The practical distinction: Direct versus Indirect

Introduction

Have you ever paid a direct tax? What about an indirect tax? Are you a little fuzzy on the difference? If you've worked within the several States included in the Union styled the United States and outside of the black-market, or you own real property within that Union, I assure you that you've paid, or been harassed about, a direct tax. If you sell anything for a living, you've paid, or been harassed about, an indirect tax. I cannot think of a thing, except secondary-market sales like yard sales, that is not taxed. This article will help you understand the difference between the two modes of taxation, which, as you can tell by their yin-yang naming, are exhaustive but distinct like direct sunlight and indirect sunlight. And this article will wipe away the fuzziness on the taxation part of your brain by giving you tools to help you discriminate between the two modes of taxation, real-time.

But let us first consider the purpose of taxes. According to Noah Webster a tax is

A rate or sum of money assessed on the person or property of a citizen by government, for the use of the nation or state.

Additionally,

A tax consists of a man, a subject and a measure.

A man, both the male and female variety, is one upon whom the tax is levied.

A subject is something the man must do or possess in order for the tax to apply.

A measure is the thing against which the tax rate is applied.

Note that the subject is determined with respect to on whom the tax is laid, the man.

For example, one Federal Reserve Note (FRN) per couch (the subject) you own (the man), or ten per centum of the gain by another (the man) in FRNs derived from distilling spirits (the subject).

Exciting! Taxes exist not to punish, not to steal, but to support government in the strict sense: that is, a justice-oriented government. Unfortunately, when wielded by a non-justice-oriented government the effect is a catalyst for lower or stagnant standards of living for all men, both the male and female variety.

Still, a just government may be worth supporting, and the founders of the several States, who joined together to form this Union, intended that the government of that Union be just. To this end, they used the two exhaustive taxation modes, direct and indirect, to impose justice-oriented restrictions on each mode. Let us learn the distinction between a direct tax and an indirect tax, but keep in mind that the subject is the distinguishing factor.

Modes of Taxation: Direct

Direct taxes are all burdens imposed immediately upon the person or estate of the citizen; thus a tax upon houses, lands, money, wages of labor, etcetera is a direct tax.

A heuristic is that, a direct tax is either not avoidable or not shiftable or both.

Modes of Taxation: Indirect

Indirect taxes are the burdens imposed upon articles of consumption; thus, the revenue, or duty levied upon the sale of each gallon of gasoline, each ten-gallon hat, etcetera is an indirect tax.

A heuristic is that, an indirect tax is both avoidable and shiftable.

Modes of Taxation: Juxtaposition

The difference between the two modes of taxation is this: direct taxes act directly upon the person and property of the citizen (not shiftable), and is independent of his will (not avoidable); indirect taxes, by being imposed upon articles used in consumption (shiftable), leave the people at liberty to pay them or not (avoidable), by using or not using the articles upon which they are imposed. Thus, neither can a farmer, although making no sales, avoid the payment of a tax levied upon his land, nor a worker avoid the payment of a tax levied upon his wage property, but both may avoid the payment of the duty upon coffee and gasoline, by not using either.

In tabular form,

Tax subject

	Avoidable	Not Avoidable
Shiftable	Voluntary enterprise (indirect)	Forced enterprise (direct) ↓
Not Shiftable	Voluntary slavery (direct) →	Forced slavery (direct)

Note about direct taxes in above table: it follows that "forced enterprise" and "voluntary slavery" are contradictions, that is, they do not exist in nature, hence, the arrows.

Note about indirect taxes: a tax on the inventory of a business is a direct tax (like a tax on a home owner's home or a farmer's crops), hence the indirect tax is created by the sale-transaction, and cannot be imposed before that transaction occurs; that is, the indirect tax cannot be assessed before the sale.

Informally, some indirect taxes have the same effect as direct taxes. For example, a tax on the sale of necessities-to-life, such as raw food, gas to heat your home and power your transportation to work, and labor is like a tax on hunger, keeping a warm home, the liberty to find life sustaining work, and wage property, respectively, all of which are direct taxes because they are neither avoidable nor shiftable.

According to the above table, formally speaking,

What mode of taxation is used when you are taxed where the subject is wages from your labor and the measure is a percentage of the amount of wages?	Answer.
What mode of taxation is used when you are taxed where the subject is the sale of your labor and the measure is a percentage of the amount of wages?	Answer.

The Take Away

Now you know that the mode of taxation is determined by its subject and upon whom the tax is levied. Examples are, the tax is levied on the store owner's (the man) gasoline sales (the subject), and the tax is levied on the laborer's (the man) wages (the subject), as opposed to the sale of one's labor (the subject).

Next time you run up against a tax, determine on whom is it levied and what is the subject (your property→assessed after you own it→direct, or the sale of a consumable object→assessed as you sell it→indirect), and you will know whether the mode of taxation is direct or indirect.

Happy tax hunting!

A Comparative Example

Direct Tax: Not shiftable, you owe a portion of your property

bills		remuneration
rent	$900	wage	$1320
gas	75
electricity	90
water	50
sewer	25
car	150
phone	30
tax(1320@15%)	198
	_____		_____
totals	1518		1320

The situation: The subject is your remuneration property from the sale of your labor, measured by 15% of the amount of your remuneration.
The result: You owe $198 tax over your remuneration.

Indirect Tax: Business shifting tax owes no portion of their property

bills		remuneration
rent	$900	business 1	$790
gas	75	tax(15%) shift	118.5
electricity	90	business 2	530
water	50	tax(15%) shift	79.5
sewer	25
car	150
phone	30
tax(1320@15%)	198
	_____		_____
totals	1518		1518

The situation: The subject is your sale of certain property or services, measured by 15% of the aggregate prices of those sales.
The result: You owe $0.00 over your remuneration and tax shift.

Direct Tax: Business shifting tax still owes a portion of their property

bills		remuneration
rent	$900	business 1	$790
gas	75	tax(15%) shift	118.5
electricity	90	business 2	530
water	50	tax(15%) shift	79.5
sewer	25
car	150
phone	30
tax(1518@15%)	227.7
	_____		_____
totals	1547.7		1518

The situation: The subject is your remuneration property from the sale of certain property or services, measured by 15% of the amount of your remuneration.
The result: You owe $29.7 over your remuneration and tax shift.

Note, although an indirect tax is the same amount whether you shift it or not, a direct tax cannot be wholly shifted and is, therefore, not shiftable.

Excerpt of References
The Political Grammar of the United States, By Edward Deering Mansfield
An Inquiry into the Nature and Causes of the Wealth of Nations, by Adam Smith