Subject: Ideal Tax System Comment: An ideal tax system should be all but invisible to ordinary citizens so that it requires no record keeping, no filing reports with the government, and no strategies for reducing taxes. Most important of all, the tax code should be designed so that congress cannot change it every year. If congress wants to encourage certain activities or enterprises, then congress should grant refunds, award cash grants, or offer low interest loans. The tax code itself should not be changed. Businesses and special interests should never be forced to worry about tax breaks. An ideal tax system should be easy to bear. Taxes should be low and unobtrusive. Finally, an ideal tax system should be fair. To be fair, it should tax both poor and wealthy, north and south, urban and rural. To be fair, it should tax a variety activities. And, most of all it should tax whomever benefits from the government (i.e., users and exploiters). Based on the above principles, I propose a system with 4 varieties of taxation. They are: (1) excise taxes; (2) transaction taxes; (3) property taxes; and (4) user fees. No one of these taxes is adequate by itself. Each one needs the other three. I assume, however, that other taxes (such as income tax, social security tax, medical care tax, etc.) should be eliminated. 1. Excise Taxes: Excise taxes should be imposed on all activities that have the potential for damaging the natural environment (transportation, travel, hunting, logging, oil drilling, farming, animal grazing, mining, etc.), on all products that have the potential for creating public health problems (tobacco, alcohol, cocaine, amphetamines, etc. assuming that illegal drugs are legalized), and on all activities that have the potential for creating public nuisances (gambling, prostitution, sporting events, festivals, firearms, etc.). In some cases the excise taxes can be collected in the form of fees for annual licenses. The excise tax rate should be low. 2. Transaction Taxes: Transaction taxes should be collected by banks and credit card companies whenever money changes hands. This tax should treat all transactions equally, whether the money represents payments for goods, services, labor, salary, income, dividends, or interest. This tax should be applied to every transaction (wholesale and retail) regardless of how many times the same money changes hands. There should be no exemptions for favored types of transactions (such as purchasing food, medicine, or whatever). Banks and credit card companies should provide customers with an annual total showing how much they paid in taxes. The total also should show subtotals by various categories. If congress so chooses, it can offer tax refunds for transactions in certain categories. The transaction tax rate should be low. 3. Property Taxes: All real property and all investment property (stocks, bonds, cash deposits) over a certain amount should be taxed. Real property should be taxed on the basis of the value reported by the local county assessors office. Investment property should be taxed based on its average value during the tax year or, if held for less than a year, during the time period it was held. There should be no distinction between types of property (such as individual, corporate, foundations, residential, commercial, industrial, farming, etc.). A certain amount of real and investment property (say, the first $5 million dollars worth) should be exempt from taxation. The property tax rate should be low. 4. User Fees: Every government division, agency, bureau, and office should collect co-payments from its users (just as a HMO collects co-payments from patients who visit a doctor). If it cannot identify who its users are or when they are using its services, then it has no purpose and it should be shut down. The co-payment rate should be low. Prisoners in federal penitentiaries should work and receive minimum wage, which they can use to pay for their room, board, guards, health insurance, burial insurance, and (in death penalty cases) execution. |