Is the federal tax system unconstitutional?

5. Policy aspects

Compliance burdens divert limited resources from productive uses to unproductive uses, reducing the national income out of which all wages are paid, causing unemployment and economic inequality. Compliance costs are also inflationary because they are built into prices of goods and services.

If the High Court finds that the compliance burdens of Federal taxes are the responsibility of the Commonwealth, the Federal Government will have a new incentive to minimize the compliance cost of every tax, to prefer forms of taxation which by their nature have low compliance costs, to resist the temptation to complicate the tax system with politically-motivated concessions, and to prefer forms of taxation that do not harm the economy, thus minimizing the need to complicate the system with economically-motivated concessions. The result will be more wealth creation and a more equal distribution of wealth without additional inflationary pressure.

When deciding whether a particular interpretation of the Constitution is reasonable, the courts routinely consider what the consequences for public policy would be if that interpretation were pursued to its logical conclusion. In this case the policy arguments strongly suggest that governments, not taxpayers, should be responsible for the compliance costs of the tax system.

THE REMEDY

If you are required, as a condition of carrying on your work or business, to collect and remit tax for the Commonwealth, you should be entitled to

(a) remuneration at an hourly rate or piece rate if you do any part of the work yourself,

(b) reimbursement of expenses reasonably incurred in getting someone else to do any part of the work, and

(c) reimbursement for the cost of equipment acquired for the sole purpose of complying with tax laws.

These proposals meet all legal requirements: (a) means that you are not a slave; (b) means that you are not forced to do the work yourself, so that you are not a conscript or bonded labourer, and (c) covers the "just terms'' requirement.

Together, the proposals satisfy the policy objective of making the Commonwealth responsible for the compliance costs of its own tax system, and neutralize the issue of whether the taxation power or the "matters incidental'' power includes a power to impose compliance burdens.

Of course, the remedy requires the Commonwealth to raise enough revenue to cover compliance costs. This does not add to the total tax burden, but merely puts a visible dollar value on the previously hidden compliance component of the tax burden; indeed, it tends to REDUCE the total tax burden by giving the Government an incentive to minimize the compliance component.