Presidential Candidate Donald Trump recently floated the idea of getting rid of the Income Tax completely. I think this is a great idea — and so did the Founders themselves, who effectively barred Direct Taxes in the Constitution, including the Income Tax, until it was legalized in the Sixteenth Amendment of 1913. Before 1913, there was no Income Tax in the United States.
Now you know why it was called the “Land of Freedom and Opportunity.”
Trump mentioned that the Federal Government could raise revenue via tariffs instead, as it did before 1913. But, the Federal Government is much larger today, and also, we really don’t want to go back to the horribly contentious and overcomplicated system of individual item-by-item and country-by-country tariffs that people were eager to get rid of in 1913.
Trump’s recent proposals are along the lines of uniform flat-rate tariffs, perhaps 10% or 20%. But, I think that Trump is intentionally stirring the pot for a much more important discussion, which is to eliminate the Income Tax entirely in favor of a Value Added Tax, or VAT.
For decades, conservatives have avoided the VAT in the US because of the danger of ending up with both a VAT and Income Tax, the common situation in high-tax socialist Europe — the same high-tax socialist Europe that is now having a discussion about why their economy is so bad.
However, the idea of replacing the Income Tax with the VAT — including a full repeal of the Sixteenth Amendment, and probably a new Amendment overtly banning a Federal Income Tax and maybe State income taxes too — has been popular among conservative economic experts for some time. President George W. Bush’s economic advisor Lawrence Lindsey recommended it in 2013.
Since a uniform, across-the-board tariff is an inherent part of VAT systems worldwide (the VAT rate is charged on all imports), Trump’s stated notion of replacing the Income Tax with a flat-rate tariff is in the same ballpark, you could say, as a much more practical VAT replacement.