Tax codes are complicated. They needn’t be. Despite what we may be told, most tax laws are politically or pork-barrel motivated, and add to the complexity but not the fairness of the laws. One consequence of complex tax laws is that only the rich can afford the expertise and the elaborate mechanisms that get around the laws, effectively nullifying the progressive (richer people pay higher rates) nature of most tax laws, so that effective tax rates are almost flat.
A second consequence of complex tax laws is that these laws are essentially unenforceable. Inadvertent or deliberate errors in tax reporting are almost inevitable as the number of pages and calculations in the tax form rise, so authorities focus on the larger taxpayers and those in ‘profile’ groups known to evade taxes. The mistakes the rest of us make, whether in our favour or the government’s, may never be caught. Taxes are designed to generate revenues to pay for government programs by appropriating or withholding a portion of people’s and corporations’:
The result is a combination of benefit-based taxation (where tax is proportional to benefits received from government programs) and ability-to-pay taxation (where the more you have, the more tax you pay). Tax systems are very political, since capital moves globally where the tax is lowest, all other things being equal. No government wants its tax system to be significantly out of line with neighbouring states’, or it will lose taxpayers, individual and corporate. Over-hyped and convoluted tax credits deliberately obfuscate their ‘real’ tax benefits for political advantage. The following system would probably therefore never work under current laws, because it is too honest and transparent. If however citizens were to enact laws that required tax regimes in their jurisdiction to be as simple as possible, fair, enforceable and transparent, a system like the following could be instituted:
The diagram above contrasts this tax system to the current one. It would result in large increases in the retail cost of goods that consume natural resources, pollute or use non-renewable energy. Everything else would become cheaper. There would be no income or consumption tax (though user fees would remain). This would drive both a production shift (to cleaner products and processes) and a tax burden shift (to the wealthier). Simple, fair, responsible, enforceable and progressive. And revenue-neutral (total overall tax paid would not change). What more could one ask for from a tax system? |
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Good Point DaveTaxes send a message.They can be a powerful tool for changing behaviour or for holding the pattern
Thanks. The challenge in any change to the tax regime is of course two-fold: (1) making sure the change is revenue-neutral, and not merely a means of grabbing more tax dollars without giving anything back somewhere else, and (2) making people believe that the change is really revenue-neutral, since they’ve been lied to so many times before about tax ‘shifts’.
Love the look of this revised tax system, we could do with having it in Oz. Don’t you think the tax-paying producers will see it as an opportunity to pass taxes to the consumer and avoid paying any themselves? Would there be some control over that so that it didnt happen? Did I miss something crucial?
Kyte: Yes, the producers will (as they always do) try to pass on the tax to consumers. But eventually the law of supply and demand kicks in and consumers stop buying the now-expensive resource-intensive products (like hydrocarbons) and entrepreneurs invent new cleaner (and hence lower-tax, and thus lower-cost) technologies that consumers buy instead (like hydrogen fuel). Ultimately the consumer pays, but they have the final choice to buy something else. Trying to legislate price controls or wage controls never works. Taxes are a much cleverer way of achieving the same result. Did I explain that coherently? ‘Cause it’s important.
There is a simple tax system which no-one has yet given a legitimate argument why it won’t work. The system is a Direct Tax Debit whereby every transaction going through the banking system is taxed at .03%. Funds are transfered from the bank to the Tax Department. Enough revenue would be raised to abolish all taxes. Simple! Maybe too simple for some.