CapitalistMarks

How to fix the broken tax sytem.

Posted on 01. Oct, 2009 by scott in economic daydreaming, political munglings

The last post described our broken tax system.  Today this is about how to keep everyone inside the fence of fairness and equality.

Here is how to fix it.

So that you know, I am not a genius, and none of these are unique ideas.  They have been proven in some form elsewhere and can readily be adapted to fit the ‘American way.’

To start with with throw out the old tax codes, get rid of all the old forms and the IRS as we know it.  Whew, what a relief, there will be no income tax forms in the future and you won’t have to worry about an uncontrolled IRS agent pounding on your door.

First, as to individuals.

We create a national sales tax.  Just that simple and much easier to control and modify as economic conditions dictate (something economists can’t do today).

Everything that is sold (product, service or whatever) will be taxed.  So that the minimum wage earners feel they are participating in the American dream, taxes will be paid on food and health care purchases (even if with food stamps or the like) only they will be minimal — say 0.5% or so (we can work out the details with the Congressional Budget Office and the White House equivalent).  Normal every day stuff beyond food and health care, but not the type of thing that is considered a luxury (pretty easily determined) would be taxed at about 8% or so (again the details to be worked out).  Luxuries (you know the kind of thing that you can live without) will be taxed at 20% (the details again).

This way, everyone pays based on what they spend and their capacity to do so.  There will be no other personal taxes–not inheritance tax, not capital gains tax or anything else.  Everyone is treated the same.  Everyone contributes.  Get the idea?  No forms, no unwieldy tax code, no gigantic and unwavering IRS to deal with!!  Yippe Ki Yay!!  Sign me up yesterday.

Second, as to business.

There will be a business tax on everything in the manufacturing, mining, service, building or whatever cycle.  This is what is known elsewhere as a VAT or value added tax.  Every step of the way, when businesses buy anything or add value there will be a tax that is added to the process and that is paid by the buyer.  I don’t know what the rate will be (4% sounds reasonable) but it will sure as heck be less than the burdensome corporate tax rates that exist now.

Take an example:  a mining firm pays a tax of 4% (say) on the value of the ore it extracts.  The steel firm pays a tax of 4% (say) on the processed ore it buys from the mining firm.  The auto company pay a tax of 4% (say) on the steel it buys from the steel firm.  The auto dealer pays a tax of  11% ( I have NEVER liked dealing with those guys and so I feel like socking it to them in this example) to the auto company.  Then you and I pay 8% on the car we buy unless it costs more than $30,000 (say) in which case the tax is 20% (I hate those gas guzzling Hummers!)

Get it here again?

No fancy schemes or special conditions for companies with high-prices lawyers (there will be a tax there too!) or high-falootin’ tax accountants.  All businesses pay the same at each stage . . . no special deals that frustrate competition.

That’s it.  Easy to change to, easy to adopt, easy to administer, easy to catch potential cheaters, and easy to pay.  Plus it gives the government extraordinary capacity to change rates up or down as the economic conditions require (and that alone should get this done today!).

What will happen?

You and I will shout for joy and spend the time (and money) we used to waste on tax returns– yep, you guessed it, to go golfing!

Business will boom.  Savings will soar.  Investments will be made.  GDP will grow.  Jobs will grow like crazy as businesses play on an even playing field.

No tax accountants.  No IRS.  No cheating.  No slackards.

Everyone pays a fair share and America is soon the great engine of growth, freedom and equality we have been known for in the past.

Pass this on to your congressmen.  Send them a copy or copy them to this webpage.  If they won’t push this through then throw them out at the next election and we will start over.

Come to think of it, do as I keep telling you.  NEVER vote for an incumbent (that will put an end to the tricks of politics forever).

God bless America and goodbye IRS!

I can’t wait!

Thanks for the photo to flickr’s james.thompson

Tags: fair and balanced taxes, goodbye IRS, national sales tax, tax reform, vat