Details to a Better Tax System
Today we tax everything. We tax personal income, corporate income, we are taxed for old-age survivor insurance, hospital insurance, disability insurance, unemployment insurance. We’re taxed for the use of the highways, the airports, we tax our drink and our smokes and we are even taxed to die. Our tax philosophy is devoid of logic, riveted with holes from special interest and stretched by progressivism. In addition, we are punished for what has made us great, our productivity: our drive for success.
Currently, we derived 94% of our revenue through taxing of industry and productivity, your income. But this was not always our philosophy. In the 1900’s, none of our tax revenues came from tax on industry, 84% of our revenue came from excise and customs and the balance from enterprise entities, in the 1800’s, over 97% of our revenue came from imports. Our founders, our foundation, our history embraced industry, risk taking and prosperity. Our future cannot be found in the governments of Europe or Asia nor in our present expansionist course. Our future is in our past. We need to embrace our principles, repeal the 16th amendment and insert the principal tax philosophy.
The government should be funded through three rational revenue sources, a consumption tax an import or access tax and enterprise entities. The consumption tax should be based on all products sold to end-users including government entities. Today, the embedded tax on products is estimated to be between 20 and 25%. An imputed rate of 23% could replace all of our productivity taxes. Please review productivity versus consumption concepts to identify the weaknesses associated with the productivity taxation. A consumption-based tax as supported by FairTax.org would be a good foundation. A tax refund provided up to the poverty level could eliminate any burden on those fighting want. Most business activity would be exempt from taxation, as we do not want to hinder productivity, competitiveness nor job creation. Sales and marketing would not be in exempt activity due to the following rationale. Taxing of sales and marketing activity does not produce competitive disadvantage, as all competitors need to engage in marketing activities inside a market. The tax basis should be expanded to reduce the burden whenever possible. Often sales and marketing activities may be excessive such a large meals, exotic travel, sports tickets and other promotions. The same sediment, some G&A expenses may not be exempt such as large meals, executive boondoggles and corporate jets. Necessary productive assets…tax exempt, corporate excesses…taxable.
One for the benefit, especially small businesses could be the delay in the remittance of collected taxes. A thirty-day delay could provide much-needed working capital required for expansion, growth and job creation. The consumption tax as envisioned by FairTax.org is a new items. The principles of logical but the practical application may require some rational adjustments. A million dollar exemption on home resale values would be rational. To be honest, not all homes are equal. Long-term investments would be tax-free. Long-term investment would be defined by a hold period in excess of two years. Shorter periods would not be considered investments, but short sales and subject to some form of consumption taxation. We should not incent speculation but encourage investment.
Human capital is the most valuable assets any country possesses. A rational tax policy can enhance the country’s ability to develop human capital. By making education tax exempt, this could result in one of the largest education programs ever deployed. The exemption would need to be earned and tested annually. In order for an educator to obtain exempt status, the educator would need to reduce cost by the imputed tax rate to the public for all the services. And not increase its rates beyond the core rate of inflation. Educators not able to reduce costs would not be eligible for tax-exempt status.
The second funding source for our government could be a form of import for access taxes. Early in our history, tariffs accounted for the majority of our government funding. Today, import tariffs accounted for very little. Does it make sense of the largest contiguous market in the world is not charge an access fee? In the business world, one would be terminated, rightfully so, if they did not charge for the value provided to the market. Our government gives away one of its biggest assets, the American consumer. We need to dispose of the current tariff system, riddled with protectionism on some products and free gratis access to others. We need to develop a rational import access fee. In addition to providing a revenue source, we need to ensure reciprocity in trade access. Those nations making it difficult to compete through tariffs, access or other restrictive practices would be charge a premium. While those nations that encourage competition would receive the discount. The import access tax rate could be around 5-25% with the base in the 10 to 15% range.
The final source of funding is through properly managed enterprise entities. If the government is uniquely positioned to deliver services that the market deems valuable than the government should. However, the government should only deliver the services that can be done profitably. Enterprise entities need to deliver profits to minimize the burden on its citizens or at a bare minimum at breakeven. Those enterprise entities not able to obtain profitability should be divested. If an enterprise entity cannot deliver its services profitably then one of three issues exist. Issue one; there is not sufficient demand to offer the service. The service should be discontinued and the enterprise organization disbanded. Issue two; the services necessary but cannot be delivered cost-effectively. The enterprise entities should be dissolved and private industry contracted. Issue three, the services necessary but is mismanaged. Once again the enterprise entities should be dissolved and private industry contracted. Under no circumstance should an unsuccessful enterprise entity continue to exist. We cannot afford them.
A revenue philosophy based in principle, simplicity and logic will not only drive growth and jobs but also possibly increase revenues for the state.