The desire for a change in tax policy stems from a few central tenets. That government serves people (not the other way around); that every individual has a right to privacy (which extends to their financial affairs, not to mention their genes and bodily fluids); and government should place no undue burdens on its constituents.
Filing an income tax return in the United States and other OECD countries requires significant effort on the part of taxpayers and automatic disclosure of account information (by financial institutions) to the Internal Revenue Service. Income tax compliance thereby already violates two of three tenets stated above. That taxes are levied on incomes, we contend, also violates the third tenet - that government should serve its constituents rather than the reverse.
First, from a moral standpoint… if anyone walked up to you on the street and forcibly required that you turn over 28% of your cash, you would certainly balk. If you believe that you live in a free society, you would never voluntarily comply with such a request. Such a policy is morally undifferentiated from the mob muscling protection money out of shopkeepers. There should be no exceptions, certainly not for a body that is supposed to serve constituents.
Second, from a financial perspective… income tax liability accrues when earned, which prevents taxpayers from doing capital planning on the proscribed portion of their income. Individual taxpayers often face economic circumstances unique by virtue of their current/continued health and employment prospects. Taxpayers logically cut back on spending when faced with an impending financial hardship, either due to impending loss of income or the addition of significant new expenses, possibly due to an accident, unforeseen health care expense, or an act of god.
This is a sane reaction to circumstances, yet tax collection agencies don’t care about reecent or looming personal economic disasters - they want their cut, irrespective of circumstances, just like the mob. Naturally, all sorts of deductions and tax credits (loopholes) have been created in an attempt to make fair a process that is inherently flawed. Well meaning adjustments, along with economic incentives for behaviors the government wants to encourage, and penalties for behaviors the government hopes to discourage, ultimately increases the complexity of the tax code which naturally raises the cost of compliance.
Finally, with respect to serving constituents, taxing current income inhibits capital formation and therefore cottage industry, which ultimately crimps new job formation (assuming that some cottage businesses will bloom into something larger). If you believe that the majority of new job formation comes from big business in first world countries, remember that big business is increasingly international with expansive campuses in countries with substantially lower labor costs (think an eighth of first world) like India and China, so jobs are only created in first world countries when there’s no feasible way the work could be performed overseas.
Although the gestation period is long and arduous, cottage businesses are key to new job formation. That implies that new capital formation within working/middle class households should be a priority in any policy concerned with the financial security of constituents. Income centric tax policies allow government to take their ’share’ without consideration of taxpayer’s vision of future economic conditions. Conversely, if government were to receive tax revenue based on consumption, it would only ‘prosper’ when consumers were confident about their future prospects, and therefore willing to spend more freely.
Legislators are elected to enact policies that enhance health, safety, and financial security of constituents. If government revenues could be linked to consumer confidence (as evidenced by spending) instead of how hard taxpayers are working, government would logically respond by developing policies that enhance that confidence.
It appears that income taxes echo the morality of being robbed at gunpoint, impose a significant compliance burden, are financially invasive, and turn a blind eye toward taxpayers’ future economic circumstances. Does that sound like a free or enlightened society?