It may seem to be impossible now, the income tax was once declared to be unconstitutional and had to be repealed, way back in the 19th century. Of course, it came back in the form of the 16th Amendment to the U.S. Constitution, and now it is so complicated that entire industries have come up in order to comply with the ever-changing nature of the income tax code.
Income tax does not just cause financial harm to everyone who has to pay. It also causes harm in the forgone expansion of businesses and in the increased money in consumer's pockets to save and spend as they see fit. Here are three reasons why the income tax should be abolished.
1. Income Taxes Harm Investment
Unlike a consumption tax, income tax harms an important sector of the economy: investment. Investment drives businesses, who use this money to improve their efficiency, expand services, and/or hire more employees. When a business expands, it increases other business' income and helps raise employment. The source of investment is the savings derived from wages and labor.
When a person's discretionary income is lower, they will have less money to save. Consider this example of a person who makes $100 a year:
If this imaginary person lived in a country with no income tax, and spending on food, water, and shelter amounted to $60, he would have $40 of discretionary income. He can spend this at a store (contributing to sales tax revenue) or he may put it in a bank. Banks are an important component of any economy. The bank will use this deposit of $40 to fund loans (and establish their reserve), which starts the money multiplier effect.
If again, this person instead lives in a country with 10% flat tax on income, he would bring home only $90, with $60 being used on necessities, and now only $30 is available to the bank. With less deposited money, banks are more limited to what is available in loans, making expansion for any business harder. When good businesses cannot access loans, expansion will ultimately harm the worker in terms of lost employment opportunities.
2. Income Taxes Harm Personal Growth
Obviously income tax in the above example is not that simple in real life, but the message is still the same: income tax discourages savings, ultimately harming investments. Notice how America's savings rate has increased as of late, not due to any changes in income tax but due to high consumer debt constraining spending.
The effect of low savings is best seen by the high dependence upon credit in America. Without the incentive to save a considerable sum (or an entire sum) of money to purchase a product, people become tempted by the lure of credit, which can always