one would be surprised if it became the most economically vibrant part of the country in a decade. Even the Left wouldn’t be surprised—they’d just be disgusted.
We could call the first town “Caveat.”