March 29, 2009

Thinking About Taxes

Our current system is unethical and punishes success. The progressive tax system hurts us all because it takes money from the most productive members of society. We actively retard GDP by taking money away from the greatest producers. If those producers were able to keep more of their money, they would invest in new products, research, and improving the quality of existing goods and services. That investment would benefit everyone by improving our standard of living.

Mike Huckabee says the answer is a consumption tax.

Such a tax means government revenues are directly proportional to the rate of consumption. When we spend more, government gets more. If we spend less, government gets less. But why should government revenue be tied to the amount we spend? Is the cost of governing somehow tied to how much stuff we buy? I assert that it is not.

Both the current system and Governor Huckabee's flat tax fail to consider the cost of governing. They are arbitrary. They throw truck loads of money at government who then figures out how to spend it all (government is so good at this that it invariably figures out how to spend more).

To design a proper tax system, we first have to understand the cost of governing.

Let's consider defense spending. Is the cost of funding the military proportional to how much stuff you buy? No. Is it proportional to your income? No. The cost of funding the military is mostly proportional to the amount of land it must defend. Think about it...250 F-15 fighter jets can protect land the size of California without problem, but if the same 250 jets have to protect the entire nation, their ability is greatly diminished.

Understanding this, it's easy to see that the amount of taxes to be collected for defense is proportional to the size of the nation. [ In practice, calculating the cost of defense spending is much more complicated. However, for the sake of this conversation, it's important to understand that, for funding defense, taxes proportional to land mass are infinitely more appropriate than taxes based on consumption or income. ]

The cost can then be divided amongst the population. If there's only one American citizen, he has to pay the entire cost. If there are 300 million, they share the cost.

A consumption tax is no better than an income tax. All it does is move the role of tax collector from employers to retailers. It does nothing to correct the foolishness of our current method of federal budgeting.

In fact, collection of taxes is the easiest thing to solve. Once the government knows how much money it needs, it can simply send you a bill.

Posted by Richard at March 29, 2009 11:41 AM

Trackback Pings

TrackBack URL for this entry:
http://www.goodrichardsalmanac.com/mt/mt-tb.cgi/232