In 1716, Christopher Bullock coined the iconic phrase “’Tis impossible to be sure of
any thing but Death and Taxes.”
It’s a phrase so simple, yet profoundly relatable – so much so that it’s been
echoed by Daniel Defoe, Benjamin Franklin, and your libertarian uncle with the “Don’t
Tread On Me” bumper sticker on the back of his truck.
But what if this wasn’t the case?
Aside from the obvious result of sending everyone who works for TurboTax to the unemployment
line, what would actually happen if everyone just stopped paying taxes?
Today, we’re going to find that out.
Taxes are about as old as the concept of centralised hierarchies, dating back into Pre-Roman times.
In their simplest state, taxes are payments made to the centralized authority figure of
an area in exchange for the services that centralized authority figure provides.
Former US Supreme Court Justice Oliver Wendell Holmes once said, “Taxes are the price we
pay for a civilized society.”
And while there’s definitely merit to such an idea, it doesn’t make taxes any less
of a pain in the butt.
The median income of the American taxpayer is roughly $56,000 per year, and around $11,000
of this goes straight to the government in income tax as well as taxes for Medicare and
Social Security.
For anyone without a bank account in the Cayman Islands, that’s a lot of money.
It’s like throwing away an expensive family vacation and a complete redecoration of your
home every year.
So, it’s understandable that a working joe might daydream about getting to keep the entire
56K without Big Government skimming a little cream off the top.
While, in an abstract sense, we all know that taxes are useful, a few hours filling in your
returns are bound to make you at least a little sympathetic to 19th Century French philosopher
Frederic Bastiat’s idea that taxation is theft.
As in any major financial decision, there are three factors worth looking at: Benefits,
Costs, and Precedents.
What would be the real impact of a world where taxes were repealed, or if the people of planet
earth simultaneously decided to object to all taxation?
First, let’s discuss the benefits of a world where your most libertarian friends get their
deepest desire.
The first and most obvious benefit is that you’d get to keep more of your paycheck,
due to the sudden disappearance of both federal and state/municipal income tax, which would
also be a huge boon if you happened to win the lottery any time soon.
Not only that, but your employers wouldn’t dock your earnings for payroll tax under the
Federal Insurance Contribution Act, making for an even sweeter pay day.
And if you wanted to spend that excess money on a new sports car, a designer outfit, and
a pearl necklace, you’d also be in luck, because there’d be no luxury tax imposed
on these items.
Ditto for if you wanted to celebrate your fat stacks with some All-American booze and
cigarettes – these are typically more expensive because they’re subjected to a so-called
“sin tax.”
But that’s not a problem for you anymore.
If you’re a little more on the affluent end of the scale, you could also smoke a tax-free
cigar to celebrate the repeal of capital gains tax, typically levied against the selling
of assets in stock and bond transactions.
And if you have a wealthy, elderly relative who might be checking out any time now, in
the absence of estate tax, your rich, dead grandpa could be a real cash cow.
Though, to be fair, if either of those last two really apply to you, you probably have
an accountant on your payroll to help you minimise the taxes you pay already.
Plenty of the uber-wealthy already dodge a number of taxes using bank accounts in tax
havens such as Switzerland, the Cayman Islands, and Panama, though that’s probably a conversation
for another day.
Fans of The Shawshank Redemption will probably already be aware of the gift tax laws, used
by banker-turned-convict Andy Dufresne to curry favour with his jailors in that hit
Tim Robbins movie.
While the first $14,000 is already exempt from taxation - meaning, one individual can
gift another a sum of $14,000 per year with no tax on the sender or recipient - in a world
with no taxes, you could give and receive potentially unlimited quantities of money
without losing a cent of said money to an outside party.
The larger sums of money you tend to deal in, the more you’ll financially benefit
from this sudden lifting of taxes.
Though once again, while the uber-wealthy save far more than the average person, the
little guy actually needs what comparatively little they save a heck of a lot more.
Next, property.
There are a number of taxes levied against renters and property owners the world over
that would suddenly be miraculously lifted in a world with no taxes.
Property tax, or ad valorem tax, is a recurring tax on one’s property, typically imposed
by a local rather than federal government entity.
This can apply not only to homes, but also cars, boats, and business properties, such
as offices and factories.
The level of tax on real estate is also subject to change based on the perceived value of
the properties in question, based on factors like market value, location, and condition.
But this would suddenly cease to be a problem.
Anyone with the proper funds could suddenly leap into the currently-pretty-inaccessible
property market without the added overhead of these aforementioned taxes.
Finally, even outside of luxury and intoxicating goods, everyone would generally save money
on consumption in a world without taxes.
That’s because most consumer goods would suddenly experience a price cut without the
added cost of sales tax, typically implemented by local governments to earn extra revenue.
This is one tax cut that actually would benefit the working class more than the wealthy, because,
proportionally, working class people typically put more money into the economy through consumption
than their affluent counterparts.
The same can be said for excise tax, typically imposed on fuel.
Gallon by gallon, in a world without taxes, you’d start to see the savings pile up.
And finally, without user fees, the costs on everything from toll roads to cell phone
network packages suddenly drop off.
And in a world where simply using a phone can potentially incur six different taxes,
according to financial writer Bill Fay, the simplicity of a tax-free world does start
to look pretty attractive.
Though of course, any situation can seem like a utopia when you only consider the positives,
and that’s not why we’re here today.
That’s right – it’s time to ask ourselves about the potential drawbacks in a world where
nobody pays their taxes.
To understand why a world without taxes could potentially resemble a post-apocalyptic nightmare,
we need to get back to the fundamentals.
Much like any financial transaction, while it may seem like the money you’re losing
on taxes is just being flushed down the toilet, it’s actually your part in an exchange with
the government for a number of extremely valuable services that essentially keeps society as
we know it afloat.
Time for a little reminder on the various vital services your tax money funds, and why
it could cause massive problems for countless people if they fell through.
Firstly, healthcare and Medicare.
In countries like the United States without universal healthcare, it’s already a financial
nightmare to get injured or sick.
Government programs like Medicare are designed to lighten the load on the most vulnerable
in society, and while the system isn’t perfect, they’ve helped many Americans avoid slipping
into destitution from factors beyond their control.
However, in the absence of tax money to fund ventures like public healthcare and Medicare,
privatisation would fill the void.
As a result, you’d have to foot the entire bill for quite literally all forms of healthcare
without any form of government assistance.
You might think, “I’m healthy, so why should I need to pay the government for healthcare
I’m not using?”
And well…If recent events have taught us anything, it’s that you never know when
you need a well-funded healthcare system available to all.
The circumstances can really sneak up on you, whether it’s a viral pandemic, an unexpected
injury, or being blindsided by a sudden cancer diagnosis.
Even if you’re not currently using any form of government-assisted healthcare, we can
still ensure you that you’ll miss it when it’s gone.
After all, nobody is healthy forever.
But it’s not just healthcare you’d be losing in a world with no taxes.
The largest expenditure of the US Government by a significant margin is social security.
This particular government function is so universally beloved across political lines
that it’s hard to imagine a proposal more unpopular than even cutting social security,
let alone losing it altogether, as we would under a tax-free world.
In a world without social security, millions of people would essentially be locked out
of retirement forever.
While the obscenely wealthy could save some portion of their money for a rainy day, most
working-class people would essentially need to work from cradle to grave in order to sustain
themselves and their family in a tax-free world.
You may also think, “At least I get to keep all of my income.”
And that’s excellent, as long as you can hold down that job, but that isn’t a certainty.
13% of the annual US budget goes towards income security in various forms, from retirement
to disability benefits to cash benefits for the needy.
If you can keep your job, this won’t apply to you, but if a run of bad luck leaves you
unemployed, your chances of ending up homeless and sick increase massively.
And, as we’ve already established, the lack of Medicare here would make getting sick a
potential death sentence.
Public education is another thing that would essentially fly out the window in a world
with no taxes, leaving the education system as little more than a series of private schools.
This lock millions of people out of even the most basic education, perpetuating and even
expanding pre-existing cycles of poverty and inequality.
Ofcourse, this would cause even larger problems further down the line, as having far fewer
people in education has the later effect of fewer trained professionals in key roles.
In other words, only a tiny portion of a society being educated is literally always a bad thing
for pretty much everyone.
A well-educated world is a stronger world.
In a world with no taxes, we’d be throwing the sick, the poor, the unemployed, and even
veterans under the bus, as around 5% of the national budget typically goes towards supporting
veterans injured and traumatised in battle – which, incidentally, is also funded by
the tax payer.
If you’re a fan of crop subsidies, working infrastructure like roads and bridges, law
enforcement, national security, national parks, and public libraries, you have plenty of good
reasons to want to continue paying your taxes.
Of course, there have been precedents for tax resistance in the past, but never for
its own sake.
Typically, tax resistance is a form of protest designed to illustrate a sense of displeasure
with the expenditure of one’s taxes for something the tax payer finds morally or fiscally
objectionable.
Various populations have consistently used tax resistance against their rulers for over
a thousand years, continuing through to the modern day.
In 2017, after the election of US President Donald Trump, some anti-Trump protestors took
to tax resistance in order to voice their displeasure – specifically by refusing to
pay federal taxes while continuing to pay state taxes.
Andrew Newman, one of the tax resistors, gave the following reason, “My tax money will
be going towards putting up a wall on the Mexican border instead of helping sick people.
It will contribute to the destruction of the environment and maybe more nuclear weapons.
I think there will be a redistribution of wealth from the middle class to the wealthy
elite and Trump’s campaign for the working man and woman was an absolute fraud.”
It's worth noting that tax resistance is technically breaking the law, thus leaving the protestors
vulnerable to fines or even arrest for tax evasion, so it’s one of the more legally
risky forms of peaceful protest against the government.
In conclusion, we have to return to our first question: What would happen if everyone stopped
paying taxes?
We now know that any benefits of a tax-free system would incur huge boons for the super-wealthy
while passing on the even greater costs to the poor and working class, by eliminating
all the social programs and initiatives that make up society as we know it.
While we may not always be satisfied with the way the government uses all of our taxes,
a world without taxes altogether wouldn’t even the playing field – it’d only deepen
the inequalities already inherent in the current system, dragging everyone down eventually.
We’d say that avoiding that outcome is worth a little income tax.
Check out “What If The US Paid Off Its Debt” and “How Does The German Economy Compare
To The United States Economy” for more interesting economic lowdowns from The Infographics Show.
In the meantime, stay safe, stay informed, and pay your taxes.