Daily Archives: January 11, 2011

Law the Gop Should Pass #8: An Ideal Tax Policy Part II

So last time I proposed flat taxes on individual and corporate income. This has the advantage of making sure that when taxes are raised it can’t be claimed to be on one less than popular group or another (which hides the reality that a tax increase on anyone is pretty much in the end is going to be a price increase on what we all pay for, thus it’s a tax increase on all of us). But just flattening taxes on income isn’t enough. Those sneaky bastards will come up with lots of other things to tax and tariff, fee and surcharges. So how on earth do we stop them from hiding taxes, keeping income at a level that will allow the government to function, and making every tax equally apparent to everyone—notice I do not say equally a burden, as all taxes are already equally a burden on everyone since any tax on any group has a way through economics of slowing down the economic flow for the rest of us.

And the easy answer is that they can only tax one thing and one thing only. Sounds kind of like a no brainer doesn’t it (and yes I realize for this to have real force I’m not suggesting a law but a full on Constitutional change). And bear with me for a minute because I can almost guarantee you’re going to have a very quick knee-jerk reaction against this, but I’m pretty sure that on reflection you’ll be more open to this.

(Also please remember that last week I predicated all of this on the idea the Congress gets its spending problem under control, I’ll fully admit this will not work without A). Some kind of balanced budget amendment or at least agreement and B). Major cuts in all those unquestionably stupid and evil entitlement programs like welfare, social security, Medicaid and Medicare.)

We eliminate all federal taxes and replace them with a 10% sales tax. (I’ll give you a moment to stop screaming at me for being insane).

Okay, now let’s go over why this will not only work, it will work really, really well.

First, when I say a sales tax I mean on everything. Everything you buy (including food), gas, liquor, movie tickets, soda, your car, you new computer, and every service, the electric bill, the water bill, the telephone bill, the oil change at the dealership, hiring a maid, hiring an outside company to do a service for your company, any sale of stock. Everything. Every item sold, every service sold. (The salaries of employees are not counted in this).
You will recall that I suggested last week that everybody’s income tax or corporate tax go to 10% so if you spend pretty much all of your money on goods and services your income has roughly changed by nothing. So this change should not become a burden to anyone.
However, psychologically it will make a huge difference. If the tax burden is right there for people to see every time they make a purchase you will see people spend less and save more. In the long term people will have more saved up, thus making the need for social security less required. If it is purchases and not earnings that are taxed people will have more incentive to earn and incentive to spend. Granted this will have some ripple effect in our very consumer based economy but they will likely be for the good.
One of these effects is that you will likely see people become more self sufficient. Rather than pay 10% sales tax on every item of food it’s better to pay it on some seeds and grow your own food. Further you will likely see people barter more and spend less, a system that requires people interact with each other, which counters a lot of the isolation that modern society is bringing. And with greater social interaction you will find society not becoming so dependent on the government.
This law needs to be made that while it cannot go above the 10% limits (except in time of war) that if the government actually has a surplus then the next fiscal year’s tax rate goes down by a percent to 9%…two years of surplus goes down to 8% so on and so forth. What this point will do is it will encourage everyone to demand that government cut back on all of its useless spending. Right now you don’t really see an effect if government cuts back on this or that…if you had actual incentive to demand that the government cut back its spending because it will make an actual difference on all your bills, trust me people will demand for less and less government spending.
I figure after a couple of decades of this the actual tax rate will settle down around 7% and the government will be kept in check by a constant stream of people who do not want their bill to get too high.
Now you might wonder what about the money we made from corporate taxes. Well they’re still paying taxes, but only on the things they buy, thus encouraging companies themselves to become more self-sufficient, which means there will be a check against almost every corporation outsourcing its accounting to Arthur Anderson (or whatever replaced that corrupt institution to have to offer a much better, and certainly more honest, product).
Won’t a 10% tax on every stock trade hurt the stock market? Nope. It will actually cut down on the insanity of day trading, cut down on the exuberance that creates bubbles and it will encourage much more long term trading because if you’re going to pay 10% right at the start of you purchase of a stock you’re going to make damn sure the sale will pay for itself over the long run. (Consider that almost all capital gains taxes right now are at 10% so this really is actually going to encourage more investment, not deter it).
I can see that there might be a lot of other objections to this, and I’m not saying there won’t need to be little adjustments needed to a plan that is more or less given in outline here, but I believe this plan, in the long run, would be the most beneficial and logical for an economy.

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Filed under Capitalism, Economics, Laws the GOP should pass