Posted: Apr 24, 2005 By: NULL

Comment: Robert M. Gordon

14851 Jeffrey Road, #22

Irvine, California 92618-8022

Voice: 949-552-7613 Email: Fax: 949-552-7611

Another modest proposal

(with apologies to Jonathan Swift)

It is clear from all that is (and is not) happening in the
capitols of the country, from the words the Congress and of the president
of the United States that the matter of providing monies for the operation
of government is of great, if not overriding, concern. Although much of the
talk is about various kinds of taxes, it is clear from the emphasis placed
upon it that tax on income occupies the central role in the oratory of those
already in office (and those seeking to obtain office).

I suggest that emphasis on the income tax, graduated or not,
progressive or not, and reliance on it, prevents us from consideration of
alternative ways of raising revenues for the operation of government. In
particular, so many complain that the income tax is neither fair nor
equitable (I believe those complaints are legitimate). Because of these
complaints, it is worth considering alternatives about which the number of
such complaints might be lowered to some irreducible minimum. In addition,
the codes for determining who pays income tax, and how much should be paid,
are virtually opaque: I have been told by a CPA (who used to "do" my taxes)
that there might not be a single individual in the United States who can
honestly claim to understand ever word in the codes with which his practice
is concerned.

I intend to describe a substitute for the income tax, a
substitute that is likely to be deemed fair and equitable by everyone who
must pay it. (However, there will be many who will object to the substitute
for reasons that have nothing to do with fairness or equity.) Indeed, I
suggest that the substitute may/can eliminate the need for every other kind
of tax now imposed.

Even though the federal tax codes provide for what is called
income averaging, so that certain classes of taxpayers who might find
themselves the beneficiaries of so-called windfalls - for example, writers -
don't have to pay at the higher rates compelled by the magnitude of their
windfalls, the number of such beneficiaries is quite small, a miniscule
portion of the taxpaying population.

But the lack of fairness and equity in the federal tax code is
seen in other ways by a large portion of the taxpaying population. For
example, to calculate their taxable income, people who own houses -- or the
mortgages on them - are entitled to deduct from their gross income the taxes
and interest they pay on their homes/mortgages. But renters, whose rent is
determined in part by the amount of tax and mortgage interest paid by the
owner of the rental property, are not allowed to claim the tax and interest
portion of their rent as a deduction. In determining the amount of his
taxable income, the owner deducts from his gross income those same taxes and
interest payments; in other words, for tax purposes, for the owner, it makes
no difference whether he or his tenant pays the taxes and the interest.
Renters, it is clear, are discriminated against by the present rules for
income taxation.

In addition, I suggest that income tax is a short-term
partial-solution to the problem of raising revenue. In addition to fairness
and equity, I claim that the substitute I will describe looks at revenue
raising in the long term.

The Proposal

I propose that we impose a tax on all assets.

No one - I repeat, no one - shall be exempt from paying tax on
the assets over which he has control. Individuals (irrespective of their
age); corporate bodies, whether for profit of not-for-profit...all will pay
the asset tax.

Everyone who pays the tax pays at the same rate. For example,
so that the arithmetic in this paper is easier to deal with, suppose that
the rate for federal taxpayers is 1/10th of 1%. Then, Bill Gates, who might
have assets of $9 billion at tax time, would owe $9 million; Peter Ransome,
whose assets amount to only $57,000 (equity in his home, his 1993 Plymouth,
furnishings of his home, etc.), paying as the same rate, would owe $57.00.
The bank that holds the $109,236 balance of Ransome's mortgage would pay
$109.24 for that asset.

The Ford Foundation, whose assets may amount to some $14
billion, would pay the federal government $14 million.

Since the valuation of all the assets in the U.S. have been
estimated to amount to some $300 trillion, the federal revenues from this
one tax would be $300 billion.

If the asset tax were to be used to raise all the revenue for
the federal government in 1998, or 1999, the rate of taxation would have to
be between 0.4% and 0.5%. I repeat: everybody pays.

The tax rate for state governments would be considerably
smaller. Suppose, for example, that the valuation of assets in California
were $75 trillion. Since, in 1992, the state is looking for approximately
$50 billion, it could set the tax rate at 0.067 of 1%.

In passing, I note that we already collect taxes on some assets,
for example, on real property improvements. For a second example, many
state governments determine registration fees for motor vehicles on their
presumed valuation.

Much additional work needs to be done to make more precise what it is I am
proposing. I believe, however, that such work needs to be done by our
elected representatives as well as by others whose lives are to be affected:
taxpayers (in general), appraisers, tax collectors, etc. The proposal is
exactly the kind of thing that deserves much public scrutiny, thought and
discussion over a decent interval of time.


I have not considered it appropriate to discuss here how to
determine the amount of tax revenue a taxing agency should be allowed to
collect. That is an important topic; it deserves treatment all by itself.

Revised 2 February2002

RMG/Asset tax2