Good morning and welcome to everyone in attendance and viewing online. If  you are viewing online, you can post a question on the Mises Academy page by  registering and it's free to register. An unhappy tax day to everyone. 

Let me introduce the program for today. I'll be giving the first talk, I'm Joe  Salerno, I'm the Vice President of Academic Affairs for the Mises Institute and I'll be talking on the myth of a fair tax. After me, Matthew McCaffrey, who's a  doctoral candidate in economics at the University of Angers, will be talking about taxes and the black hole of government spending. 

And Daniel Sanchez, our editor of the Mises website, will be talking about taxes  and history. After that, there'll be a discussion in which you can post questions  and we'll go from there. So my talk is entitled The Myth of the Fair Tax and you  could substitute for that the myth of the just tax. 

Those words aren't exactly interchangeable but they're used that way. For  centuries, people, economists, argued about what the just price was. What was  the correct price? What was the price that could be considered just? Finally, in  the late Middle Ages, this actually led to the development of economics. 

The attempt to answer this question. And interestingly enough, the answer that  was finally settled upon by almost everyone in the economics discipline was that the just price was simply the price that was agreed upon on the market, the  market price. The reason being that it was voluntarily agreed upon and therefore benefited both parties, made both parties better off from their own point of view. Unfortunately, today, well actually, let me just say a little bit more about that. We  can look at it from the point of view of buyers and sellers for a moment. In every  exchange, the buyer always values what he or she receives more than the price  paid. 

So for example, if I purchase this from a vending machine for $2, that indicates,  that demonstrates that I prefer the water to the $2 given up. And on the other  hand, the seller always values the money price received, that is the $2 in this  case, the vending machine company, to the water that they're giving up. So both parties give up something that they value less for something they value more. And that applies to everything, not just a bottle of water, but if you pay $599 for  an iPad or $30,000 for a car, it demonstrates that you as a buyer expect to  benefit, expect to improve your welfare by giving up the price and getting  something that you consider subjectively more valuable. And on the other hand,  on the market, people who don't value a good as much as the price are not  forced to exchange. So if you stood by a vending machine where they were  selling soda and water, you would see some people making the purchase and 

other people just walking by. 

Those people aren't forced to buy because they believe that the $2 is more  valuable to them in some other use than the water. So that's sort of a capsule  summary of what the just price is. Now, what about the just tax that economists  are still arguing about today? There's still no settled principle of how you  determine if a tax is just. 

Okay, economists are still at odds with one another. And I suggest that there's a  reason for this, and Austrian economists in general point this out. All taxation  involves coerced exchange. 

That is, you're forced to give up the money, in this case, the tax, for a good,  whether or not you value the good more than the money. And by the very fact  that you're forced, that is, there's a threat of force. In the US, for example, if you  don't pay your taxes, your income will be forcibly garnished, your assets will be  seized, and if you continue to resist, you could ultimately be shot, okay? The  SWAT team will surround your house and drag you out, and if you resist, it could involve a fatal force against you. 

So the presumption then, obviously, is that people, for the most part, value the  tax money more than the goods they're getting. They don't value the  government public schools as much as the, let's say, $5,000 in property taxes  that they're paying for it. But there's something else that's important before we  can judge the justice of taxation, and that is, it always involves redistribution of  income and wealth, because it always involves taking the money from the  taxpayers, and someone has to receive those monies, or those revenues. 

The revenues are received by the government politicians, bureaucrats, and  those in society who receive government, very lucrative government contracts,  or are subsidized by government. For example, agribusiness involved in  producing ethanol, large defense contractors, banks that are bailed out using  these funds, welfare recipients, people building stadiums, rich investors in sports teams who have public stadiums built for them, and so on, and on, and on,  okay? So those people are the net tax consumers. They don't pay taxes. 

They receive the tax monies. So there are some people who benefit from taxes,  but other people are necessarily made worse off. Unfortunately, most  economists overlook this distinction, okay, and they just say, well, you know, we  wanna find a tax that's more or less, is consistent with the market, doesn't  disturb the marketplace, and we call that a neutral tax.

It allows people to do the same things they would have done without the tax.  Well, obviously, they have less money to begin with, so they can't do everything  that they would have done. So that's the first problem, but so what happens is  they don't focus on the exchange itself, whether it's voluntary or coercive, and  everything that follows from those two different ways of obtaining money. 

Remember, there's only two ways of obtaining money in society, either through  production and voluntary exchange, which benefits both parties, or through the  political means, which is through force, which makes some parties worse off.  

Even if you build a charitable hospital, okay, with tax funds, it still makes the  person who's forced to give those tax funds worse off, despite the fact that the  intentions are good, let's say, okay, that's not being built for political reasons, but it's being built to really help other people. On the other hand, if a charitable  hospital is set up through donations, through voluntary donations, well, then the  giver improves his or her welfare, otherwise they would not have made the  donation, as well as the people receiving the charity. 

So what have economists done to try to find sort of a principle of a just tax?  What they focused on is the fair distribution of the tax burden. Notice the word  burden right there to tell you that this has nothing to do with the market. In the  market, no exchange involves a burden. 

It involves costs. A cost is something you give up that you value less to get  something that you value more, but there's always a net benefit, okay? There's  not a burden, but people do treat taxes as burdens, as they should, and  economists recognize this. Okay, so by focusing on this fair distribution, what  happens is that you ignore the coercion involved in taxation and the fact that the tax consumers are not burdened with taxes. 

In other words, the politicians, bureaucrats, and those who are subsidized by the tax money, they don't bear any burden. They're the tax consumers. They're  consuming the fruits of other people's burdensome taxes. 

So those two things are left out of account. And by the way, even if a bureaucrat  files a tax return, let's say for $100,000 and pays $20,000 in taxes, that's an  accounting fiction. The bureaucrat ultimately receives $80,000 in tax revenues. He doesn't pay taxes. He consumes taxes. In fact, that adds to the burden on  taxpayers because the resources are used up that involve him sending in the  taxes, carrying through with this fiction, sending in the tax monies and so on,  and having the IRS then process his forms and so on.

So we have to pay even more for this fiction. Now, the UN, for example, if you  work for the UN, you don't pay any taxes on your income. Obviously, that money comes from the country's taxpayers. 

And I think that might be true of the IMF, too, the International Monetary Fund. It  would be much more honest and genuine if politicians and bureaucrats just  received the money that they were gonna receive in net payment. They do not  pay taxes. 

They consume taxes. Now, every economist who deals with taxes all agrees  with one principle. Okay? Whatever ultimate principle of justice of taxation they  hold, they all agree that everyone should be treated equally. 

There should be equality of treatment. It's sometimes called uniformity of  treatment. What that means is everyone should be taxed in accordance with, if  you believe in the ability to pay principle, his ability to pay, or if you believe in the benefits that he receives, people should pay in proportion to the benefits they  receive, then everyone who receives the same benefits should pay the same  amount. 

Everyone who has the same ability to pay, if that's your criterion, pays the same  amount. Or if you believe that everyone should pay proportionally to their  income, the same percentage, then everyone in the same income class pays  the same amount. Okay, everyone accepts this. 

It sounds fair on the surface, superficially. But of course, it's not at all. Because  think about it. 

Let's say everyone is enslaved, right? Everyone is treated equally by the master. But the master occasionally will release one slave, okay? Well, I mean, people  aren't being treated equally. Or maybe he'll allow the slave to work part-time for  himself and only be half-time enslaved. So 50% slave. Well, should the other  slaves all get together and say, well, this is terrible, he has a slavery loophole.  He has a special exemption. That's ridiculous. It's unjust. The point is slavery's  unjust. 

So who cares how the burdens of slavery are distributed, okay? Or another  example is, in the old days, and maybe even today, in some of the bigger cities  where the mafia operated, they would operate a protection racket where every  store in the neighborhood would have to pay them a certain amount not to have  their windows broken or their store set on fire. And they would actually, the mafia would prevent crime from occurring, that is, from other criminals, okay? And 

peace would reign in the neighborhood. But everyone would be forced to pay  that $400. 

Well, what if the local pizza place and the bar and the social clubs and so on,  where the mobsters hung out, what if they were given an exemption? They'd  only had to pay $200 a month, okay? Because they were the mob's favorite  hangouts, okay? Do we suddenly say, this is not fair, they should pay $400 too?  

Of course not, you're reducing injustice, okay? You should be calling for  exemption of everyone from the whole $400 because it's a coerced exchange,  okay? So it's not clear that everyone should share the burden, in fact, it's quite  the opposite. If it's a burden, why would people want to get involved in that kind  of an exchange that is the forced exchange? So all this talk that we hear today  of people who are exempted from taxes, having these loopholes that they sneak through or being subsidized, okay? Not taxing someone is not necessarily not  subsidizing them, okay? A subsidy from government involves taking money from one side of the room, for example, and then paying it to the other side of the  room, okay? An exemption is someone on this side of the room is simply  allowed not to pay me, I'll just take the other four people there and take their  money and pay this side of the room, okay? That person shouldn't be blamed for a loophole. In fact, Mises had a very good quote on this. 

He said, Ludwig von Mises, the great Austrian economist and teacher of Murray  Rothbard, he said, what is a loophole? If the law does not punish a definite  action or tax a definite thing, this is not a loophole, it is simply the law. The  income tax exemptions in our income tax are not loopholes. Thanks to these  loopholes, this country is still a free country, and that was written in the 1950s,  early 50s, okay? So to conclude about this principle, uniformity or equality of  treatment in taxation is a self-contradiction. 

It's impossible to bring about in the real world. And one of the reasons is  because the very act of taxation creates two classes. One class is the  taxpayers. The other class are those who receive the tax monies. The monies  have to go somewhere, the tax consumers. They are not burdened. 

They live off the fruits of the tax burden that is in place on other people. So at  least they are not treated equally, okay? And the second reason why you can  never realize this is because the tax, as we'll see in a moment, is never  ultimately paid by the people who are initially taxed. The tax is what's called  imputed to others in society, okay? The burden is pushed in different directions. And sometimes it's very difficult to figure out who's actually paying the tax. Let  me give you a great example of this. There was a luxury tax that was passed in 

1990 by the first President Bush and a Democratic Congress. 

This is the same President Bush who said, read my lips, no new taxes. So this  luxury tax, which was passed in January 1990, would place a 10% tax on all  yachts that cost more than $100,000. So on all luxury boats that had a price of  more than $100,000. 

And also on all airplanes whose price exceeded $250,000. The aim of the tax  was to raise revenue from millionaires and billionaires. That's how it was framed, that we're gonna use this tax to make the millionaires and billionaires pay their  fair share, okay? Because they assume those are the people that purchased  these items, okay? So you're gonna make the rich pay. 

So for example, I'll focus on the luxury boat tax, or rather the, yeah, luxury boat  tax. So a yacht selling for $300,000, you would tax the $200,000 above the  100,000, you'd tax that at a 10%. So that person would have to pay $20,000. But what wasn't counted on is that wealthy people have a lot of opportunities to  spend their money on many, many different things, okay? They can easily  substitute expensive art, European vacations, larger mansions, okay? For the  purchase of a yacht. And in fact, that's exactly what they did. So then, they  bought very few yachts, as I'll show you, all right? So let me, so people who are  very different from the millionaires and billionaires actually wound up paying this  tax. 

First of all, the employment in the boat building industry was 600,000 people in  1988. It fell to 400,000 in 1992. Now, not all of that loss of the 33% loss of jobs  was due to the tax, because we also had a recession in 1990, 1991, okay? But  at least 25,000 jobs, and maybe more than that, according to official government 

studies, were lost because of the tax, okay? In 1991, the sales of luxury boats  fell by 70% from the 1990 level. 

So they just collapsed, okay? But overall, boat sales, and this includes boats  that are less than $100,000, fell only 16%. So the tax definitely put a damper on  the yacht or luxury boat market. From 1989 to 1992, boat sales fell 42%, from  $17 billion to $10 billion, okay? Now, I come from New Jersey, and I remember a lot of articles on this, and I went back and looked them up. 

New Jersey's one of the largest producers of yachts, and it devastated the  luxury boat business. Let me just give you three sort of micro examples, three  firms that suffered. There was a Viking Yacht Company, cut its workforce from  800 to 150, and closed down a facility.

It also owned something in Tampa, Florida, closed down a facility in Tampa,  Florida, which caused another 800 workers to lose their jobs. The Egg Harbor  Yacht Company, which is the oldest boatyard in New Jersey, shut down  completely and laid off 250 workers, okay? It used to build 120 yachts per year.  Finally, Ocean Yachts had sales of 60 million per year in 1988. 

It was a new up-and-coming business, and it would build 12 boats a month,  okay? But by 1992, the plant was closed, and the workforce was cut from 325 to 55. And let me mention Maryland's another state with a large maritime industry.  About 300 of the 1,500, so 20% of the boat-related businesses in Maryland  closed down. 

Again, part of it was due to the recession, but a lot of it was due to the luxury  tax, okay? So who paid the luxury tax? Very few millionaires and billionaires  bought boats, okay? There were some that still bought the boats, so they had to  pay a partially higher, oh, and prices came down. So prices came down. So let's  say the price comes down by $10,000. 

So instead of paying $300,000, there's this $20,000 tax on there. You would  think that, well, according to most people, or the way most people think, the  seller passes the tax onto the buyer so that the person would have to pay  $320,000. But boat prices fell. 

So let's say the boat price fell to $285,000, and then with the $20,000 in tax, the  millionaire wound up paying only $5,000 because overall the boat cost was sold  to him for $305,000. Because the demand for boats fell so much, their prices  fell. So part of the tax, even if it was sold, was borne by the boat sellers  themselves. 

So who paid most of the tax? The small entrepreneurs who own these  companies, okay? Their capital, in some cases, disappeared. In other cases, it  was tremendously shrunk in value. And tens of thousands of skilled workers who lost their jobs and incomes and did find jobs, but lower-paying jobs, that did not  use their higher-valued skills, okay? So the people in the boat business, in the  luxury boat business, were the ones that paid most of the tax, were burdened by most of the tax. 

But since so few boats were sold, the government raised very little revenue,  much less than it thought. So not only do we not know who ultimately pays any  tax, economists can figure it out. I mean, you can figure out the groups that  ultimately wind up paying a tax, and it's not the groups that are initially taxed,  okay? But secondly, it devastated a sector of the economy, okay? The power to 

tax is the power to destroy. 

Fortunately, I mean, the boat industry was on the way to just completely  collapsing. Clinton, President Clinton finally repealed the tax in 1993, and then  the sector began to flourish again. Okay, so let's talk about the underlying  principles very briefly. 

How do economists justify these coercive taxes, okay? These taxes that  supposedly, even though they involve coercion, duplicate the market. That is,  they're just like the market, according to these economists. One is called the  ability to pay principle. 

People should pay taxes according to their ability to pay. It's very, very  ambiguous. There's no clear standard about someone's ability to pay. Let me give you an example. Let's say two people both earn $50,000 per year, A and B. A has no savings, okay? B, who earns the same income, has $200,000 in his 401k. A is in perfect health. 

B has $20,000 of medical bills every year. A has no children. B has five children, okay? Who has a greater ability to pay? B has more wealth, he has $200,000,  but he has higher medical bills and he has five children. 

There's no way, there's no unit to measure people's ability to pay. It's an absurd  standard, okay? Yet economists uphold this. One way they try to justify it is by  saying, well, when people give money to their churches or to the Red Cross or  to food banks or charities, they're expected to give according to their means. 

Okay, you're told by your pastor, your priest, to give what your means allow. And according to these economists, well, that's the same thing with government,  right? It's a common organization. We should all give what our means allow. However, the pastor or priest doesn't come to your house if you don't give 10%  of your income and hold a gun to your head, okay? The government does.  

There's no way to resign from the government. There's no way to get out of that  organization, okay? Whereas all the other organizations you can get out of. 

But also, why do people voluntarily contribute to charity? Because they're able  to? Of course not. Because they believe they're receiving a benefit by being  charitable. So, people pay according to the benefits they expect to receive from  gifts, not according to their ability to pay, okay? Many people will contribute to  certain types of charities for moral reasons, okay? So even if they have the  means, they don't expect to get a benefit from it, okay? Finally, this is very 

important. 

Market prices obey the law of one price, right? Everyone, regardless of wealth  and income, pays the same amount of money for a loaf of bread, for an iPad, for steak dinner, for cell phone, okay? The rich don't pay more, or people with a  greater ability to pay don't pay more. Imagine if everybody had to pay a price in  proportion to their income. So then someone who was 10 times richer than  someone else would have to pay not $20 for steak dinner, but $100. 

Everybody would have to pay according to the proportion, or a higher price  according to how much higher their income was than the average, let's say. And  there would be no reason then for people to work harder, to invest more, and to  acquire money income. If everybody had to pay according to their income, it  would, in effect, equalize everybody's income, okay? And so therefore, there'd  be no reason to try to work hard for money income, and the economy would  collapse. 

So it's a ridiculous and absurd principle that leads to the collapse of the market  economy. So it's certainly not neutral to the market if it destroys the market, this  ridiculous ability to pay principle. So how could that be neutral to the market?  Let me just talk briefly about the last principle. 

There's a few others, but these are two of the big ones. The benefit principle,  okay? So the tax is supposed to be levied according to the benefits that people  receive from society, okay? Number of things wrong with this right off the bat.  Immediately, benefits are equated with money. 

So if A earns more than B, then he receives more benefits from society, okay?  Well, let's put that aside for a moment. There's a couple things wrong with that.  A earns more than B in a market economy because A has provided goods that  are of greater value to consumers than B has. 

That's why A earns more. So in some sense, if you wanna use this terminology,  A is giving back more to society already by his productive efforts, and is simply  getting paid in proportion to how productive he or she is. And secondly, society  is not government, okay? Everybody participates freely in society when they go  

to work, when they exchange goods and services, okay? That's not true of  government. 

Government is not society. Government is the tax consumers, not the taxpayers. And also, on the market, people do not pay according to benefit received, okay?  They don't pay according to ability to pay, nor according to benefit received.

Let me give you an example. Let's say A is willing to pay up to $200 to see a  rock concert, okay? He really loves this band. B was willing to pay up to $60,  okay? Do they pay different prices? No, they both pay the market price of $50. 

Each one values a ticket more than the money they're giving up, okay? It's true  A would give up to $200, and B would give up to $60 for a ticket, but that's not  relevant, okay? Market price is uniform for everyone, okay? The other point is  that market exchanges, because they're voluntary, demonstrates benefit, okay?  It shows that everyone is benefiting, whereas, and by the way, it also shows the  fact of the benefit, okay? So it shows the fact of the benefit, but it does not  measure it, okay? It doesn't measure the benefit, okay? That's subjective, how  much people benefit from things. We just know that they do benefit. But on the  other hand, taxes, because they're not voluntary, do not demonstrate any sort of a benefit, okay? The presumption is all the other way, right? If there's this threat  of force, that if you don't pay your taxes, you could be coerced, well then, in fact, we assume that the person actually would not have paid the taxes unless this  threat existed. 

And finally, I might say that tax consumers benefit from the tax revenues they  receive, but they don't pay according to the benefit. If this principle was applied  to all government officials and the people who receive subsidies, they'd have to  give back all of their salaries, okay? That's the benefits that they get, right? So in conclusion, what I wanna say is, there is no just tax, okay? The closest you  could get to a neutral tax, so even here it's not neutral, is everybody pays  exactly the same price for government services. Rich and poor alike, we all pay  a couple hundred bucks to the federal government or whatever. 

But that would have to be a very, very low tax because very poor people couldn't pay very much, which would be great, okay? So it'd be a very, very low tax. But  it's still not neutral to the market, okay? Because some people don't believe that  government schools are worth even a penny. I don't, government public schools  or police protection and so on. 

So the only way really to provide defense and courts and other public services  that are now provided by government, okay, if you want a way of doing it that is  neutral to the market, is simply to allow the market to provide these defense  services and courts, okay? That is just to have just prices. 



पिछ्ला सुधार: सोमवार, 5 अक्तूबर 2026, 9:04 AM