What’s the Ideal: Fair, Flat or No Tax?

“A virtuous and industrious people may be cheaply governed.” — Ben Franklin

At this year’s FreedomFest, in memory of the 100th anniversary of the 16th Amendment (federal income tax), we had a panel on “What is the Ideal: Fair, Flat or No Tax?” and the consensus was that while a consumption tax may be the most pro-growth, it may not seem “fair” to citizens to see wealthy people who live off of dividends, interest and capital gains not pay any taxes. The simplest solution is to establish a flat income tax on all income (earnings income as well as dividends, interest and capital gains). That would appear the most fair and would do wonders to stimulate growth over the long run.

Some 40 countries have flat taxes, including Hong Kong, Belize, Russia, Estonia and most Eastern European countries. Earlier this year, Slovakia was the first country to reverse its flat tax and adopt a progressive tax. Generally, these countries have grown faster as a result of their flat taxes.

Major industrial countries (G8) recently have been raising their marginal rates after cutting them back in the days of Thatcher and Reagan, when the supply-side revolution began. A recent study by 2010 Nobel Prize-winning economist Peter Diamond suggested that rates could go up to as high as 75% without hurting incentives. American golfer Phil Mickelson was hit with a 61% tax bite in the United Kingdom after winning the British Open last week.

Mickelson is one of my favorite heroes in golf (happily married, no personal scandals and left handed like me). Last year, he complained about the excessive (dare we say “unfair”) taxation in the United States, where the combined federal, state and local taxes for wealthy Californians can exceed 50%. Not surprisingly, many professional actors/singers are avoiding the United Kingdom and other high tax jurisdictions, and some wealthy individuals are moving to low-tax havens.

The greatest tragedy is that millions of dollars are being transferred from the productive private sector to the inefficient public sector due to progressive taxation, a cardinal principle of Keynesian economics. The Keynesians argue that the key to economic growth is a large consumer society that encourages spending. Since wealthy people save more, the Keynesians argue they should be taxed more and wealth should be distributed to the poor and middle class, who have a higher propensity to consume. What a disastrous policy.

Not surprisingly, the Chinese have proven the Keynesians wrong. The Chinese are saving more and more, and their country’s economy is growing much faster than the economies of the United States and the West in general.

Note: Recordings of all the sessions, panels and debates (including the one of the ideal tax system) at FreedomFest are now available at www.miracleofamerica.com or by calling 1-866/254-2057. Some panels/debates you and other investors might especially enjoy: Austrian Economics for Investors… Can you beat the market?… Libertarian Hedge Fund Panel (with Jim Rogers, Don Smith and Art Laffer)… Libertarian CEO Panel… and Best Asset Class debate. Each session costs only $5 each; buy the entire set of all the sessions for only $435. I did!

You Blew It!
Republicans Vote Against Freedom and Privacy

“Those who would give up essential liberty, to purchase a little temporary safety, deserve neither liberty nor safety.” — Ben Franklin

It’s a sad day for freedom in America. Last night, the House of Representatives defeated an amendment from Rep. Justin Amash (R-Mich.) — the libertarian Republican who spoke at this year’s FreedomFest — meant to halt the National Security Agency’s (NSA) bulk collection of phone record data. “We’re here today for a very simple reason: to defend the Fourth Amendment, to defend the privacy of each and every American,” Amash said as he introduced his measure. Lawmakers’ votes, he said, would answer one simple question, “Do we oppose the suspicion less collection of every American’s phone records?”

And guess who defeated Amash’s amendment? The Republicans! Democrats voted for the amendment by a 111-to-83 margin, despite intensive lobbying from Obama and the NSA, but the Republicans voted against it 134-93. Overall, the vote was close: 217-205. Maybe it’s time we put “The Republicans on Trial” again at FreedomFest, just as we did earlier this month!

The NSA will now go forward and collect every person’s telephone records, who they are calling and when, without any probable cause — a clear violation of the Fourth Amendment’s right to privacy.

Next year our FreedomFest theme is appropriately “Is Big Brother Here?” Watch our 2 ½-minute video preview here: http://vimeo.com/70558676. Pass it along!

To read my e-letter from last week, please click here. I also invite you to comment about my column in the space provided below my Eagle Daily Investor commentary.