Should we use business taxes, consumption taxes, or a combination of both?
My boss sent me this article the other day regarding the current tax structure here in Texas. Even though this article is about taxes in Texas, I believe that it is somewhat relevant in any state or even the federal level.
All Taxes are not Created Equal
After reading this article, please let me know where you stand on this issue.
Update: The above website is listed as a conservative think-tank website so the article does lean towards the right. For information about websites, you can go to Source Watch.
6 comments:
I've been interested in the concept of the consumption tax for years, as a replacement for both business and personal taxes. While the theory has merit, like everything in life, the devil is in the details. Businesspeople and the politicians they control have a habit of turning great ideas to shit when they manipulate the details to serve their own ends rather than the common good.
Just as many companies now use underhanded accounting tricks to avoid paying income taxes, you can bet that they'd also find clever ways of hiding the purchase of goods used in their business to avoid paying consumption taxes as well. A thriving B2B underground economy would no doubt arise. It would be up to our politicians to write strict laws forbidding such schemes and making sure that the will and resources existed to enforce them. Prior experience with our corporate puppet politicians leaves me with little confidence in their desire to do this.
Also, if you tax consumer goods as well as B2B goods, you will create a black market for consumer goods as well. Organized crime, and the associated violence, with thrive. While this obviously would be a boon to the investor class, how would it affect the consumer classes? How would it affect the poor? Right now, the poor pay very little if anything in income tax. So that would be a net zero gain/loss for them. But if they then had to pay an additional 10-15% sales tax on top of what they already spend on essentials like food, clothing and shelter? Would any items be tax exempt, like food?
I take exception with some of the comments of the author. "Tax avoidance demonstrates that taxes are an economic negative..." Oh really? Well I guess the fact that many people avoid driving the speed limit means that speed limits are a safety negative then. What a stupid concept. Businesses take advantage of the Economy of Scale to lower costs, so does government. Imagine if everyone had to pay for their own roads and armies? No. We pay taxes so the government can provide necessary services more economically than individuals could purchase on their own. Businesses benefit from the expenditure of tax dollars on roads, healthcare, research, police and military protection, etc.
Sure governments usually waste money on stupid shit. But that's not the fault of the taxation system. That is the fault of the legalized bribery system known as the American Electoral Process. Its not taxation that has a negative affect on society, its what politicians do with those funds once they are collected. Progressive tax, flat tax, consumption tax, whatever. These are all just methods of raising income. they don't address the real problem, which is what your elected officials are doing with the cash you give them. Mismanagement is the real issue.
The author also claims that taxes reduce the stream of money in the system. Again, this is false. Does the money collected as tax revenue get put into a tin can and buried in someone's yard? Of course not. Those funds are used by governments to purchase goods and services from businesses and to pay the wages of employees who provide services directly to the citizens. Your tax dollars return to the economic cycle in this way.
"After 20 years, despite the consumption taxes, Nation B's citizens are enjoying a higher standard of living than Nation A." Well, if the author says so, it must be true. Seriously, says who? There are just so many assumptions in his argument that we are supposed to take for granted. His entire argument is that there will be more money freed up for investing. But what about the additional monies that people will need to spend on sales tax? Won't that decrease available investment capital? Also, he admits that consumption would decrease. If investors are supposed to put their money into something that will make them profits, isn't that dependent on having consumers willing and able to buy products and services from the companies that are invested in? What about foreign purchasers? Are we going to increase the cost of goods to foreign buyers by tacking on an additional 10-15% sales tax? Won't that decimate our already pathetic trade balance? By the way, if consumption decreases, won't that mean the need for less producers, meaning more unemployment?
Bottom line is, investors need consumers to buy the goods and services that they invest in. The author doesn't address this issue at all. He just focuses on the investment money itself. Without a thriving consumer class, the investors are just putting their money into a giant pyramid scheme. Example? the internet bubble of the late nineties. A lot of money got put into ideas, but the actual products didn't generate the income to sustain it. The result, shrewd, professional investors and the people wealthy enough to afford their services knew when to pull their money out and made off with billions. Normal workaday Joes who had a few extra thousand to put away fro retirement got sucked in by the hype and lost their shirts when the bottom collapsed. I see no reason why the author's plan would not result in a similar story. Just another way for the investor class to suck up as much cash as possible from the bottom 80% of the economic pyramid.
On the positive side, I do like the idea that the simplicity of such a system would eliminate the need for much of the IRS and other tax collection professionals, as well as "compliance's professionals. What would all those unemployed accountants and tax collectors do? And without the ability to write in "tax exemptions" for their buddies, politicians might be a little less bribable. And while I'm not convinced that this will necessarily help small businesses over big businesses (Big business owns politics, and nothing will ever change that. So laws will always favor big business) I do like that concept and support anything that encourages the growth of the Mom & Pop industries over the Wal-Martianization of America. Finally, if EVERYONE and EVERY BUSINESS had to pay the consumption taxes equally, that would bring the churches and businesses owned by the churches into the club of decent tax paying citizens. Its always stuck in my craw that the multi-billion dollar mythology and emotional manipulation industry enjoys tax-free status. Its time for that to end.
Like I said, the devil is in the details. There is much merit to this concept, but depending up on the ethics and loyalties of those actually writing and enforcing the system, its fraught with potential pitfalls as well.
Great write-up blsabob!
I will never be supportive of a regressive tax system. The middle class will end up with the largest tax burden under a consumption tax system, and the wealthiest of Americans will be rewarded by paying very small percentages of their income will be going towards supporting our country.
The biggest arguement I hear from the right is that business don't pay taxes, because they pass these taxes onto the consumers in the price of the goods and services. They say that if you remove the business taxes, the prices of goods and services will eventually come down.
I personally believe in tax breaks and subsidies for organizations that not only obey environmental standards, labor standards, and community standards, but actually go beyond these standards to make improvements in theses areas. By elliminating business taxes, you take away the tool of the tax break to reward companies that help communities. All that is left is to penalize companies that break the laws, so without this incentive, companies will do the bare minimum to maintain the standards, and will use the lobby to bend these rules.
That's my opinion on this matter!
Those are great points. I didn't even consider the incentivising aspects of taxation in my narrative. Conservatives will whine that using taxation toward certain social goals amounts to "social engineering" (I can hear the GOParrots now!) but I say that we already do that by offering mortgage tax breaks and tax credits for children, etc. If renters and the childfree have to shoulder a larger percentage of the tax burden, so should polluters and resource wasters. And what the hell making church activities tax-free if not "social engineering?"
Good post!
Sorry I'm late, but I love this topic very much and I'm glad to see it here.
Newsflash: I agree with everything b.l.sabob said above.
I favor a consumption tax because of the transparency. I believe that some honest people with power exist, but in a government agency like the IRS, they cannot make a difference in a sea of indifference. The consumption tax models are scientific, and they reward the businesses who collect the taxes, which gives them some incentive.
I beleive the research that shows that we already pay ~20% of the shelf price of retail items to the income tax anyways. I also have faith that if enacted, a consumption tax will barely increase the net amount that we pay on retail items, and allowing us to keep 100% of our paychecks.
on social engineering:
I totally agree that allowing Churches to go tax-free is social engineering, and I think it's a load of crap. Churches shouldn't have to pay an income tax on altar donations, but we shouldn't have to pay income taxes on money that we earn from our employers, either. If a Church needsto buy retail goods for the congregation, then they'll pay the same tax we all do when we buy the same. I may be the only Christian who thinks this way.
The founding fathers knew this, and it worked for over 120 years until politicans finally found a way to control our paychecks.
Instead of the term "social engineering", I prefer to call it "government-sponsored blackmail" when the government witholds tax money to get their way, and I hate it with every fiber of my existence.
A consumption tax is my favorite also because of the investment benefits. We become the world's tax shelter. Swiss bank accounts will come home, Caymen Islands money will come home and sit in banks like Wachovia and Bank of America where they'll be used to finance construction projects and lend money to buy houses. The stock market gets traded tax-free. Savings will go up, and that promotes a very stable economy.
Oh, and I want to address b.l.sabob's mention of unemployed tax workers:
They are highly educated and trained professionals, there will be a large variety of other positions they could fill. It's not like they're dinosaur-crane operators in a rock quarry, they're skilled accountants or lawyers.
Think about it though: what do they do for society now? The only reason they work is to make an antiquated and corrupt system function. Those 2.77 million people that work in the tax industry are not advancing our society in any manner. I'm not knocking the people that do it, I'm just saying that the job of "income tax consultant" is about as useful as a dinosaur-crane operator in a rock quarry. We have hydraulic cranes now that work much better, learn how to use one!
Uhhhh....
Actually, my "concern" for unemployed tax professionals was sarcasm.
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