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Spring 2013
ISSN 0890-913X
Volume 28, Number 2

The Case for Abolishing Federal Taxation

Richard Alm, Southern Methodist University
Dwight R. Lee, The University of Georgia
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TheJournalofPrivateEnterprise28(2),2013,125137TheCaseforAbolishingFederalTaxationRichardAlmSouthernMethodistUniversityDwightR.LeeSouthernMethodistUniversityAbstractAbolishingfederaltaxationwoulddramaticallyaltertheincentivesthatincreasespendingandtaxing.Statetaxationwould:1)discouragewastefulKeynesianpoliciesaimedatfine-tuningtheeconomy,2)encouragefederalauthoritiestospendtaxmoneyonlyonactivitiesprovidingnationalbenefits,3)reduceincentivesfortherent-seekingthatleadstowastefulspendingatallgovernmentlevels,4)converteachstatesincentivetofreerideoffotherstatestaxpaymentsintoanincentivetoreplacewastefuloutlayswithproductivespending,5)intensifycompetitionbetweenstatesandminimizethedead-weightlossoftaxation,and6)reducethesocialdivisivenessofpoliticalplunder.JELCode:H2Keywords:Federaltaxation;Statetaxation;Federalism;Rentseeking;TaxreformI.IntroductionOverthepast100years,thepowertotaxhasbeenshiftinginonedirectiontowardthefederalgovernmentandawayfromstateandlocalgovernments.Diminishedfreedomtocontrolourliveshasfollowedcloselybehind.Wekeepasmallerpercentageofourearnings,wefacegreatergovernmentintrusionsintodecisionsthatusedtobeconsideredprivate,andwehavebecomeincreasinglydependenton,anddisappointedwith,governmentatalllevels.Asgovernmenthasassumedresponsibilitytosolvemoreofourproblems,federalandstateauthoritieshavepromisedsomuchandperformedsopoorlythatfewoftheirpromisescanbekeptandfewoftheirsolutionshaveworked.Despitethedisappointment,however,governmentexpansionhascreatedincentivesthatmakeitindividuallyrationalforpeopletocontinuedemandingmoregovernmenteventhoughitiscollectivelydestructive.125
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