Beardsley Ruml: Taxation for Revenue Is Obsolete

YouTube has the video Full Recorded Speech, Taxation for Revenue Is Obsolete, Beardsley Ruml.

In 1945, Ruml made a famous speech to the ABA, asserting that since the end of the gold standard, “Taxes for Revenue are Obsolete”. The real purposes of taxes were: to “stabilize the purchasing power of the dollar”, to “express public policy in the distribution of wealth and of income”, “in subsidizing or in penalizing various industries and economic groups” and to “isolate and assess directly the costs of certain national benefits, such as highways and social security”. This is seen as a forerunner of functional finance or chartalism.

You can take the parts you like and dismiss the parts you don’t, but this negates the value of the supposed expert who is saying these things. The headline touts the opinion that taxation for revenue is obsolete. The headline ignores the part that says corporate taxes are bad.

If you are going to accept one premise, but challenge the other, we are right back to each reader forming their own opinions on the matter. The true value of the “expert” is in raising issues for discussion. The value is not in the making of pronouncements that can go without challenge. If you accept challenging the part you don’t like, then you have to accept the possibility that someone else will challenge the part you do like.

The speech was over at about 36 minutes into the video, so I stopped listening there.

Note: The first part of the video seems to include a speech about hiring the handicapped which to me seems to be unrelated to the second speech (or part of the speech). Maybe they are different parts of the same speech, which explains why the first part is included in what purports to be the “Full Recorded Speech”.

March 25, 2019

There was a Facebook comment

Taxes are still never revenue for the federal government….not corporate or citizens……There are economic reasons for not wanting to tax corporations, but, tax they did (pigouvian taxes) ,investments were made, instead of having to pay 70 to 90% on profits…with a corrupt Congress not reining these corporate pirates in, we all lose.

I made the following response:

I don’t mean to imply that the part about taxes not being needed for revenue (but being needed for other purposes) is in any way wrong. Much of what he said about corporate taxes had a lot of merit, too, but he said a few things I could challenge.

I stopped listening at a little past 32 minutes, so he may have redeemed himself in the final half hour.

The part that got me on the corporate tax discussion was in the double taxation part. Yes, there is the potential at double taxation, but the not rich person will not pay the same rate of taxes as the rich person if the dividends are subjected to the progressive income tax. Of course that would lead to a discussion of the income tax rate cap on dividends. Then there is the discussion of how many corporations manage to pay no income tax, so the dividends only get taxed when individuals receive them – once not twice.

Rules and laws applied to people are not like the laws of physics because people do change their behavior based on their knowledge of the tax laws. Inanimate objects don’t change their behavior based on what is written about them.

March 25, 2019

Another Facebook comment posted a link to the TAXES FOR REVENUE ARE OBSOLETE article written by Beardsley Ruml.

Mr. Ruml read this paper before the American Bar Association during the last year of the war [World War II].

In the latter part of the article, Ruml said the following:

The corporation income tax cannot be abolished until some method is found to keep the corporate form from being used as a refuge from the individual income tax and as a means of accumulating unneeded, uninvested surpluses. Some way must be devised whereby the corporation earnings, which inure to the individual stockholders, are adequately taxed as income of these individuals.

I don’t know if there was any thought given to making dividends deductible from corporate income while keeping the corporate income tax. That might not have satisfied Ruml’s desire to get rid of the corporate income tax altogether.

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