Auditing is a necessary part of accounting.
The need for auditing comes from the nature of business. A simple mistake in the books can have dire financial consequences.
This statement would be true even if there were no government and we did all transactions in gold bricks.
Supporters of the Flat Tax and Fair Tax make a claim that their tax reform proposals will end auditing and the IRS.
This is absurd.
The Fair Tax replaces personal income tax with a national sales tax. This new tax will be collected by businesses. (The Fair Tax is a business tax, not a consumption tax).
This new tax will require intense auditing by government auditors. The Flat Tax will require an auditing firm like the IRS.
The Fair Tax replaces the personal income tax with a massive new tax on business. Yes, this will reduce the audits of individuals, but it will increase the audits of businesses. The auditing of business is actually more problematic than the auditing of individuals.
For example, the IRS Scandal in the news involves the IRS targeting Conservative Groups. To gain the coveted status of a 401c non-profit corporation, groups are required to incorporate and file a tax status. The IRS delayed these applications.
The Fair Tax does not solve the root issue of the IRS Scandal. The Fair Tax will actually make things worse because it intensifies scrutiny of corporations.
The Fair Tax will create a paradigm in which people who want to do business will need to file for permission from the IRS. The IRS will scrutinize businesses as never before in US history. The IRS will give preferential treatment to the businesses they like and the businesses they don't like.
As pointed out in the post The Fair Tax will Be Unfair, States already classify businesses and charge different businesses different tax rates. Non-profit corporations are held to be sacred and often have no tax. If you look at the retail landscape, you will find that businesses are taxed at different rates. Hotels are taxed at one rate. Gas is taxed at another. Utilities pay a strange mix or taxes. In some places Domino's Pizza is taxed at a restaurant rate and Papa Murphy's pizza's are taxed as groceries. We have luxury taxes and sin taxes.
If we move from an income tax to a national sales tax, Congress will quickly develop a system with different tax rates on different types of business.
Many people in Congress dislike guns and love flowers. The National Sales Tax will give Congress a vehicle to tax guns at a higher rate than florists.
The Fair Tax will quickly devolve into a system in which each class of business has its own tax rate. The Fair Tax will intensive the auditing of businesses. The IRS, being composed of humans, will wring the businesses they dislike through more intense scrutiny than the businesses they like.
HERE IS MY IDEA FOR TAX REFORM
I called my tax reform proposal "The Object Tax." This proposal takes a different tact.
The reform starts with the realization that accounting and auditing are part of life.
Rather than trying to eliminate the need for accounting, the program seeks to give people a set of accounting tools that lets them take charge of the lives.
The program uses Object Design. We would pass a new abstract tax that can be implemented either as an income tax or as a service offered by a financial firm. (This will minimize disruption).
We create a tax code that financial firms can implement as a product. One implementation is a "Tax Aware Account."
A Tax Aware Account could be implemented by your local bank.
People will have the option of continue with the income tax, or they could choose to have the Tax Aware Account handle their taxes.
If a person chooses to use a Tax Aware Account, they will have their entire check deposited into their account. They will pay a progressive tax when they withdraw the money.
For example, you might have $1000 deposited into your account. When you withdraw the money, the Tax Aware Account will look up your personal progressive rate. If your rate is 20%, the program will pay a $200 tax and give you $800 in cash.
As you see we are combining the best of a progressive income tax with a consumption tax.
With the Tax Aware Account, the taxation will take place in real time at your bank. Your bank account will automatically generate a full and accurate accounting of your earnings (the money deposited into your account), the money you withdraw and the taxes paid.
The Tax Aware Accounts will still require auditing. The auditing can take place at the bank.
Most banks have accountants on staff. Banks usually do a good job of tracking money.
Banks will compete on the quality of the Tax Aware Accounts. Banks, wanting to retain customers, will have legal departments and accounting departments at the ready to defend the people using their tax aware accounts.
By embracing the fact that audits are a necessary part of accounting, I believe the best approach to tax reform involves creating individually based financial products with the tax function built into the product.
IMHO, the Fair Tax is doing our world a disservice by selling the lie that their reform will eliminate the IRS and the need to audit accounting systems. The need to audit is inherent in accounting. A better approach to Tax Reform is to create a system that gives all taxpayers access to robust, privately administered accounting systems ... as is done with the Object Tax.
y-intercept blog
From the point of origin to destinations unknown.
Sunday, June 16, 2013
Saturday, June 15, 2013
Business Tax v. Consumption Tax
Many believe that we can achieve positive economic benefits by switching from an income tax to a consumption tax. If properly implemented, a consumption tax would increase savings and personal income while reducing wasteful consumption.
The FairTax is a proposal that replaces the income tax with a national sales tax.
Unfortunately, the FairTax is a poorly designed tax that will not accomplish the desired goal.
The failure of the FairTax becomes obvious when one examines the way money flows through the system.
If you want to understand how a business works, follow the flow of the money.
A sales tax is a taxed placed on sales from a business. The business collects the revenue and the money flows to the state.
A tax is placed on business and paid from the business to the government is a business tax.
In a true consumption tax, the money would flow from the consumer to the state.
This brings up the question: Is is possible to create a true consumption tax?
Why, Yes. As a matter of fact, I just happen to have a model for a true consumer tax sitting in my back pocket.
Decades ago, when I was studying system design, I asked myself if it was possible to apply the same principles used to design the smart phone to the tax problem.
As a thought experiment, I I took the ideas from Object Oriented Design and applied these proven ideas to taxation.
My radical idea is to use the same techniques that made the smartphone to redesign the tax code.
I called my the program "The Object Tax."
The ObjectTax states that all financial objects must be taxed at some point between income and consumption.
Taxing an abstract object between income and consumption allows us to combine the best of a progressive income tax with a consumption tax with a minimal amount of disruption.
The project starts by creating an abstract model of the current tax code that can be implemented as an income tax or as a product offered by a bank or financial firm.
The Object Oriented design technique allows us to change the tax system with a minimal amount of disruption.
The tax says that all financial objects will be taxed at a progressive tax rate between income and consumption. Businesses that are heavily invested in the income tax can continue doing what they are doing.
The ObjectTax invites financial firms to create new implementations of the tax.
The government will create an abstract version of the current income tax that can continue to implemented as an income tax.
The government will invite financial firms to create programs that implement the same tax in different ways.
This technique was used to design the cellphone. The cellphone took the functionality of a telephone and extended it. The invention of the cellphone did not require a destruction of the telephone system.
The smartphone took the basic functionality of a cellphone and extended it. The invention of the smartphone did not require the destruction of the cellphone network.
Object Technology allows designers to extend existing systems with a minimal amount of disruption.
The fact that you can call a smart phone from a telephone shows that this is a proven design technology.
I am not pursuing some hair-brained scheme. I am using a solid design technique with proven results.
So the ObjectTax can be implemented as an income tax. The object tax can be implemented in new wasy by financial firms. For example a bank can implement the program as a Tax Aware Account.
A Tax Aware Account. works as follows: Workers will have their entire paycheck deposited into a Tax Aware Account. They will pay a tax to withdraw money from the account.
Lets say Bob is paid $1000. This money goes into a Tax Aware Account. When Bob withdraws the tax, the tax aware account will look up Bob's progressive tax rate. Let's say the rate is 20%. Bob's tax aware account will charge Bob a $200 tax. Bob will get $800 for his night on the town.
The tax takes place at the bank. The money flows from Bob Tax Aware Account to the government.
The Tax Aware Account gives Bob the ability to decide when to withdraw the money and pay the tax. Bob might only need $400. In which case he would withdraw $500, pay a $100 tax and leave $500 in savings.
The Tax Aware Account is a consumption tax in its purist form. People pay the tax at the money they decide to consume the money. We know it is a consumption tax because the money flows from the consumer to the government.
With this true consumption tax on the table, we can compare it to the Fair Tax.
The Fair Tax is a Sales Tax directly levied on business. Businesses are forced to collect. The money for the tax flows from the business to the government.
Anyone who has studied mathematics and logic know that there is a profound difference between a direct action and an indirect action.
Because the Fair Tax is placed directly on a business, the Fair Tax places an immediate negative pressure on the business.
Consumers will experience the FairTax indirectly as a massive price increase.
Unlike a true consumption tax, the FairTax does not directly challenge consumers with a choice of spending or saving. Consumers will simply see the Fair Tax as a massive increase in taxes.
As the history of inflation show, people respond to price increase erratically.
Don't you see?
The flow of the money determines the effect of the tax and not the action that triggers the tax.
The ObjectTax is a true consumption tax. The money flows directly from the consumer to the state. This creates a direct incentive to save. The Object Tax has indirect effects on business.
The Fair Tax is a business tax. The tax has a direct and immediate effect on business. Any effect on the amount of savings is indirect.
This is basic logic. A tax placed on business, and collected from business is a business tax.
A tax placed on consumption and collected from consumers is a consumption tax.
The FairTax is a business tax. It will have direct and immediate consequence on business.
Any affect on savings is indirect.
The ObjectTax is a true consumption tax. The money flows from the consumer to the government. The tax has an immediate and direct impact on savings. The impact on business is indirect.
To add insult to injury. The FairTax promises to be one of the must disruptive taxes ever imposed.
The FairTax will burden businesses with a massive tax increase. Businesses that make a mistake in the implementation of the tax will be forced out of businesses.
Consumers will see price increases that directly diminish their quality of living.
The ObjectTax, in contrast, uses design techniques which would allow tax reform to tax place with a minimal amount of disruption.
It uses the same design techniques that Steve Jobs used to create the iPhone.
The iPhone was designed to extend the existing cellphone network.
The ObjectTax uses design techniques that allow it to be implemented with a minimal amount of disruption.
The FairTax is a massively disruptive tax. We will place a massive new tax on business that will cause a world of hurt. Thousands of businesses will immediately fail.
The FairTax is a disruptive tax that is apt to have negative effects on business.
If you are with the Freedom Movement, I beg you, please stop supporting the FairTax. It is a bad design.
We can and should do better.
With just a little insight and imagination the freedom movement could come up with tax plans that blow the FairTax Away.
A proper tax design should start by realizing that the flow of the money that determines the effect of the tax.
A sales tax is a business tax. The FairTax directly suppresses business. We know this because the money flows from the business to the state.
The ObjectTax is a true consumption tax. We know this because the money flows from the consumer to the state the moment a taxpayer decides to transfer money from savings for consumption.
If the FairTax was a great idea, it would have won the day in 2012. It lost. Let's come up with something better.
The FairTax is a proposal that replaces the income tax with a national sales tax.
Unfortunately, the FairTax is a poorly designed tax that will not accomplish the desired goal.
The failure of the FairTax becomes obvious when one examines the way money flows through the system.
If you want to understand how a business works, follow the flow of the money.
A sales tax is a taxed placed on sales from a business. The business collects the revenue and the money flows to the state.
A tax is placed on business and paid from the business to the government is a business tax.
In a true consumption tax, the money would flow from the consumer to the state.
This brings up the question: Is is possible to create a true consumption tax?
Why, Yes. As a matter of fact, I just happen to have a model for a true consumer tax sitting in my back pocket.
Decades ago, when I was studying system design, I asked myself if it was possible to apply the same principles used to design the smart phone to the tax problem.
As a thought experiment, I I took the ideas from Object Oriented Design and applied these proven ideas to taxation.
My radical idea is to use the same techniques that made the smartphone to redesign the tax code.
I called my the program "The Object Tax."
The ObjectTax states that all financial objects must be taxed at some point between income and consumption.
Taxing an abstract object between income and consumption allows us to combine the best of a progressive income tax with a consumption tax with a minimal amount of disruption.
The project starts by creating an abstract model of the current tax code that can be implemented as an income tax or as a product offered by a bank or financial firm.
The Object Oriented design technique allows us to change the tax system with a minimal amount of disruption.
The tax says that all financial objects will be taxed at a progressive tax rate between income and consumption. Businesses that are heavily invested in the income tax can continue doing what they are doing.
The ObjectTax invites financial firms to create new implementations of the tax.
The government will create an abstract version of the current income tax that can continue to implemented as an income tax.
The government will invite financial firms to create programs that implement the same tax in different ways.
This technique was used to design the cellphone. The cellphone took the functionality of a telephone and extended it. The invention of the cellphone did not require a destruction of the telephone system.
The smartphone took the basic functionality of a cellphone and extended it. The invention of the smartphone did not require the destruction of the cellphone network.
Object Technology allows designers to extend existing systems with a minimal amount of disruption.
The fact that you can call a smart phone from a telephone shows that this is a proven design technology.
I am not pursuing some hair-brained scheme. I am using a solid design technique with proven results.
So the ObjectTax can be implemented as an income tax. The object tax can be implemented in new wasy by financial firms. For example a bank can implement the program as a Tax Aware Account.
A Tax Aware Account. works as follows: Workers will have their entire paycheck deposited into a Tax Aware Account. They will pay a tax to withdraw money from the account.
Lets say Bob is paid $1000. This money goes into a Tax Aware Account. When Bob withdraws the tax, the tax aware account will look up Bob's progressive tax rate. Let's say the rate is 20%. Bob's tax aware account will charge Bob a $200 tax. Bob will get $800 for his night on the town.
The tax takes place at the bank. The money flows from Bob Tax Aware Account to the government.
The Tax Aware Account gives Bob the ability to decide when to withdraw the money and pay the tax. Bob might only need $400. In which case he would withdraw $500, pay a $100 tax and leave $500 in savings.
The Tax Aware Account is a consumption tax in its purist form. People pay the tax at the money they decide to consume the money. We know it is a consumption tax because the money flows from the consumer to the government.
With this true consumption tax on the table, we can compare it to the Fair Tax.
The Fair Tax is a Sales Tax directly levied on business. Businesses are forced to collect. The money for the tax flows from the business to the government.
Anyone who has studied mathematics and logic know that there is a profound difference between a direct action and an indirect action.
Because the Fair Tax is placed directly on a business, the Fair Tax places an immediate negative pressure on the business.
Consumers will experience the FairTax indirectly as a massive price increase.
Unlike a true consumption tax, the FairTax does not directly challenge consumers with a choice of spending or saving. Consumers will simply see the Fair Tax as a massive increase in taxes.
As the history of inflation show, people respond to price increase erratically.
Don't you see?
The flow of the money determines the effect of the tax and not the action that triggers the tax.
The ObjectTax is a true consumption tax. The money flows directly from the consumer to the state. This creates a direct incentive to save. The Object Tax has indirect effects on business.
The Fair Tax is a business tax. The tax has a direct and immediate effect on business. Any effect on the amount of savings is indirect.
This is basic logic. A tax placed on business, and collected from business is a business tax.
A tax placed on consumption and collected from consumers is a consumption tax.
The FairTax is a business tax. It will have direct and immediate consequence on business.
Any affect on savings is indirect.
The ObjectTax is a true consumption tax. The money flows from the consumer to the government. The tax has an immediate and direct impact on savings. The impact on business is indirect.
To add insult to injury. The FairTax promises to be one of the must disruptive taxes ever imposed.
The FairTax will burden businesses with a massive tax increase. Businesses that make a mistake in the implementation of the tax will be forced out of businesses.
Consumers will see price increases that directly diminish their quality of living.
The ObjectTax, in contrast, uses design techniques which would allow tax reform to tax place with a minimal amount of disruption.
It uses the same design techniques that Steve Jobs used to create the iPhone.
The iPhone was designed to extend the existing cellphone network.
The ObjectTax uses design techniques that allow it to be implemented with a minimal amount of disruption.
The FairTax is a massively disruptive tax. We will place a massive new tax on business that will cause a world of hurt. Thousands of businesses will immediately fail.
The FairTax is a disruptive tax that is apt to have negative effects on business.
If you are with the Freedom Movement, I beg you, please stop supporting the FairTax. It is a bad design.
We can and should do better.
With just a little insight and imagination the freedom movement could come up with tax plans that blow the FairTax Away.
A proper tax design should start by realizing that the flow of the money that determines the effect of the tax.
A sales tax is a business tax. The FairTax directly suppresses business. We know this because the money flows from the business to the state.
The ObjectTax is a true consumption tax. We know this because the money flows from the consumer to the state the moment a taxpayer decides to transfer money from savings for consumption.
If the FairTax was a great idea, it would have won the day in 2012. It lost. Let's come up with something better.
Friday, June 14, 2013
Tax Complications
The Flat Tax, Fair Tax and 9-9-9 Tax all start with the assumption that the complexity of taxation comes from the progressive tax rate.
Through the years, I've learned that the complexity of taxation comes from the mind numbing process of accumulating the information to calculate my taxes.
Each year I spend a full day going through all of my receipts to calculate my taxes. Rereading and classify receipts is difficult. The process of looking up the tax rate and calculating taxes is the easiest part of the job.
The "object tax" starts with the assumption that the most difficult part of the tax system is gathering information. The goal of the tax is to simplify the accounting problem.
The Object Tax is named for the design technique behind the smartphone. A smartphone is an extremely complex device attached to a mind-boggling complex network. Despite all this complexity, a well designed smart phone is extremely easy to use.
With my smartphone, I can swipe my finger one way to play music. I swipe it another way to make a phone call. When I'm bored, I can play Angry Birds or Tweet on Twitter.
A smartphone is a complex device that is intuitive and easy to use.
This is the magic of Object Design. Object Design allows people to create intuitive interfaces for complex things.
The goal of the Object Tax is to create an intuitive interface for collecting taxes.
The government has a poor track record on designing the interface for the tax system.
The Object Tax faces this challenge by separating the tax code from the interface used to implement the tax code.
The process starts by creating an abstract model of the tax code that can be implemented as the current income tax or that could be implemented as a service offered by a financial institution.
The abstract model states that all financial objects (salaries, capital gains, interest, inheritance) must be taxed at some point between income and consumption.
The tax can be collected as an income tax. This minimizes disruption.
Financial institutions can offer products that collect taxes at various points between income and consumption.
My favorite implementation comes in the form of a Tax Aware bank account. The Tax Aware bank account works as follows: Your entire paycheck will be deposited into a bank account. You will pay a tax when you withdraw money from the Tax Aware account for spending. If your paycheck was $1,000 and your tax rate 20%. You will pay a $200 tax when you withdraw the money and receive $800.
Tax Aware Accounts can implement the complexities of the current tax code. For example, it can replicated a $3,000 standard deduction by allowing people withdraw the first three grand tax free. It can replicate the charitable deduction by allowing taxpayers to transfer money to a charity's account without paying taxes.
I love the idea of a tax aware account. I would simply deposit all of my income and the bank will calculate my taxes as I withdraw the cash.
Now, I am a poor man of simple tastes. Other financial institutions might come up with even better implementations of the tax code.
This is way object design works. A large number of companies have different ideas about what a smart phone should do. They design different phones and compete in the open market.
The Object Tax makes an abstract model of the current income tax. The tax can be implemented as the income tax (avoiding unnecessary disruption). The tax can also be implemented by third parties.
The Abstract model will require that taxes be paid at some point between income and consumption.
Because people like to avoid taxes, financial institutions will approach the tax by creating implementations of the tax that encourage savings. This will shift the tax from an income tax toward a consumption tax.
The idea of using the same design techniques behind the smartphone to revamp the taxing system is likely to result in a taxation system that is easier to use than the current income tax. It will be easier to implement than the Fair Tax, the Flat Tax or the 9-9-9 Tax.
The complexity of taxation is not the result of the tax rate. The complexity of taxation is inherent in accounting. With the Object Tax, financial firms will compete by creating programs that help people with the complex task of accounting and budgeting.
Through the years, I've learned that the complexity of taxation comes from the mind numbing process of accumulating the information to calculate my taxes.
Each year I spend a full day going through all of my receipts to calculate my taxes. Rereading and classify receipts is difficult. The process of looking up the tax rate and calculating taxes is the easiest part of the job.
The "object tax" starts with the assumption that the most difficult part of the tax system is gathering information. The goal of the tax is to simplify the accounting problem.
The Object Tax is named for the design technique behind the smartphone. A smartphone is an extremely complex device attached to a mind-boggling complex network. Despite all this complexity, a well designed smart phone is extremely easy to use.
With my smartphone, I can swipe my finger one way to play music. I swipe it another way to make a phone call. When I'm bored, I can play Angry Birds or Tweet on Twitter.
A smartphone is a complex device that is intuitive and easy to use.
This is the magic of Object Design. Object Design allows people to create intuitive interfaces for complex things.
The goal of the Object Tax is to create an intuitive interface for collecting taxes.
The government has a poor track record on designing the interface for the tax system.
The Object Tax faces this challenge by separating the tax code from the interface used to implement the tax code.
The process starts by creating an abstract model of the tax code that can be implemented as the current income tax or that could be implemented as a service offered by a financial institution.
The abstract model states that all financial objects (salaries, capital gains, interest, inheritance) must be taxed at some point between income and consumption.
The tax can be collected as an income tax. This minimizes disruption.
Financial institutions can offer products that collect taxes at various points between income and consumption.
My favorite implementation comes in the form of a Tax Aware bank account. The Tax Aware bank account works as follows: Your entire paycheck will be deposited into a bank account. You will pay a tax when you withdraw money from the Tax Aware account for spending. If your paycheck was $1,000 and your tax rate 20%. You will pay a $200 tax when you withdraw the money and receive $800.
Tax Aware Accounts can implement the complexities of the current tax code. For example, it can replicated a $3,000 standard deduction by allowing people withdraw the first three grand tax free. It can replicate the charitable deduction by allowing taxpayers to transfer money to a charity's account without paying taxes.
I love the idea of a tax aware account. I would simply deposit all of my income and the bank will calculate my taxes as I withdraw the cash.
Now, I am a poor man of simple tastes. Other financial institutions might come up with even better implementations of the tax code.
This is way object design works. A large number of companies have different ideas about what a smart phone should do. They design different phones and compete in the open market.
The Object Tax makes an abstract model of the current income tax. The tax can be implemented as the income tax (avoiding unnecessary disruption). The tax can also be implemented by third parties.
The Abstract model will require that taxes be paid at some point between income and consumption.
Because people like to avoid taxes, financial institutions will approach the tax by creating implementations of the tax that encourage savings. This will shift the tax from an income tax toward a consumption tax.
The idea of using the same design techniques behind the smartphone to revamp the taxing system is likely to result in a taxation system that is easier to use than the current income tax. It will be easier to implement than the Fair Tax, the Flat Tax or the 9-9-9 Tax.
The complexity of taxation is not the result of the tax rate. The complexity of taxation is inherent in accounting. With the Object Tax, financial firms will compete by creating programs that help people with the complex task of accounting and budgeting.
The Fair Tax Will Quickly Devolve into an Unfair Tax
The Fair Tax seeks to replace the current income tax with a national sales tax.
Proponents of the Fair Tax labor under the naïve assumption that a national sales tax will be flat. In this vision, the new national sales tax will be fair because all businesses would be taxed at the same rate.
But, let's assume for a moment that Washington is a place in which politics takes place.
Imagine for a moment that we had a Congress populated with [gulp] professional politicians.
If Congress was an institution inhabited by politicians, the flat tax won't be flat for long.
Immediately after adopting a national sales tax, the political mind would begin the process of classifying businesses and products. The political mind would begin classifying busineses and taxing businesses at different rates based on what the business sells, the structure of the business and even who owns the business.
I know for a fact that this will happen because it is what happens with State administered sales tax.
In the status quo, we have luxury taxes, sin taxes. There is a general consensus that food should be taxed at a lower rate than other items. In some states, you pay a tax if you sit at a table and no tax if you order to go.
When I was adding pizza listings to my directories, I discovered that the laws governing Take and Bake pizzas are different from those govern baked pizza. Papa Murphy's Pizza pays a different tax rate than Domino's!
Once we move from an income tax to a sales tax, the political machine will go into overdrive and break the flat tax into a highly differentiated tax.
Once we start seeing highly differentiated taxed based on the structure of business and what the businesses sell, we will enter into a nightmare in which business groups will have to double their lobbying efforts to protect their members.
Advocates of the Fair Tax labor under the assumption that a national sales tax would be flat. But a national sales tax will not remain flat for long.
Washington is a political town. It is the nature of politicians to meddle. The Fair Tax would only remain flat if a miracle occurred that changed the nature of the political mind.
Proponents of the Fair Tax believe that their tax will eliminate the IRS. But there will need to be a vast bureaucracy to collect the sales tax and to audit the tax on a business by business basis. (See The Difference between a Consumption Tax and Business Tax).
I don't know if any of you have noticed, but there is growing number of people who despise business (corporations).
The National Sales Tax will give the political machine tools to go after politically unpopular businesses as they have never gone after them before.
In the recent IRS Scandal, the IRS went after conservative groups filing for non-profit status. A non-profit corporation is a business. The IRS went after groups filing for a tax status.
With the Fair Tax, all businesses must apply for a tax status. This will increase the ability to engage in scandals like the IRS Scandal.
The Fair Tax might include a symbolic closing of the IRS. However, the Feds will need an organization to process the tax filings and audit business. BTW, auditing is not some bizarre torture device invented by the IRS. Auditing is a necessary part of accounting.
There will need to be a tax authority that collects the tax and audits business.
I guarantee that shortly after passing the Fair Tax, there will be an IRS-like organization that audits business. Even worse, I guarantee that Congress will start passing a highly differentiated tax code with different rates for different types of business.
In conclusion. The Fair Tax is based on the naive assumption that nature of Congress will change and that the new taxing authority will be administered by saints.
The nature of Congress guarantees that the flat tax advocated by Fair Tax groups will quickly devolve into a highly differentiated tax. The authorities that collect the tax and audit businesses will be empowered as never before to go after businesses based on their structure and the political beliefs of their owners.
Passage of the Fair Tax will create a new political paradigm in which businesses will be forced to increase lobbying efforts. The lobbying efforts will just feed the frenzy and magnify inequities in the new tax code.
The nature of man guarantees that the Fair Tax will soon degenerate into an unfair tax.
I agree with the advocates of the Fair Tax that we should seek to replace our income tax with a consumption tax. That the advocates of the Fair Tax intend to pass a flat means bug squat. The intentions of the Flat Tax crowd are simply bricks that pave the road to ...
well.
Anyway, the Tea Party needs a better tax reform proposal. I propose the The Object Tax. This tax is named for the Object Oriented Design process used in the smartphone and system engineering. It uses the same design techniques used in the iPhone and iPad to transition us from an income tax to an account based tax.
The Object Tax creates an abstract tax code that encapsulates the current income tax. It would allow financial institutions to implement the tax in financial products such as a tax aware bank account. Employers can continue the current income tax, or they could outsource the tax to financial institutions.
For example, a bank could have a tax aware account. You would have your entire paycheck deposited into your tax aware account. You pay a tax (at a personal progressive rate) when you withdraw your money.
So, lets say you had $1000 deposited in your tax aware account. When you withdraw the money, the account will check your tax rate. If your rate was 20%, you would pay a $200 tax and get $800 in cash.
Financial institutions will offer budgeting software along with the tax aware accounts. With the Object Tax, people will be encouraged to engage in a budgeting process. They will pay their taxes when they plan their budget.
Collecting taxes when people plan their budget will actually have a bigger impact than collecting taxes at the point of sales. People are more engaged with their personal finances in the budgeting process than they are at the point of sale.
The Fair Tax is a bad idea. The Object Tax uses the same engineering techniques used in the smart phone to create a better tax.
Proponents of the Fair Tax labor under the naïve assumption that a national sales tax will be flat. In this vision, the new national sales tax will be fair because all businesses would be taxed at the same rate.
But, let's assume for a moment that Washington is a place in which politics takes place.
Imagine for a moment that we had a Congress populated with [gulp] professional politicians.
If Congress was an institution inhabited by politicians, the flat tax won't be flat for long.
Immediately after adopting a national sales tax, the political mind would begin the process of classifying businesses and products. The political mind would begin classifying busineses and taxing businesses at different rates based on what the business sells, the structure of the business and even who owns the business.
I know for a fact that this will happen because it is what happens with State administered sales tax.
In the status quo, we have luxury taxes, sin taxes. There is a general consensus that food should be taxed at a lower rate than other items. In some states, you pay a tax if you sit at a table and no tax if you order to go.
When I was adding pizza listings to my directories, I discovered that the laws governing Take and Bake pizzas are different from those govern baked pizza. Papa Murphy's Pizza pays a different tax rate than Domino's!
Once we move from an income tax to a sales tax, the political machine will go into overdrive and break the flat tax into a highly differentiated tax.
Once we start seeing highly differentiated taxed based on the structure of business and what the businesses sell, we will enter into a nightmare in which business groups will have to double their lobbying efforts to protect their members.
Advocates of the Fair Tax labor under the assumption that a national sales tax would be flat. But a national sales tax will not remain flat for long.
Washington is a political town. It is the nature of politicians to meddle. The Fair Tax would only remain flat if a miracle occurred that changed the nature of the political mind.
Proponents of the Fair Tax believe that their tax will eliminate the IRS. But there will need to be a vast bureaucracy to collect the sales tax and to audit the tax on a business by business basis. (See The Difference between a Consumption Tax and Business Tax).
I don't know if any of you have noticed, but there is growing number of people who despise business (corporations).
The National Sales Tax will give the political machine tools to go after politically unpopular businesses as they have never gone after them before.
In the recent IRS Scandal, the IRS went after conservative groups filing for non-profit status. A non-profit corporation is a business. The IRS went after groups filing for a tax status.
With the Fair Tax, all businesses must apply for a tax status. This will increase the ability to engage in scandals like the IRS Scandal.
The Fair Tax might include a symbolic closing of the IRS. However, the Feds will need an organization to process the tax filings and audit business. BTW, auditing is not some bizarre torture device invented by the IRS. Auditing is a necessary part of accounting.
There will need to be a tax authority that collects the tax and audits business.
I guarantee that shortly after passing the Fair Tax, there will be an IRS-like organization that audits business. Even worse, I guarantee that Congress will start passing a highly differentiated tax code with different rates for different types of business.
In conclusion. The Fair Tax is based on the naive assumption that nature of Congress will change and that the new taxing authority will be administered by saints.
The nature of Congress guarantees that the flat tax advocated by Fair Tax groups will quickly devolve into a highly differentiated tax. The authorities that collect the tax and audit businesses will be empowered as never before to go after businesses based on their structure and the political beliefs of their owners.
Passage of the Fair Tax will create a new political paradigm in which businesses will be forced to increase lobbying efforts. The lobbying efforts will just feed the frenzy and magnify inequities in the new tax code.
The nature of man guarantees that the Fair Tax will soon degenerate into an unfair tax.
I agree with the advocates of the Fair Tax that we should seek to replace our income tax with a consumption tax. That the advocates of the Fair Tax intend to pass a flat means bug squat. The intentions of the Flat Tax crowd are simply bricks that pave the road to ...
well.
Anyway, the Tea Party needs a better tax reform proposal. I propose the The Object Tax. This tax is named for the Object Oriented Design process used in the smartphone and system engineering. It uses the same design techniques used in the iPhone and iPad to transition us from an income tax to an account based tax.
The Object Tax creates an abstract tax code that encapsulates the current income tax. It would allow financial institutions to implement the tax in financial products such as a tax aware bank account. Employers can continue the current income tax, or they could outsource the tax to financial institutions.
For example, a bank could have a tax aware account. You would have your entire paycheck deposited into your tax aware account. You pay a tax (at a personal progressive rate) when you withdraw your money.
So, lets say you had $1000 deposited in your tax aware account. When you withdraw the money, the account will check your tax rate. If your rate was 20%, you would pay a $200 tax and get $800 in cash.
Financial institutions will offer budgeting software along with the tax aware accounts. With the Object Tax, people will be encouraged to engage in a budgeting process. They will pay their taxes when they plan their budget.
Collecting taxes when people plan their budget will actually have a bigger impact than collecting taxes at the point of sales. People are more engaged with their personal finances in the budgeting process than they are at the point of sale.
The Fair Tax is a bad idea. The Object Tax uses the same engineering techniques used in the smart phone to create a better tax.
Friday, June 07, 2013
Find a Winning Issue and We Can Restore America
In recent decades the freedom movement has been operating under the assumption that the Restoration of America will come by finding the right candidate.
A large number of people in the GOP worked diligently to create such candidates.
But the candidates either fail to get elected or fall short once in office.
I believe that the assumption that the restoration of freedom will come through a political candidate is absurd.
I've come to the conclusion that the best path for restoring freedom will come by a political movement formed around an issue.
The most promising issue is Health Care Reform. I spent several years working on a reform proposal called "The Medical Savings and Loan." This program could help in the repeal of ObamaCare by demanding the creation of a free market alternative to insurance.
To my dismay, I've been unable to find any Libertarian, Tea Party or GOP group with enough interest in restoring freedom within 700 miles of Salt Lake City.
The GOP in Utah is fully invested in ObamaCare and has no interest in repealing it.
I fear that the opportunity to repeal ObamaCare has passed.
I am unwilling to give up hope on America.
It is possible that tax reform will become the driving issue of the 2016 election.
I contend that, if the freedom movement came up with a compelling tax reform proposal, that the freedom movement would win the day.
For the last several days I've been blogging about a tax reform called "The Object Tax."
The Object Tax is named for the Object Oriented Design technique used in smartphones and other advanced systems.
The Object Tax is named for a design method. This design starts by creating an abstract model of the current income tax. We would rewrite the code so that taxation could be implemented as either an income tax or as an account based tax hosting by a bank or other financial firm.
The design is as follows. The government will write the basic requirements for the tax. Banks, employers and other financial institutions would then write programs that implement the new tax.
The first goal of the object tax is to minimize disruption. The tax can be implemented as the current income tax. Companies that are heavily invested in their current HR systems will not be forced to make major changes.
This tax reform has minimal disruption.
Think of it like the phone system. The cellular phone system was able to encapsulate and extend the line network. We did not need to disrupt telephone service to create cellphones. Smartphones extend cellphones with internet connectivity. We did not need to destroy the cellphone system to create smart phones.
A bank might implement the Object Tax as follows.
You would have your entire paycheck deposited into a Tax Aware account. Customers will pay a progressive tax when they withdraw money.
Lets say you have a thousand dollars put in your account and your calculated rate is 20%. When you withdraw the $1000 you will pay a $200 tax and you will get $800 in cash.
In this implementation, you pay the tax when you prepare to spend money.
The process of preparing to spend money is called "budgeting."
Collecting taxes in the budgeting process will have the same, of not stronger, psychological effect as taxing at the point of sale.
The great thing is that the design of the Object Tax allows us to keep the progressive tax rate that many Americans love.
I put forward this idea because I believe the Object Tax could be a compelling issue for the freedom movement.
I happen to love system design. Designing an object based system is the most intellectually intriguing tasks that one can undertake.
If there was a group interested in advancing the freedom movement through tax reform, that group of people could contact me. I could then explain why this tax proposal would enhance the freedom movement.
I live in Utah. If someone was interested in pursuing this idea, they could contact me. The Object Tax could be a winning issue for the freedom movement if someone had enough interest in freedom to pursue an idea.
A large number of people in the GOP worked diligently to create such candidates.
But the candidates either fail to get elected or fall short once in office.
I believe that the assumption that the restoration of freedom will come through a political candidate is absurd.
I've come to the conclusion that the best path for restoring freedom will come by a political movement formed around an issue.
The most promising issue is Health Care Reform. I spent several years working on a reform proposal called "The Medical Savings and Loan." This program could help in the repeal of ObamaCare by demanding the creation of a free market alternative to insurance.
To my dismay, I've been unable to find any Libertarian, Tea Party or GOP group with enough interest in restoring freedom within 700 miles of Salt Lake City.
The GOP in Utah is fully invested in ObamaCare and has no interest in repealing it.
I fear that the opportunity to repeal ObamaCare has passed.
I am unwilling to give up hope on America.
It is possible that tax reform will become the driving issue of the 2016 election.
I contend that, if the freedom movement came up with a compelling tax reform proposal, that the freedom movement would win the day.
For the last several days I've been blogging about a tax reform called "The Object Tax."
The Object Tax is named for the Object Oriented Design technique used in smartphones and other advanced systems.
The Object Tax is named for a design method. This design starts by creating an abstract model of the current income tax. We would rewrite the code so that taxation could be implemented as either an income tax or as an account based tax hosting by a bank or other financial firm.
The design is as follows. The government will write the basic requirements for the tax. Banks, employers and other financial institutions would then write programs that implement the new tax.
The first goal of the object tax is to minimize disruption. The tax can be implemented as the current income tax. Companies that are heavily invested in their current HR systems will not be forced to make major changes.
This tax reform has minimal disruption.
Think of it like the phone system. The cellular phone system was able to encapsulate and extend the line network. We did not need to disrupt telephone service to create cellphones. Smartphones extend cellphones with internet connectivity. We did not need to destroy the cellphone system to create smart phones.
A bank might implement the Object Tax as follows.
You would have your entire paycheck deposited into a Tax Aware account. Customers will pay a progressive tax when they withdraw money.
Lets say you have a thousand dollars put in your account and your calculated rate is 20%. When you withdraw the $1000 you will pay a $200 tax and you will get $800 in cash.
In this implementation, you pay the tax when you prepare to spend money.
The process of preparing to spend money is called "budgeting."
Collecting taxes in the budgeting process will have the same, of not stronger, psychological effect as taxing at the point of sale.
The great thing is that the design of the Object Tax allows us to keep the progressive tax rate that many Americans love.
I put forward this idea because I believe the Object Tax could be a compelling issue for the freedom movement.
I happen to love system design. Designing an object based system is the most intellectually intriguing tasks that one can undertake.
If there was a group interested in advancing the freedom movement through tax reform, that group of people could contact me. I could then explain why this tax proposal would enhance the freedom movement.
I live in Utah. If someone was interested in pursuing this idea, they could contact me. The Object Tax could be a winning issue for the freedom movement if someone had enough interest in freedom to pursue an idea.
Interesting Comment
earwulf left an interesting comment: "Essentially, an electronic currency linked to unique, human identity allows for efficient, progressive taxation."
An "an electronic currency linked to a human identity" would allow the government to track each and every purchase made by each individual in the country.
Such a system would be a nightmare.
It would involve an invasion of privacy on an epic scale!
The comment is interesting because it brings up an important point.
The challenge of a consumption tax is that such a tax would require that we either remove personal data or we create an intrusive system with the government monitoring all personal transactions.
The FAIR Tax has pitfalls in both directions. If we record personal data with transactions, then we open the door to massive governmental intrusion in our lives.
Removing all connections between individuals and the taxes they pay leads to other levels of abuse. Detaching people from the taxes they pay leads to a system of excessive gamesmanship and abuse.
The FAIR Tax is akin to Taxation without Representation. The businesses that will pay the FAIR tax do not have a direct voice in government. (Businesses have an indirect voice through business owners, but business owners are an unopular minority in America.)
The ideal of Taxation With Representation is realized when the entity paying the tax has a direct vote. The ideal of a representative government is best realized when voters are the direct and primary source of funds for the government.
This Object Tax is built on this principle.
The Object Tax uses the same tried and proven design principles behind the iPhone and modern manufacturing.
The program starts by creating an abstract model of the current income tax.
We make some minor changes to the model so that it can be implemented as an income tax or as a tax administered by a third party such as an account, a financial adviser firm or a bank.
Object technology uses a five dollar word. I apologize for this word.
The Oject Tax encapsulates and extends the current income tax.
Cellular phone encapsulated the functionality of the telephone. Cellphones extend the telephone by making it portable. A smartphone extends the cellphone by adding internet capabilities.
The Object Tax encapsulates the income and extends it by making the tax portable.
Businesses that are invested in the income tax can continue business as normal. People who want to move the tax process from their employer to a third party such as a bank or accountant can do so.
Third party providers are likely to extend the object tax by giving customers advanced budgeting software.
The Object Tax is a method of taxation based on Object Technology. This is the same design behind the iPhone, the Internet, modern manufacturing, etc..
Now, the object tax moves the collection of taxes from the company to a third party. In most cases the third party is a bank.
A common application of the tax is that people will have their entire paycheck deposited into a bank account. They pay their tax when they withdraw money to spend.
The program does not track where you spend your money. The program applies a tax when you withdraw money to spend it.
The Object Tax moves us towards an individualized consumption tax.
The tax avoids the nightmare situation of a government tracking all expenditures because the tax is collected when people withdraw money in preparation for spending.
I contend that this is actually a better time to place a tax than on consumption.
The object tax will draw people into engaging in a budgeting process.
It is when people are drawn into a budgeting process that they begin to make rational decisions about their spending.
The Object Tax uses the same design technique behind the smartphone and other new technologies. Using this technique allows us to move from an income tax toward a progressive-consumption tax with a minimal amount of disruption and intrusion.
ADVERTISEMENT: mvelopes offers budgeting software. Click to view a flash presentation.
Thursday, June 06, 2013
A Revolution in Personal Finance
A Revolution in Personal Financial Tools
Can we use technologies developed in Silicon Valley to improve our governance?
I believe the answer is "Yes." For example, I believe that we could use Object Technology to improve the tax system.
Currently, the US government uses an income tax system. Many economist would like to transition to a consumption tax. Business leaders want us to eliminate the capital gains tax, while moralists wish us to tax the wealthy at a progressive rate. Inheritance Tax is a mess. Some assets are taxed twice, others not at all.
Object Technology can fix these problems.
The Object Tax is named after a system engineering technology. The method places a tax on an abstract object laying between income and consumption. Taxing an abstract object between income and consumption allows us to create a tax that combines the best of a progressive income tax with a consumption tax.
The tax starts by stating that all financial objects have a tax atribute. This atribute tells us if the object was taxed and the amount of tax collected.
There are many different ways to implement the object tax.
The Object Tax can be implemented as an income tax.
In computer speak, the object tax will encapsulate and extend the current tax code.
This means that we can pass the object tax without requiring companies to change their current payroll procedures. Individuals and companies can switch from the payroll tax to the object tax at their convenience.
Back to the design: The object tax taxes each financial object once between income and consumption. If your employer opts to stay with the payroll taxes, taxes will be collected as a payroll withholding. Employees will continue to file annual tax returns.
The Object Tax extends the current tax structure by allowing employers to deposit employees' paychecks into tax aware bank accounts.
People who take this option will see their entire paycheck deposited into a tax aware bank account. They will pay taxes (at a progressive tax rate) when they withdraw money from their tax aware account.
Let's say you had $1,000 in your tax aware account and your tax rate was 20%. When you withdraw the money, you will pay a tax of $200 and get $800 in cash.
The taxes are now collected on an individual basis at the bank.
The Object Tax encapsulates and extends the current tax code. Employers will have the option of continuing the costly process of payroll tax withholding, or they could choose to substantially cust their payroll costs by depositing paychecks into Tax Aware bank accounts.
Banks compete on the services they provide customers. Wanting to retain current customers and gain new customers will create new budgeting software to process the new Tax Aware accounts.
The magic of Object Technology is that the design principles of Object Technology allows companies to encapsulate and extend a system.
Cellphones are a great example of Object Technology at work. The invention of cellphones did not require the elimination of the wired telephone network. Cellphones encapsulate and extend the functionality of the telephone system. Smartphones add internet functionality to cellphones. Smartphones did not require the destruction of the cellphone network to come into existence. Smartphones encapsulate and extends the functionality of cellphones.
The Object Tax uses this solid and proven technology to encapsulate and extend the income tax.
The Object Tax starts by creating a set of design specifications that encapsulates the design of the income tax, but allows the tax to be implemented by a bank on an account level.
The tax creates a choice. Employers can continue with the costly process of payroll withholdings or the employer could deposit the entire paycheck into a tax aware account.
The Treasury Department would create the basic design specifications for Tax Aware. Banks, wanting competing on costumer service, will add budgeting functionality to the tax aware accounts.
The effect of the Object Tax is that the tax will lead directly to a new generation of advanced budgeting software created and distributed by banks competing on customer service.
The Object Tax will create the following experience for people. They will have their entire paycheck deposited into a tax aware account. They will pay a tax when they transfer money from the tax aware account to other accounts for spending. Banks will offer a slew of new budgetting tools.
The effect is that people will have their money in Tax Aware Accounts in banks competing on providing budgeting tools. Customers will pay a tax when they transfer money from their Tax Aware account to spending accounts. People who never budgeted before will be using a budgeting system that has a built in aversion to wasteful spending.
The Object Tax creates a tax code that encapsulates and extends the income tax. Banks will extend the Object Tax by giving every customer access to advanced budgeting software. The tax leads immediately to a revolution in personal finance.
As promised at the beginning to the post. I need to address capital gains tax and income tax.
Capital Gains Tax is collected when people sell financial assets. Imagine that you had a $1M in stock that you've accumulated over the decades. You want to sell the stock and create a company that will create five jobs. if you sell the stock, you will have to pay a 20% capital gains tax.
If you don't sell the stock, it would continue to apprecieate. The capital gains tax forces you to forgo the dream of starting five new jobs and you keep the stock. The wealth you would have created for you and your community is now gone.
The Capital Gains Tax creates a world in which investors make their decisions on taxes rather than on the production of wealth. This diminishes our communities.
The Object Tax will eliminate the Capital Gains Tax and replaces it with a progressive consumption tax.
An investor can sell an asset and deposit the funds in a tax aware account from which the investor can buy new financial assets. The investor will pay a progressive income tax on any money transferred from the tax aware account to personal income.
The current progressive tax rate is based on annual income. The Object Tax would calculate the progressive rate on a combination of income and net worth. A millionaire would pay at the highest rate even if the millionaire has a low declared income.
The object tax allows investors to buy and sell stock without paying a tax. They will pay a progressive tax on the funds they transfer out of their portfolio for consumption.
Inheritance tax is problematic. Inheritance requires a family to pay a hefty tax when the parents pass away. If the parents are farmers, the children will be forced to break up the farm to pay the hefty inheritance tax.
The Object tax simply states that all financial objects have a tax atribute that records how much tax has been paid. Heirs will inherit the tax atributes of all the items in the estate. If the farm has not been taxed, the heirs will inherit the farm without paying tax. They would pay a tax if they sold the estate and consumed the resources.
IN CONCLUSION: The Object Tax is based on the same proven design techniques used in advanced technologies. The program declares that all financial objects have a tax attribute that must be resolved between income and consumption. The tax can be implemented as a payroll tax or through a system of tax aware accounts.
Taxing an abstract object between income and consumption allows us to combine the best of a progressive income tax with a consumption tax.
The tax can be implemented as a payroll tax (with an annual return) or it can be implemented as a Tax Aware account hosted by your local bank.
The robust design of the Object Tax allows for equitable taxation implemented through a variety of different programs. The Object Tax will lead immediately to a new generation of personal budgeting software that is likely to substantially increase the financial well being of a majority of Americans.
Can we use technologies developed in Silicon Valley to improve our governance?
I believe the answer is "Yes." For example, I believe that we could use Object Technology to improve the tax system.
Currently, the US government uses an income tax system. Many economist would like to transition to a consumption tax. Business leaders want us to eliminate the capital gains tax, while moralists wish us to tax the wealthy at a progressive rate. Inheritance Tax is a mess. Some assets are taxed twice, others not at all.
Object Technology can fix these problems.
The Object Tax is named after a system engineering technology. The method places a tax on an abstract object laying between income and consumption. Taxing an abstract object between income and consumption allows us to create a tax that combines the best of a progressive income tax with a consumption tax.
The tax starts by stating that all financial objects have a tax atribute. This atribute tells us if the object was taxed and the amount of tax collected.
There are many different ways to implement the object tax.
The Object Tax can be implemented as an income tax.
In computer speak, the object tax will encapsulate and extend the current tax code.
This means that we can pass the object tax without requiring companies to change their current payroll procedures. Individuals and companies can switch from the payroll tax to the object tax at their convenience.
Back to the design: The object tax taxes each financial object once between income and consumption. If your employer opts to stay with the payroll taxes, taxes will be collected as a payroll withholding. Employees will continue to file annual tax returns.
The Object Tax extends the current tax structure by allowing employers to deposit employees' paychecks into tax aware bank accounts.
People who take this option will see their entire paycheck deposited into a tax aware bank account. They will pay taxes (at a progressive tax rate) when they withdraw money from their tax aware account.
Let's say you had $1,000 in your tax aware account and your tax rate was 20%. When you withdraw the money, you will pay a tax of $200 and get $800 in cash.
The taxes are now collected on an individual basis at the bank.
The Object Tax encapsulates and extends the current tax code. Employers will have the option of continuing the costly process of payroll tax withholding, or they could choose to substantially cust their payroll costs by depositing paychecks into Tax Aware bank accounts.
Banks compete on the services they provide customers. Wanting to retain current customers and gain new customers will create new budgeting software to process the new Tax Aware accounts.
The magic of Object Technology is that the design principles of Object Technology allows companies to encapsulate and extend a system.
Cellphones are a great example of Object Technology at work. The invention of cellphones did not require the elimination of the wired telephone network. Cellphones encapsulate and extend the functionality of the telephone system. Smartphones add internet functionality to cellphones. Smartphones did not require the destruction of the cellphone network to come into existence. Smartphones encapsulate and extends the functionality of cellphones.
The Object Tax uses this solid and proven technology to encapsulate and extend the income tax.
The Object Tax starts by creating a set of design specifications that encapsulates the design of the income tax, but allows the tax to be implemented by a bank on an account level.
The tax creates a choice. Employers can continue with the costly process of payroll withholdings or the employer could deposit the entire paycheck into a tax aware account.
The Treasury Department would create the basic design specifications for Tax Aware. Banks, wanting competing on costumer service, will add budgeting functionality to the tax aware accounts.
The effect of the Object Tax is that the tax will lead directly to a new generation of advanced budgeting software created and distributed by banks competing on customer service.
The Object Tax will create the following experience for people. They will have their entire paycheck deposited into a tax aware account. They will pay a tax when they transfer money from the tax aware account to other accounts for spending. Banks will offer a slew of new budgetting tools.
The effect is that people will have their money in Tax Aware Accounts in banks competing on providing budgeting tools. Customers will pay a tax when they transfer money from their Tax Aware account to spending accounts. People who never budgeted before will be using a budgeting system that has a built in aversion to wasteful spending.
The Object Tax creates a tax code that encapsulates and extends the income tax. Banks will extend the Object Tax by giving every customer access to advanced budgeting software. The tax leads immediately to a revolution in personal finance.
As promised at the beginning to the post. I need to address capital gains tax and income tax.
Capital Gains Tax is collected when people sell financial assets. Imagine that you had a $1M in stock that you've accumulated over the decades. You want to sell the stock and create a company that will create five jobs. if you sell the stock, you will have to pay a 20% capital gains tax.
If you don't sell the stock, it would continue to apprecieate. The capital gains tax forces you to forgo the dream of starting five new jobs and you keep the stock. The wealth you would have created for you and your community is now gone.
The Capital Gains Tax creates a world in which investors make their decisions on taxes rather than on the production of wealth. This diminishes our communities.
The Object Tax will eliminate the Capital Gains Tax and replaces it with a progressive consumption tax.
An investor can sell an asset and deposit the funds in a tax aware account from which the investor can buy new financial assets. The investor will pay a progressive income tax on any money transferred from the tax aware account to personal income.
The current progressive tax rate is based on annual income. The Object Tax would calculate the progressive rate on a combination of income and net worth. A millionaire would pay at the highest rate even if the millionaire has a low declared income.
The object tax allows investors to buy and sell stock without paying a tax. They will pay a progressive tax on the funds they transfer out of their portfolio for consumption.
Inheritance tax is problematic. Inheritance requires a family to pay a hefty tax when the parents pass away. If the parents are farmers, the children will be forced to break up the farm to pay the hefty inheritance tax.
The Object tax simply states that all financial objects have a tax atribute that records how much tax has been paid. Heirs will inherit the tax atributes of all the items in the estate. If the farm has not been taxed, the heirs will inherit the farm without paying tax. They would pay a tax if they sold the estate and consumed the resources.
IN CONCLUSION: The Object Tax is based on the same proven design techniques used in advanced technologies. The program declares that all financial objects have a tax attribute that must be resolved between income and consumption. The tax can be implemented as a payroll tax or through a system of tax aware accounts.
Taxing an abstract object between income and consumption allows us to combine the best of a progressive income tax with a consumption tax.
The tax can be implemented as a payroll tax (with an annual return) or it can be implemented as a Tax Aware account hosted by your local bank.
The robust design of the Object Tax allows for equitable taxation implemented through a variety of different programs. The Object Tax will lead immediately to a new generation of personal budgeting software that is likely to substantially increase the financial well being of a majority of Americans.
Wednesday, June 05, 2013
Extending the Tax System
I received a comment. Hurray!
The comment was about people who don't have bank accounts.
For most people, the Object Tax works as follows. You will receive your entire paycheck into a bank account. You pay your taxes at a progressive rate when you withdraw your money.
There are people who do not have bank accounts. What about them?
This insightful question brings up the nature of Object Technology.
Object Oriented Design was created by system engineers faced with the challenge of updating extreme complex systems.
A great example is the cellphone. A cellphone is a mobile device that communicates with cellular towers.
Cellphone designers could not simply replace the existing telephone system, so they created a system that integrates with the existing telephone system.
The Object Tax draws from the same design principles.
The design goal is to create a new tax structure that encapsulates and extends the existing tax structure.
The first step of the design process is to create a new object oriented structure that encapsulates the existing tax code. With that in place we can start extending the tax code.
The goal is to transition from an income tax to a consumption tax. To accomplish the goal, the Object Tax taxes an abstract object that exists between income and consumption.
Now, the really powerful part of this design technology is that allows us to create a new tax structure without destroying the existing structure.
I repeat I am using the same design principles that were used by the cellphone industry to extend the telephone network. The creation of cellphones did not require the destruction of land lines. Cellphones integrated with and extended the current technology.
The Object Tax encapsulates the existing tax code. Since the new system is designed to encapsulate and extend the income tax system, the object tax can run in parallel with the income tax.
This design will allow companies to transition to the new tax at the time of their choosing.
In contrast, the FAIR Tax requires a disruptive change with a coordinated elimination of the income tax and implementation of the FAIR tax.
The Object Tax does not require a disruptive change. People can continue business as usually as switch to the object tax at the time of their choosing.
I use the strange word "Object Tax" to emphasize the design process of the new tax. Object Technology allows designers to create new systems that encapsulate all of the functionality of a legacy system and extend it with new functionality.
The comment was about people who don't have bank accounts.
For most people, the Object Tax works as follows. You will receive your entire paycheck into a bank account. You pay your taxes at a progressive rate when you withdraw your money.
There are people who do not have bank accounts. What about them?
This insightful question brings up the nature of Object Technology.
Object Oriented Design was created by system engineers faced with the challenge of updating extreme complex systems.
A great example is the cellphone. A cellphone is a mobile device that communicates with cellular towers.
Cellphone designers could not simply replace the existing telephone system, so they created a system that integrates with the existing telephone system.
The Object Tax draws from the same design principles.
The design goal is to create a new tax structure that encapsulates and extends the existing tax structure.
The first step of the design process is to create a new object oriented structure that encapsulates the existing tax code. With that in place we can start extending the tax code.
The goal is to transition from an income tax to a consumption tax. To accomplish the goal, the Object Tax taxes an abstract object that exists between income and consumption.
Now, the really powerful part of this design technology is that allows us to create a new tax structure without destroying the existing structure.
I repeat I am using the same design principles that were used by the cellphone industry to extend the telephone network. The creation of cellphones did not require the destruction of land lines. Cellphones integrated with and extended the current technology.
The Object Tax encapsulates the existing tax code. Since the new system is designed to encapsulate and extend the income tax system, the object tax can run in parallel with the income tax.
This design will allow companies to transition to the new tax at the time of their choosing.
In contrast, the FAIR Tax requires a disruptive change with a coordinated elimination of the income tax and implementation of the FAIR tax.
The Object Tax does not require a disruptive change. People can continue business as usually as switch to the object tax at the time of their choosing.
I use the strange word "Object Tax" to emphasize the design process of the new tax. Object Technology allows designers to create new systems that encapsulate all of the functionality of a legacy system and extend it with new functionality.
The Tax Collector
The current income tax forces our nation's employers to collect taxes. The system is extremely wasteful. Each pay cycle, employers are forced to go through a complex process of calculating and paying an withholding tax for their employees. Each January, employers are burdened with the costly process of sending W2 forms to employees. Each April, Employees are burdened with filing complex tax returns.
The tax collection system is burdensome and absurd.
The FAIR seeks to simplify taxes by transitioning from an income tax to a national sales tax.
This tax shifts the burden of collecting taxes from employers to point of sales businesses. Small mom and pop stores will not be up to the task and we will sell thousands of businesses closing as a result of the FAIR Tax.
There is a much better solution.
This solution is called the Object Tax.
The object tax is based on the same system engineering techniques behind things like the iPhone and modern manufacturing.
The Object tax places a progressive tax on an object that lays between income and consumption. In most cases the tax is a bank account.
In this system, you would have your entire paycheck deposited into a bank account. You pay a tax to withdraw the money from the account.
The tax is progressive. The progressive tax rate will be based upon both income and net worth. If you are a millionaire, you will pay taxes at the highest income rate even if your salary is low.
The tax passes the Warren Buffett test. Warren Buffett will pay taxes at the highest rate even if his declared income is below the income of his secretary.
So, your entire salary will be deposited into an account. You pay a tax to withdraw money from your account.
Let's say your tax rate is 20% and the amount of money in your account is $10,000. Your statement would show that you have $8,000 that you can withdraw and a tax liability of $2,000. If you withdrew a tenth of the account you would get $800 and pay a tax of $200.
This would be a really cool system. The taxes will be collected in real time when you withdraw money from your bank account.
The system will remove the burden of paying taxes from the employer.
Unlike the FAIR Tax, which creates a substantial new burden for small businesses, the Object Tax does not create a substantial burden for banks.
Banks exist for the sole purpose of collecting money. All taxes, regardless of where they are collected, go through banks.
Banks exist for the processing of money.
The bank is the most efficient place to collect taxes.
Taxes will be collected in real time. When you withdraw money, the system will look up your progressive tax rate and charge a tax based on your personal rate on the spot.
The only reason a person would ever file a tax return is if there was a major miscalculation in one's calculated tax rate.
The Object Tax removes the burden of collecting taxes from employers. Unlike the FAIR Tax, the program does not create a new burden for small business. The program removes the burden of filing an annual tax return.
The tax is collected at the bank. Since banks are equipped for financial transactions and all tax transactions already go through banks, the Object Tax will not create a substantial new burden for banks.
By removing the tax burden from employers and allowing for real time tax collections.
The tax collection system is burdensome and absurd.
The FAIR seeks to simplify taxes by transitioning from an income tax to a national sales tax.
This tax shifts the burden of collecting taxes from employers to point of sales businesses. Small mom and pop stores will not be up to the task and we will sell thousands of businesses closing as a result of the FAIR Tax.
There is a much better solution.
This solution is called the Object Tax.
The object tax is based on the same system engineering techniques behind things like the iPhone and modern manufacturing.
The Object tax places a progressive tax on an object that lays between income and consumption. In most cases the tax is a bank account.
In this system, you would have your entire paycheck deposited into a bank account. You pay a tax to withdraw the money from the account.
The tax is progressive. The progressive tax rate will be based upon both income and net worth. If you are a millionaire, you will pay taxes at the highest income rate even if your salary is low.
The tax passes the Warren Buffett test. Warren Buffett will pay taxes at the highest rate even if his declared income is below the income of his secretary.
So, your entire salary will be deposited into an account. You pay a tax to withdraw money from your account.
Let's say your tax rate is 20% and the amount of money in your account is $10,000. Your statement would show that you have $8,000 that you can withdraw and a tax liability of $2,000. If you withdrew a tenth of the account you would get $800 and pay a tax of $200.
This would be a really cool system. The taxes will be collected in real time when you withdraw money from your bank account.
The system will remove the burden of paying taxes from the employer.
Unlike the FAIR Tax, which creates a substantial new burden for small businesses, the Object Tax does not create a substantial burden for banks.
Banks exist for the sole purpose of collecting money. All taxes, regardless of where they are collected, go through banks.
Banks exist for the processing of money.
The bank is the most efficient place to collect taxes.
Taxes will be collected in real time. When you withdraw money, the system will look up your progressive tax rate and charge a tax based on your personal rate on the spot.
The only reason a person would ever file a tax return is if there was a major miscalculation in one's calculated tax rate.
The Object Tax removes the burden of collecting taxes from employers. Unlike the FAIR Tax, the program does not create a new burden for small business. The program removes the burden of filing an annual tax return.
The tax is collected at the bank. Since banks are equipped for financial transactions and all tax transactions already go through banks, the Object Tax will not create a substantial new burden for banks.
By removing the tax burden from employers and allowing for real time tax collections.
Monday, June 03, 2013
Taxes + Object Oriented Design
If someone wanted to make a huge impact in the 2013 election, they could contact me and discuss the Object Tax. If a political group developed and pushed this idea, the group would position itself to take a leading role in shaping America's future.
Most tax proposals start with a political objective. The group seeking Tax Reform wants to reduce taxes on their friends and increase taxes on enemies.
The Object Tax is different. The tax proposal is based on a powerful design technique called Object Oriented Design. This proven design technique is used in everything from the iPhone to complex manufacturing processes.
Because the tax is driven by a design technique and not a political objective, the tax will allow Congress to structure a new tax code that fits the political objectives of the nation with minimal economic disruption.
The tax itself is quite simple. The tax starts with a declaration that every financial object has a tax attribute. The attribute has the value of PRETAX or TAXED. When people pay the tax, the object switches from PRETAX to TAXED.
In most cases the object is a bank account.
Most people would experience the following. They would have their entire paycheck deposited into a PRETAX account. They would pay a tax to withdraw money from the account.
This structure would eliminate the need for payroll tax withholdings and it would eliminate the annual tax filing process.
The tax rate can be progressive based upon a person's income and net worth. (NOTE, Warren Buffet would pay taxes at the highest rate even if his declared income for the year is low).
So, let's imagine that your paycheck was $1000 and your tax rate was 20%. The entire thousand dollars would be deposited in your bank account. When you withdraw the money, you would pay a $200 tax and get $800 for spending.
Unlike the FAIR Tax and FLAT Tax. The Object Tax can be implemented with minimal disruption. The first job of the reform is to replicate the entire tax code in the new tax framework. One can replicate the standard deduction by allowing people to withdraw a given amount of money without paying a tax. One can replicate the charitable deduction by allowing people to transfer money to a charity without paying a tax.
Having reproduced the current tax code, the second step is to modify and extend the program to achieve a more balanced tax code.
For example, I would like to replace the regressive Capital Gains Tax with a more progressive tax.
The Capital Gains Tax is problematic because it distorts financial decisions.
Business decisions should be based on changes in the business landscape and not on taxes. When people make investing decisions based on tax implications and not on the financial landscape, they make bad decisions.
Having a low Capital Gains Tax is regressive. It allows investors to earn money at a lower tax rate than workers.
The Object Tax would allow us to eliminate the Capital Gains Tax in a progressive manner.
Remember the tax is account based. Investors will have their stock held in PRETAX account. An investor could sell a stock and buy another without worrying about the tax implications.
Investors will pay a tax at a progressive tax rate when they transfer money out of the PRETAX account for consumption.
Currently, the progressive tax rate is based on annual income. I would modify the rate so that it takes into consideration a person's total equity. An investor with a million dollars in stock would pay at the top rate even if the investor's reported income for the year was low.
The Object Tax solves the problems of inheritance tax.
The Inheritance Tax has two big problems. The first problem is with double taxation. Let's say your parents pay taxes on their income. The family pays a second tax when the children inherit the parent's savings.
A second big problem is that the inheritance tax forces the family to break up equities owned by the parents to pay the tax. If the parents owned a farm, the children would be forced to sell a large chunk of the farm to pay the inheritance tax.
The Object Tax solves this problem. All financial objects have a tax attribute. Objects that are PRETAX could be inherited as PRETAX. Financial objects that are TAXED could be inherited as TAXED.
So, lets say the parents had a farm that was PRETAX and a valued painting that was TAXED. The children would inherit the farm as PRETAX and the painting as TAXED. The children would have to pay the regular progressive tax rate if they sold the farm. The children would only pay taxes on selling the painting if it increased in value.
IN CONCLUSION: The Object Tax is based on the design principles used in system engineering. The design process would allow us to create a new streamlined tax system with minimal disruption.
The robust design techniques of the object tax allows us to encapsulate and extend the current tax code.
The robust design technique allows us to create a new tax system that combines the best of a progressive income tax with the benefits that would come from a consumption based tax.
The tax also allows us to handle tricky tax situations like capital gains in an equitable manner.
I am a computer programmer who loves mathematics and system engineering.
My approach to taxation is to create a system in which all financial objects are taxed once at a progressive tax rate, but nothing is taxed twice.
I hate politics with a passion.
If a politically inclined group were to meet and discuss this design technique, that group would be positioned to have a big impact on tax policy.
I believe that, if we applied the solid design methodology of advanced system engineering to the tax code, we could create a tax system that is more equitable and that raises more taxes at a lower rate than the current broken system
If there is anyone on this planet who is willing to engage in a substantive discussion of tax reform, I would be more than happy to set up a meeting.
I live in Utah. I am a bit cash strapped at the moment, but this state is full of beautiful places and is ideal for holding meetings. If someone were to travel to Utah, I could guarantee they would see some unique and beautiful things.
BTW, I am not LDS. I am not Republican. I am an Independent with classical liberal leanings.
Most tax proposals start with a political objective. The group seeking Tax Reform wants to reduce taxes on their friends and increase taxes on enemies.
The Object Tax is different. The tax proposal is based on a powerful design technique called Object Oriented Design. This proven design technique is used in everything from the iPhone to complex manufacturing processes.
Because the tax is driven by a design technique and not a political objective, the tax will allow Congress to structure a new tax code that fits the political objectives of the nation with minimal economic disruption.
The tax itself is quite simple. The tax starts with a declaration that every financial object has a tax attribute. The attribute has the value of PRETAX or TAXED. When people pay the tax, the object switches from PRETAX to TAXED.
In most cases the object is a bank account.
Most people would experience the following. They would have their entire paycheck deposited into a PRETAX account. They would pay a tax to withdraw money from the account.
This structure would eliminate the need for payroll tax withholdings and it would eliminate the annual tax filing process.
The tax rate can be progressive based upon a person's income and net worth. (NOTE, Warren Buffet would pay taxes at the highest rate even if his declared income for the year is low).
So, let's imagine that your paycheck was $1000 and your tax rate was 20%. The entire thousand dollars would be deposited in your bank account. When you withdraw the money, you would pay a $200 tax and get $800 for spending.
Unlike the FAIR Tax and FLAT Tax. The Object Tax can be implemented with minimal disruption. The first job of the reform is to replicate the entire tax code in the new tax framework. One can replicate the standard deduction by allowing people to withdraw a given amount of money without paying a tax. One can replicate the charitable deduction by allowing people to transfer money to a charity without paying a tax.
Having reproduced the current tax code, the second step is to modify and extend the program to achieve a more balanced tax code.
For example, I would like to replace the regressive Capital Gains Tax with a more progressive tax.
The Capital Gains Tax is problematic because it distorts financial decisions.
Business decisions should be based on changes in the business landscape and not on taxes. When people make investing decisions based on tax implications and not on the financial landscape, they make bad decisions.
Having a low Capital Gains Tax is regressive. It allows investors to earn money at a lower tax rate than workers.
The Object Tax would allow us to eliminate the Capital Gains Tax in a progressive manner.
Remember the tax is account based. Investors will have their stock held in PRETAX account. An investor could sell a stock and buy another without worrying about the tax implications.
Investors will pay a tax at a progressive tax rate when they transfer money out of the PRETAX account for consumption.
Currently, the progressive tax rate is based on annual income. I would modify the rate so that it takes into consideration a person's total equity. An investor with a million dollars in stock would pay at the top rate even if the investor's reported income for the year was low.
The Object Tax solves the problems of inheritance tax.
The Inheritance Tax has two big problems. The first problem is with double taxation. Let's say your parents pay taxes on their income. The family pays a second tax when the children inherit the parent's savings.
A second big problem is that the inheritance tax forces the family to break up equities owned by the parents to pay the tax. If the parents owned a farm, the children would be forced to sell a large chunk of the farm to pay the inheritance tax.
The Object Tax solves this problem. All financial objects have a tax attribute. Objects that are PRETAX could be inherited as PRETAX. Financial objects that are TAXED could be inherited as TAXED.
So, lets say the parents had a farm that was PRETAX and a valued painting that was TAXED. The children would inherit the farm as PRETAX and the painting as TAXED. The children would have to pay the regular progressive tax rate if they sold the farm. The children would only pay taxes on selling the painting if it increased in value.
IN CONCLUSION: The Object Tax is based on the design principles used in system engineering. The design process would allow us to create a new streamlined tax system with minimal disruption.
The robust design techniques of the object tax allows us to encapsulate and extend the current tax code.
The robust design technique allows us to create a new tax system that combines the best of a progressive income tax with the benefits that would come from a consumption based tax.
The tax also allows us to handle tricky tax situations like capital gains in an equitable manner.
I am a computer programmer who loves mathematics and system engineering.
My approach to taxation is to create a system in which all financial objects are taxed once at a progressive tax rate, but nothing is taxed twice.
I hate politics with a passion.
If a politically inclined group were to meet and discuss this design technique, that group would be positioned to have a big impact on tax policy.
I believe that, if we applied the solid design methodology of advanced system engineering to the tax code, we could create a tax system that is more equitable and that raises more taxes at a lower rate than the current broken system
If there is anyone on this planet who is willing to engage in a substantive discussion of tax reform, I would be more than happy to set up a meeting.
I live in Utah. I am a bit cash strapped at the moment, but this state is full of beautiful places and is ideal for holding meetings. If someone were to travel to Utah, I could guarantee they would see some unique and beautiful things.
BTW, I am not LDS. I am not Republican. I am an Independent with classical liberal leanings.
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