Novel Tax Solutions

[George S]

Make all Federal tax be a tax on GDP.

Business thrives on predictability. They can plan ahead better. When different sectors, industries, and different companies get tax favors planning ahead is difficult.


So, no corporate income tax. It has been a sales tax all along. Who pays that tax today? The consumers, in the price of the product or service.

Individuals thrive on predictability. Their income tax has been paid to them by their employer in their salary. It, too, is essentially a sales tax.

So, no individual income tax.

Now take last year's revenue from income tax and convert it to a percent of GDP. This tax bill is sent to the states and territories as that percent of their GDP.

Hide it in WYSIWYP -- What You See Is What You Pay. At each state border we may see a large change in gasoline prices. Gas is already WYSIWYP. If you are choosing between hotels in two different nearby cities, the advertised price may be, and often is, downright misleading. Sometimes a lower advertised price nets more. I should be able to rent a room advertised at $99 with a $100 bill and get a room key and a dollar back. If the burgers cost $6 each I know in advance that $30 in my pocket will buy 5.

In all subsequent years last year's government expenditure, in total, is converted to a percent of last year's GDP, and collected pro-rata from the states.

There must be a uniform tariff on all goods crossing our borders. Say, 10% with no exceptions.

There must be a predictable, stable currency. There must be one and only one permanent price-control. A Constitutional Amendment with a poison pill. If any other product is price controlled the basis is instantly changed. Anything at all would work. A permanent $15/hr minimum wage would base the dollar on one hour of unskilled labor. Almost any durable metal, like gold or platinum or silver would do.

This is probably impractical. Congressman would lose most of their power, which is in tax favors for donors. Shall we return to the Senators being appointed by Governors again and go further making them employees of their state? Their state pays their salary and expenses. They are not Federal employees. Make the Representatives' salaries the median salary of the district they represent. This would be the entire compensation of Representatives. They get their own insurance just like we do. They pay their rent and travel expenses just like we do except for two first class flights to their district and back per year.

 

[barbos]

It is not novel because I have been suggesting similar thing for years.
Tax should be connected to consumption, that way the only way for government to have more money is to have people consume more. So government will be directly interested in people spending money they have. Right now with income tax being the main source they are interested in super rich doing well, the rest are irrelevant.
Anyway, I am not clear how do you propose collecting this tax.In my case it's VAT or sales tax.

 

[fromderinside]

It is radically unfair to tax consumption since those with less consume proportionately more. Tax production. one produces with one's labor, one produces with one's money, one produces with one's insight, etc. Or tax based upon one's wealth, whether it be annual income, income plus lodging and cars, lodging, business, cars, toys, bank accounts, holdings of any sort. Force them to go to Bethlehem to register and be taxed.

We need an annual counting and accounting.

 

[George S]

It is radically unfair to tax consumption since those with less consume proportionately more. Tax production. one produces with one's labor, one produces with one's money, one produces with one's insight, etc. Or tax based upon one's wealth, whether it be annual income, income plus lodging and cars, lodging, business, cars, toys, bank accounts, holdings of any sort. Force them to go to Bethlehem to register and be taxed.

We need an annual counting and accounting.

It is only fair to tax spending. And, yes, the poor pay a greater percent of their income for the same purchase. But they already do. That part is important. It is important to realize that corporations embed the tax in the price of their product. If that's not a sales tax I don't know what is. Personal income tax is the same.

The poor, in fact, already pay a greater percent of their income as federal tax for corporations which produce the products they buy.

 

[George S]

By the way, I intended the thread for all alternatives, that is Novel Tax Solutions. I presented one. I think it could work. Can you do better?

 

[George S]

It is not novel because I have been suggesting similar thing for years.
Tax should be connected to consumption, that way the only way for government to have more money is to have people consume more. So government will be directly interested in people spending money they have. Right now with income tax being the main source they are interested in super rich doing well, the rest are irrelevant.
Anyway, I am not clear how do you propose collecting this tax.In my case it's VAT or sales tax.

The collection is a bill to each state and territory. They, in turn, collect it as they will. It is a tax by the fed of each state's GDP. Presumably states with greater GDP should pay more proportionally. Unless you might want a progressive tax so poor states pay a lesser percent and rich states a greater.

 

[Jayjay]

So, what if, large companies or wealthy individuals who want to avoid taxes, start moving around on annual basis? If each year's tax burden on a state is based on last year's GDP, the companies who are responsible for that could move their headquarters to another state, preferably one with low proportion of GDP and hence lower taxes?

I don't think this would increase predictability, but rather, just cause lots of states scrambling to enact bandaid tax laws to try to make sure they can pay the federal bill. Also, states would really start to hate the feds.

 

[skepticalbip]

By the way, I intended the thread for all alternatives, that is Novel Tax Solutions. I presented one. I think it could work. Can you do better?

You may be interested in a tax bill that has been introduced every year for several years now. It is HR-25 or the "fair tax bill".

The bill abolishes all current taxes, including closing down the IRS, then instituting a single sales tax for new products only, not used goods sold.

To address the "it's not fair to the poor" complaint, the bill institutes a payment each month to everyone in the country. This payment would be equal to the amount of sales tax that someone at the established poverty level of income would pay in taxes if they spent their entire month's salary that month even if they don't have an income at all or are earning hundreds of thousands per month.

https://fairtax.org/about/how-fairtax-works

https://www.congress.gov/bill/115th-congress/house-bill/25

 

[Jayjay]

In spirit of the thread, here is what I think is the fairest tax possible:

Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

 

[Treedbear]

It is not novel because I have been suggesting similar thing for years.
Tax should be connected to consumption, that way the only way for government to have more money is to have people consume more. So government will be directly interested in people spending money they have. Right now with income tax being the main source they are interested in super rich doing well, the rest are irrelevant.
Anyway, I am not clear how do you propose collecting this tax.In my case it's VAT or sales tax.

The government taxing something will encourage people to buy more of it? Only what they can get on the black market.

 

[Treedbear]

I take the opposite tack. Get rid of all corporate taxes and most sales taxes and just have a personal income tax. That way corporations will pay taxes through their employees rather than through their customers. That would encourage more consumption and it would be more predictably progressive.

 

[Elixir]

By the way, I intended the thread for all alternatives, that is Novel Tax Solutions. I presented one. I think it could work. Can you do better?

As long as we're dreaming...
Long ago, a (very rich) friend came up with "switch wallets", a system whereby every x number of years, every person's estate would be exchanged for some other person's estate by random drawing. That would obviate the sheer accumulation of wealth, and place an emphasis on developing oneself as capable of productive work...
There's the idea - up to y'all to work out the details

 

[laughing dog]

In spirit of the thread, here is what I think is the fairest tax possible:

Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

As long as one did not differentiate between "luxuries" or "necessities", conceptually this is simple. It is a progressive consumption tax. Simply make everyone report/document their income and their savings. The difference between the two is consumption.

 

[Treedbear]

...
Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

Who/how to determine what is a luxury vs a necessity? Would eating healthier food be a luxury? What are brackets based on ... total expenditures or some weighted scale based on a luxury factor? If not techiquely feasible it should not be politically feasible either. I'd abandon any notion of what is fair and concentrate on what works, with an emphasis on promoting a healthy society which provides opportunity for all. The main component of which is the ability to have a saving account so that opportunities can be taken advantage of when they appear.

 

[Loren Pechtel]

Now take last year's revenue from income tax and convert it to a percent of GDP. This tax bill is sent to the states and territories as that percent of their GDP.

In other words, poor areas pay just as high a % of tax as rich areas. No thanks.

Also, sending the bill to the states isn't a possible tax.

There must be a uniform tariff on all goods crossing our borders. Say, 10% with no exceptions.

Very bad for trade.

There must be a predictable, stable currency. There must be one and only one permanent price-control. A Constitutional Amendment with a poison pill. If any other product is price controlled the basis is instantly changed. Anything at all would work. A permanent $15/hr minimum wage would base the dollar on one hour of unskilled labor. Almost any durable metal, like gold or platinum or silver would do.

Another bad idea. The problem is you can't actually hold prices constant. The economy will fluctuate, if you insist on forcing inflation to zero you actually flip between inflation and deflation--and deflation is worse for the economy than inflation. Thus we are better off with a small inflation rate to minimize the excursions into deflation.


However, since you want novel tax ideas, how about mine:

First, we need to split the currency. We retain $s as they are now but also create a new currency that I will call the I$ (investment dollar.) The I$ is purely an electronic currency, no physical form of it exists. They are guaranteed to trade at parity but with a hook detailed later.

All forms of pre-tax investment account (Traditional IRAs, HSAs, 401ks 403bs and the like) are converted to I$. Other forms of investment account are likewise converted but an exchange credit is created (detailed later).

Business to business transactions are always in I$. Consumer to business transactions are in $ but they become I$. Business to consumer transactions (other than refunds) are in I$. Transactions which we deem to be tax exempt (say, medical) are paid in I$ rather than $.

Thus you get I$ but spend $. Thus you must convert them. Each individual designates one bank account (multiple people may designate a single account, the bank spreads the conversion transactions equally amongst those designated) that can do this conversion.

If you convert a $ to an I$ you get a conversion credit equal to the number of $ you convert. (Note that other than at setup such conversions will be rare.) However, when you convert a I$ to a $ you pay a tax and that tax is based on the number of I$s you have already converted this year. If you have a conversion credit you may choose to apply it, no tax is owed on any I$ converted with the credit. Banks will no doubt provide averaging services to spread the effect equally over the year.

In practice people will only convert what they need to live on, this is a consumption tax. However, because the tax varies based on how much you have converted in the year it's progressive rather than regressive as consumption taxes normally are.

Result: All investment grows tax-deferred, you can have very high top tax rates without squashing the economy with them as they apply only to consumption. The vast majority of tax loopholes become meaningless and it's very hard for Congress to create new ones. Tax returns vanish. The government neither knows nor cares what you make.

The tax code defines the basic structure of the conversion tax. The table is indexed to the CPI so it doesn't need tampering with as time goes on. The rate is also adjusted by a multiplier that is calculated every year--look at how government spending deviated from revenue over the last 5 years, the multiplier is set so that if last year's conversion rate remain in effect the line will be brought back to zero over the next 5 years--an automatic balanced budget in the long run, but it's allowed to swing away from it due to economic conditions.

Congress no longer has revenue bills, the idea of a bill being revenue-neutral is now meaningless and thus a huge amount of garbage that we see out of Congress in an effort to make (or pretend to make--for example, the 20% withholding on lump sum IRA distributions. The vast majority of those will be rolled over, thus yielding $0 in actual tax but looking like revenue for budgeting) things balanced goes away. Revenue simply adjusts to keep up with spending.

That abomination called FATCA (looks good on the surface, requiring reporting of foreign accounts. In practice it's more like a 1000# gorilla playing bull in the china shop--foreign financial institutions don't like it and kick out US customers, thus a royal pain for expats, and woe to the expat business owner!) goes away. Foreign accounts held by US citizens are deemed to be in I$, end of problem.

The profession of tax accountant and tax advisor vanishes, all the $ currently spent on it no longer needs to be spent.

Catching those with illicit revenue also becomes easier--if your lifestyle exceeds what you are converting it's almost certain you're working under the table. (If someone is supporting you they will give you I$ rather than $ as the supporter almost certainly pays a higher rate than the supportee.)

The problem of people with highly uneven income being taxed unfairly also goes away. We used to have rules for such people allowing them to average their income over 5 or 10 years, those were eliminated in one of the quests to make a bill revenue neutral. The problem applies to people whose income comes in chunks less than annually. (Say, an author who writes a major book every 3 years. Big income, $0, $0 and thus he's in a higher bracket than he should be.)

 

[George S]

The problem of people with highly uneven income being taxed unfairly also goes away. We used to have rules for such people allowing them to average their income over 5 or 10 years, those were eliminated in one of the quests to make a bill revenue neutral. The problem applies to people whose income comes in chunks less than annually. (Say, an author who writes a major book every 3 years. Big income, $0, $0 and thus he's in a higher bracket than he should be.)

Yes. In the first $0 year file a 2-yr average which replaces the $big year return. In the second $0 year file a 3 yr average. (I've gone back 3 myself). Extending it to 5 or 10? The number of years is the divisor. If 1/5 of $big is still taxable, oh my.

 

[Jason Harvestdancer]

By the way, I intended the thread for all alternatives, that is Novel Tax Solutions. I presented one. I think it could work. Can you do better?

You may be interested in a tax bill that has been introduced every year for several years now. It is HR-25 or the "fair tax bill".

The bill abolishes all current taxes, including closing down the IRS, then instituting a single sales tax for new products only, not used goods sold.

To address the "it's not fair to the poor" complaint, the bill institutes a payment each month to everyone in the country. This payment would be equal to the amount of sales tax that someone at the established poverty level of income would pay in taxes if they spent their entire month's salary that month even if they don't have an income at all or are earning hundreds of thousands per month.

https://fairtax.org/about/how-fairtax-works

https://www.congress.gov/bill/115th-congress/house-bill/25

Unfortunately that's not how it would pass. Recall the institution of the income tax.

It was sold to the country on the premise that it would replace the excise and import taxes. "Just trust us" said the politicians who passed it, that they would pass it first, see if it worked, and then repeal the other taxes. There was no reason to doubt their sincerity, they're politicians after all. And they tried it, and it worked, so they added to the list of taxes.

That is why, no matter how beneficial a replacement the fair tax might be, I can't get behind it. It isn't the word "better", it is the word "replacement." It won't be one.

 

[Jayjay]

...
Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

Who/how to determine what is a luxury vs a necessity? Would eating healthier food be a luxury? What are brackets based on ... total expenditures or some weighted scale based on a luxury factor?

Based on total expenditure only. Nobody has to define what a "luxury" or a "necessity" is, the taxes would be based only on amount, but with a progressive rather than a flat rate.

If not techiquely feasible it should not be politically feasible either. I'd abandon any notion of what is fair and concentrate on what works, with an emphasis on promoting a healthy society which provides opportunity for all. The main component of which is the ability to have a saving account so that opportunities can be taken advantage of when they appear.

The main difficulty would be to distinguish what are "savings" or "investments", and what's consumption. I suppose, if everyone had a mandatory bank account like Loren suggested it would help, but even then, there are issues like buying a house which could be both an investment, and a place to live in.

 

[Loren Pechtel]

In spirit of the thread, here is what I think is the fairest tax possible:

Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

Look at my suggestion--that's basically what I'm doing without being intrusive.

 

[barbos]

In spirit of the thread, here is what I think is the fairest tax possible:

Proportional consumption tax.

Abolish income tax, and enact a single proportional tax based on dollar value of all goods and services a person acquires or buys each year for his or her personal use. The tax would be proportional so those who buy luxuries pay more than those who just buy necessities. In lower brackets the tax could be zero percent or even negative. This would require massive surveillance and would probably be if not technically feasible, certainly politically so.

Look at my suggestion--that's basically what I'm doing without being intrusive.

Why complicate flat sales/VAT tax with progressive scale? Why this need to make poor to pay no taxes? Why not pay them more instead in the first place?