Friday, January 27, 2012

Tax fairness

Obama, in his 2012 State of the Union speech, called for tax fairness. I also call for tax fairness, but my understanding of fairness is far different from his. For example, half of Americans pay no income tax. They think that’s fair. Politicians think that’s fair. I don’t.

There are some proposals to make taxation fair:
• A flat tax. Everybody pays a fixed percentage of his income above some income level to avoid overtaxing the poor.
• A “fair tax.” Everybody pays a fixed percentage of his spending – a sales tax – above some spending level to avoid overtaxing the poor.
• A Value-added Tax (VAT). A tax is imposed on every level of production of goods.
• Higher income taxes on the wealthy (based on some arbitrary income level to define the wealthy – a level which will inevitably be adjusted downward to extract ever more revenue).
• Higher capital gains taxes. (Capital gains are the increase in face value of capital – assets which produce jobs. Much of the increase in the face value of capital is nothing more than inflation. Therefore, a substantial portion of a capital gains tax is a tax on inflation – not a tax on new wealth.)
• Higher taxes on businesses. (This scheme is flawed. Businesses don’t really pay taxes. They only write the check to the IRS. Businesses always pass their costs, including taxes, on to the consumer.)
• Elimination of the Alternative Minimum Tax (AMT) which was initially focused on the wealthy. However, because of inflation, it now affects millions who are not wealthy. A few in Congress occasionally suggest elimination of the AMT or at least some inflation protection, but the congressional thirst for revenue always overrides the suggestion of overhaul.

Here is what I think.

Taxes must be fair – I cannot challenge that objective. What few are saying, however, is that taxes must also be visible – taxpayers and non-taxpayers alike must see and be intellectually and emotionally impacted by the total cost of government.

Most of our taxes are buried in the cost of goods and services – we have no idea what portion of the cost of that Big Mac can be attributed to multiple layers of corporate income taxes, excise taxes, import duties, payroll taxes, fees, regulatory costs, etc. It would be helpful if the wrapper on that Big Mac said something like, “This BigMac cost you $3.95 plus sales tax. $1.87 (47.3%) of your cost of this sandwich constitutes various forms of taxes paid by McDonalds and by the chain of our suppliers. Add to that your sales tax. If you don’t like paying these hidden taxes through higher costs of goods and services, contact your elected representatives.”

The closest we can come to each person paying his fair share would be for each person to pay the cost of the services and benefits he personally receives from the government. For example:
• Everyone benefits from police, fire, and military protection. Divide the total cost of those services by the total population and the result is each person’s fair share.
• Those who travel on streets and highways benefit from them. Taxes on fuel are already in place to pay for those roads. Since the users of the roads are paying the road taxes, it’s fair -- so long as no portion of that revenue is used for anything else.
• Mass transit, such as trains and city busses, is in place to move people and goods where they want or need to go. Because they are not buying fuel for their own vehicles, they don’t pay the cost of building and maintaining highways. But, they should be paying the full cost of their choice of transportation. The total cost of providing mass transit must be divided among the users according to how much they use the service. To be fair, they should not expect non-mass-transit users to help pay their transportation bill through taxpayer subsidies.
• Society, individuals and families benefit from education and training. Determine the value of society’s benefit from an educated workforce and electorate. Let’s assume that the value to society in general is 50% of the total cost of education Divide that portion of total cost of education by the total population and the result is each person’s fair share. The remaining 50% of the cost of education is the fair financial obligation of the individual and the family they should not expect someone else to pay that bill for them (although charitable persons may voluntarily do so).
• Everyone benefits from having shelter and food to eat. There are many government programs that ensure even the most poverty stricken in America live better than did kings 200-300 years ago. To be fair, those who benefit from these social programs should pay the cost of the benefits they receive plus the bureaucratic overhead. It is not fair to tax their neighbors to pay for these benefits. I acknowledge that there is a small portion of those who depend on the aid of others because, due to disability or temporary conditions, need help. It is a God-given duty and blessing for individuals to help those in need and there are countless charities in place to help us do so. Government is not the answer!

Now consider the global financial crisis. Some blame it on Obama. Some blame it on Bush. But, the real cause of the crisis is fairness.

Most developed nations have put in place very expensive social programs that are supposed to eliminate or reduce poverty. Yet, the portion of people in poverty continues to be stagnant or even rise. All these social programs do is to reward dependency. The producers of the world are forced to subsidize generations of dependent societal parasites. That's not fair to the taxpayer nor to those who are dependent!

Some believe that the bankers of the world have created the financial crisis by hoarding money and controlling nations. The truth is, the dependent class, with the encouragement of the political class, has consumed the wealth of the world, replacing it with national debt, and have produced nothing in return. As Bill Whittle says, "It's all gone."

If we really made taxes fair, those who are dependent on government (and we all are, to some extent) would pay the cost of that dependency. When people discover the true cost of their dependency, they will find ways to become more independent where feasible and possible. They will learn to do for themselves, their families, and their neighbors, what they should be doing anyway.

The cost of government will plummet -- probably to about 5-10% of what it is now, leaving more money in everyone’s wallet at the end of each month. That newly liberated money will be used to improve each person’s way of life and more people will find resources to donate to charity to help those who truly are dependent on others.

I think that’s fair. Does anyone have the courage to make it fair?
Our huge public debt ultimately reflects our lack of individual restraint. But we can do better. — Lawrence W. Reed

Americans have been spoiled by a generation of extravagant federal spending made possible by an orgy of irresponsible borrowing. Now the party is over and the pain of long-lasting and unpopular austerity must come. — Zach Bogue, US Army veteran

The budget should be balanced; the treasury should be refilled; public debt should be reduced; and the arrogance of public officials should be controlled. — Cicero (106-43 BC)

Government is the only enterprise in the world which expands in size when its failures increase. — Janice Rogers Brown, Associate Justice, California Supreme Court

My reading of history convinces me that most bad government results from too much government. — Thomas Jefferson

The primary reason for government growth (and the "incumbent advantage") is that we've yet to convince people to refuse to be bribed with their own money. — Boyd K.

Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone. — Frederic Bastiat

The multiplication of public offices, increase of expense beyond income, growth and entailment of a public debt, are indications soliciting the employment of the pruning knife. — Thomas Jefferson, letter to Spencer Roane, 9 Mar 1821

Any plan to reduce our deficit substantially must reflect American values of fairness and shared sacrifice. — Barrack Obama

Would you be willing to give up your favorite federal program if it meant never having to pay the income tax again? — Harry Browne
Another idea: I propose a flat tax of 500% of all income and of all assets of anyone who thinks the government needs more revenue.

Check out a more detailed version of the US Debt Clock.

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