Free To Choose: A Personal Statement – Charter 9 : The Cure for Inflation (14)

OTHER CONSTITUTIONAL PROVISIONS

A gradual reduction in the fraction of our income that govern- ment spends would be a major contribution to a freer and stronger society. But it would be only one step toward that objective.

Many of the most damaging kinds of government controls over our lives do not involve much government spending: for ex- ample, tariffs, price and wage controls, licensure of occupations, regulation of industry, consumer legislation.

With respect to these, too, the most promising approach is through general rules that limit government power. As yet, the designing of appropriate rules of this kind has received little at- tention. Before any rules can be taken seriously, they need the kind of thorough examination by people with different interests and knowledge that the tax and spending limitation amendments have received.

As a first step in this process, we sketch a few examples of the kinds of amendments that appear to us desirable. We stress that these are highly tentative, intended primarily to stimulate further thought and further work in this largely unexplored area.

lnternational Trade

The Constitution now specifies, “No State shall, without the con- sent of the Congress, lay any imposts or duties on imports or exports, except what may be absolutely necessary for executing its inspection laws.” An amendment could specify: Congress shall not lay any imposts or duties on imports or exports, except what may he absolutely necessary for exe- cuting its inspection laws.

It is visionary to suppose that such an amendment could be enacted now. However, achieving free trade through repealing individual tariffs is, if anything, even more visionary. And the The Tide ls Turning 305 attack on all tariffs consolidates the interests we all have as con- sumers to counter the special interest we each have as producers.

Wage and Price Controls

As one of us wrote some years ago, “If the U.S. ever suc- cumbs to collectivism, to government control over every facet of our lives, it will not be because the socialists win any argu- ments. It will be through the indirect route of wage and price controls.” 5 Prices, as we noted in Chapter 1, transmit informa- tion—which Walter Wriston has quite properly translated by describing prices as a form of speech. And prices determined in a free market are a form of free speech. We need here the exact counterpart of the First Amendment:

Congress shall make no laws abridging the freedom of sellers of goods or labor to price their products or services.

Occupational Licensure

Few things have a greater effect on our lives than the occupa- tions we may follow. Widening freedom to choose in this area requires limiting the power of states. The counterpart here in our Constitution is either the provisions in its text which prohibit certain actions by states or the Fourteenth Amendment. One suggestion:

No State shall make or impose any law which shall abridge the right of any citizen of the United States to follow any occupation or profession of his choice.

A Portmanteau Free Trade Amendment

The three preceding amendments could all be replaced by a single amendment patterned after the Second Amendment to our Constitution (which guarantees the right to keep and bear arms) : The right of the people to buy and sell legitimate goods and services at mutually acceptable terms shall not be in- fringed by Congress or any of the States.

306 Taxation

By general consent, the personal income tax is sadly in need of reform. It professes to adjust the tax to “ability to pay,” to tax the rich more heavily and the poor less heavily and to allow for each individual’s special circumstances. It does no such thing.

Tax rates are highly graduated on paper, rising from 14 to 70 percent. But the law is riddled with so many loopholes, so many special privileges, that the high rates are almost pure window dressing. A low flat rate—less than 20 percent—on all income above personal exemptions with no deductions except for strict occupational expenses would yield more revenue than the present unwieldy structure. Taxpayers would be better off—because they would be spared the costs of sheltering income from taxes; the economy would be better off—because tax considerations would play a smaller role in the allocation of resources. The only losers would be lawyers, accountants, civil servants, and legislators— who would have to turn to more productive activities than filling in tax forms, devising tax loopholes, and trying to close them.

The corporate income tax, too, is highly defective. It is a hidden tax that the public pays in the prices it pays for goods and services without realizing it. It constitutes double taxation of corporate income—once to the corporation, once to the stock- holder when the income is distributed. It penalizes capital invest- ment and thereby hinders growth in productivity. It should be abolished.

Although there is agreement between left and right that lower rates, fewer loopholes, and a reduction in the double taxation of corporate income would be desirable, such a reform cannot be enacted through the legislative process. The left fear that if they accepted lower rates and less graduation in return for eliminating loopholes, new loopholes would soon emerge—and they are right.

The right fear that if they accepted the elimination of the loop- holes in return for lower rates and less graduation, steeper gradu- ation would soon emerge—and they are right.

This is a specially clear case where a constitutional amend- ment is the only hope of striking a bargain that all sides can ex- pect to be honored. The amendment needed here is the repeal of The Tide Is Turning 307 the present Sixteenth Amendment authorizing income taxes and its replacement by one along the following lines: The Congress shall have power to lay and collect taxes on incomes of persons, from whatever sources derived, with- out apportionment among the several States, and without regard to any census or enumeration, provided that the same tax rate is applied to all income in excess of occupational and business expenses and a personal allowance of a fixed amount. The word “person” shall exclude corporations and other artificial persons.