Taxation
Introduction
In this section, I will touch on some of the types of
taxation and the issues involved.
What is Fair, What Isn’t
So, of course there is
going to be some debate over what is “fair” in the taxation field – with some of
the people saying if you make more you should be taxed at a higher percentage
(the “progressive” taxers) and those saying that everybody should pay the same
percentage (the flat tax proponents). To be perfectly clear, I am in the flat
tax camp. I do not believe that someone making more money should be punished
because they make more money (nor am I assuming any obligation by those people
to pay a higher percentage of their incomes because they have more disposable
income). What you are seeing in today’s world is the lower class getting off
completely free (yet getting benefits) and the middle class also not paying
their share – thanks to the tax code.
There are things that
should not be taxed. Dividends and investment income are among them. There
should be as little double taxation as possible (preferably none). A good
example of double taxation is the dividend tax. The dividends come out of
corporate profits/earnings that are taxed, then the recipient of the dividend
has to pay tax when they receive it. Keeping this in mind, taxes like the
estate and gift taxes are morally reprehensible. You should be able to transfer
your resources (or receive resources) as you see fit without the government
taking a cut for itself (provided that the transaction is mutually agreed upon
with no coercion).
It is not fair or
equitable to use the tax code as the government’s Robin Hood (stealing from the
rich and giving to the poor). Actually it is a mix between the government’s
Robin Hood and Robin Brain (steals from the rich and gives to himself). The tax
code should never be about redistribution of wealth. If a person earns the
money, they are not indebted to their fellow man. Votes like the tax increase
one in Oregon are also unfair. It isn’t really democracy if you use it to
attack certain economic groups.
Methods of Taxation
The two main forms of
taxation I have mentioned are the “progressive” tax and the flat tax. Of course
there are going to be subdivisions. To help drive the point home I will give
some pointless examples. I guess I should also mention some other things.
There is usage taxation – like a gas tax, those who use the service/good pay for
it with an associated tax. There is also an ability to pay taxation – this is
based off of the theory that as income goes up, a person has more personal
disposable income (and the government being the insatiable spending beast it is
wants as much as possible). This particular principal of taxation is more than
a little socialist.
Progressive
tax:
my least favorite method, based off the insidious ability to pay principal (if
you have the money, the government seems to think you should give it to them).
As income level increases, so does tax bracket (of course up to a point) – the
percentage of your income the government claims as its own. The usual example
of this is the income tax in the US. Really the only reason you do this is to
shift the burden of funding the government to people less likely to use its
services.
Flat
tax:
called “regressive” by some because apparently they think it taxes the poorer
groups more. This is fairer, everybody paying the same percentage of their
income (regardless of income level). I do not care about “income inequality”,
neither should the tax code. “Income inequality” is a necessary part of
capitalism designed to reward those who invest, innovate and take risks. At
least it doesn’t have the punitive success penalty like progressive taxes do.
Examples of this are sales taxes, VAT taxes, and some use taxes.
The Role of Taxation
The role of taxation is to fund the
government (at least the basics). Unfortunately, restraint is not something
congress actively uses when it comes to spending. The government has lost sight
of so many things. For one they use, vote buying schemes (usually social
programs). The biggest thing they have lost sight of is that it is not their
money they are spending. Therefore, they have to keep looking for ways to get
more money. The role of taxation should not be punitive or redistributive
(taxes used to promote income equality). The point is not to look for all “free
cash” (in this case disposable income available) and tax to get everything the
government can. The people are not supposed to be working for the government
(outside those who are actively employed by them), the government is supposed to
be working for the good of the people.
Sharing the Burden
Every
citizen (at least working one) has a responsibility to help fund the
government. I know the government wastes money and the budget is probably at
least double what it should be. If everyone has a responsibility to fund the
government, wouldn’t the most equitable to do so be having everyone pay the same
amount (percentage)? I would say yes. It is not like the wealthier citizens
get more services from the government (though they currently have to pay for
them), it is the opposite – with the poorer people seeing benefits at little to
no cost to themselves. The top 1% of US tax payers paid over 40% of the whole
income tax bill (at least in 2007 – The Tax Foundation), supposedly that was
more than the bottom 95% combined. Some people say the US has the most
progressive taxes of any nation (a OECD study somewhere).
Tax Reform I Would Like to See
So, what
would I like to see done with the tax code and taxation at the federal level in
the US? I want a flat tax where everybody pays the same percentage of their
income without any deductions or tax credits (estate taxes eliminated, gift
taxes eliminated, and no tax on capital gains, dividends, interest). I also want
to see income tax withholding discontinued and people paying their taxes in a
quarterly, yearly or monthly basis.
The
current tax codes are unnecessarily complicated. You should never have to
outsource you tax preparation because you don’t understand how to do it. In
other words, the average citizen shouldn’t have to use H&R Block or Turbo
tax to file their returns. Ideally, your taxes would be able to be filled out
on a postcard. Usually I would lean toward the concept of using cash flows, but
in this case I am not a fan (especially if there is some kind of capital gains
component, without it and double taxation, maybe). The numbers that I played
with in Excel showed that the average tax rate (per household for 1970-2007) was
13.40%, the median rate was 16.89%. My plan (touched on in the blog posts, Part
3) was for a 15% flat tax. I also had a 20% flat tax with no deductions,
exemptions, non-cash flow expenditure write-offs for businesses.
Original Post Date: 03/17/11
No comments:
Post a Comment