Economy: Taxation

Like I said in my first post, I believe that the best answer to most of our problems can be found in reasonable debate.  The first issue that Solutions will try to tackle is our economy.  This is a very large subject that involves multiple sub-categories.  So I have decided to break these issues down.  The first of these issues that I would like to debate is taxation.

 

There are several questions that we could ask ourselves on this subject. What is the purpose of taxation?  Is our tax system as it currently stands sufficient to the goal that it is tasked to complete?  What system could our current system be replaced with?  I will attempt to give my opinion in hopes of hearing yours.

 

The purpose of our tax system is simple.  Our government must raise revenue in order to support its stated mission of ensuring the rights of all.  We must have things such as a military to protect our citizens from outside forces, a judiciary to settle disputes in the law and between citizens, a police force to protect citizens against internal threats, a legislature to ensure representation in the law, and executive departments in order to execute and manage the above mentioned functions in an efficient manner.  I don’t believe that this is really debatable, except to what extent these different entities should govern?  And to that extent, how much revenue is really needed to be raised to support those functions?  Redistributing wealth or promoting the “general welfare” is not a suitable goal of taxation.  The “general welfare” clause of the constitution was not intended to function as an instrument to create equality, but rather enforce upon the government that its main purpose was to maintain equality under the law and peace through equal rights of its citizens.  With that being said, a lot of this will tie into a government spending debate.  However, I don’t want this debate to be bogged down by debating spending issues.  I feel we all will be much better served to save that debate for another day.

 

So once you determine the purpose of taxation then you must ask. Is our current system sufficient to support that purpose?  I believe that our current system is sufficient for the purpose of just raising revenue to support the functions of government. In many regards, I believe our current system may be too sufficient.   Consider the fact that both last year and this year our tax system has procured 2.5 trillion dollars.  So again I say that it is sufficient, however it is certainly inefficient.  Last year alone citizens and businesses alike spent 6.1 billion hours filing their taxes.  Divide that by the 218 million tax payers and you get 27.9 hours per tax payer.  That is only 2.1 hours short of a legal fulltime work week. Also, consider the fact that the average hourly wage in America is $18.72 and you get $113.8 billion that we spend just in lost time to file our taxes.  Add this amount to the $265 billion citizens and businesses spend out of pocket to adhere to our current tax system and you have $378.8 billion dollars. Now we also have to consider that our Government budgets to the IRS $13.6 billion dollars and the grand total we spend to file and collect taxes is $402.4 billion.  That is nearly 16% of what our current tax system brings in and we haven’t funded the military, the legislature, the executive department, the police force, or the judiciary.  This seems a little inefficient to me.  Taking this into consideration I would say that our current tax system is not sufficient to its purpose.

 

If we are to assume the current tax system is not sufficient to its purpose, what do we replace it with?  There is an argument to be made for a flat tax system.  Herman Cain proposed a 9% flat income tax combined with both a 9% national sales tax and a 9% capital gains tax.  To be honest I believe almost anything would be better than our current system, but my personal favorite is The Fair Tax.  I was introduced to this tax by Atlanta based radio host Neal Boortz.  I then quickly got and read both books currently out on the subject.  I would encourage all Americans to do the same.  To explain it at a high level is simple.  We can debate the details or again you can obtain one of the two books on the subject.  You can also visit www.fairtax.org.  Again at a high level it simply replaces all current forms of federal taxation with a 23% national sales tax at the retail level only.  Let me be clear, it is not in addition to income, corporate, capital gains, payroll, Medicare, or estate tax.  Rather it ends those forms of taxation and replaces it with a national sales tax.  Again, we can debate the details but, I believe this is the best choice currently out there. It provides for a rebate or “prebate” up to the amount of money spent by the average family up to the poverty line so that we are not taxed for buying things that we need to survive.   The figure 23% is the amount needed to tax on consumption to fund our government up to the current spending level.  There is a psychological impact of this tax on our politicians as well.  It tells them that the money we earn is ours first.  It is not until we decide to consume a product or service that we will pay tax. 

I hope this post will spark a debate and inspire us to ask our representatives where they stand on the issue of taxation.  I hope that we will stop talking about fixing our tax system and get down to actually fixing it.   I want to give you just one last piece of information.  I believe a lot is lost in the translation of the word trillion.  I want to give you an idea of how much a 1 trillion really is.  This is going to take some math so bear with me.  Let’s pretend that you have lived since the day that Jesus was born and you are extremely wealthy.  You are so wealthy in fact that you spend 1 million dollars every day.  So on any given year you spend 365 million dollars.  It would take you 2.7 years to get to 1 billion dollars spent.  1 trillion is 1000 times that much so it would take you 2700 years to spend 1 trillion dollars.  If Jesus’s birth marks year one as it does on our calendars then you have yet to spend 1 trillion dollars.  As a matter of fact you are 688 billion dollars short of 1 trillion.  As I said at the beginning of this post, our government brought in 2.5 trillion dollars in tax revenue last year.  You would have to live until the year 6750 to reach that amount if you spent 1 million dollars a day every day.  I think we are taxed enough!!