What is the best way to fund government? Today most funding is provided through the Federal income tax, but this tax is not the only option, and it may not be the most efficient option. According to Budget Director Mick Mulvaney in 2017, “The top 20 percent, pay 95 percent of the taxes.” This means that 80% of us could stop paying income tax altogether and it would not make much of a difference in the government’s balance sheet.
The Federal Income tax did not become a permanent source of income before 1913 when the Federal Reserve was established. Prior to 1913, the Federal government raised most of its money through excise taxes, trade tariffs and fiat currency.
Some forms of taxation may be appropriate for some services but not others. For examples, tariffs may be an appropriate source of funds for basic operations such as the judicial system, government offices, national public parks, minimal military defense, and veterans services.
Fiat currency may be used for public capital improvements and infrastructure, such as roadways, publicly owned and operated railways, bus/train equipment, public hospitals and equipment, research, public school facilities and community buildings–any capital improvement or research activity that directly benefits the public as a whole and may return user fees. If the public improvement returns user fees, then the currency will be backed by the value of the asset. Fiat funds might be provided directly or loaned to municipalities at no interest. When fiat currency is used for warfare or loaned to private industry, this can cause inflation and extreme economic disparity.
Some forms of taxation for certain services might target groups that tend to use those services more, for example a consumption tax on junk food could help fund hospital and emergency care for all. A fossil fuel consumption tax could pay for environmental restoration and public health.
A land and finite resource tax could target those who monopolize certain types of wealth. This revenue could build infrastructure that mainly benefits the land and resource owners as well as provide “rent” payments to the community for public works.
Corporate Tax, Capital Gains Tax, Inheritance Tax tend to target wealth, and could be appropriate for funding (or encouraging tax-deductible donations for) welfare, public health and education.
Partially self-funded services might include: co-operative utilities, transportation services, and Social Security Insurance.
Some current types of taxes that might be phased out if the above taxes were instituted, such as income tax on wages, unemployment insurance, workers compensation insurance, tax on capital improvements, and the Affordable Care Act tax.