Saturday, August 08, 2009

The Object Oriented Tax

It is possible that tax reform will be the next item on the change agenda. As I understand, there is a desire to move the nation from a income tax to a consumption based tax. The problem with consumption based taxes is that the consumption taxes eliminate the system of progressive tax rates.

I was just reading threads on a tax reform proposal called The FairTax which creates a national sales tax.

In preparation for the fray, I created a new section of to discuss my proposal for tax reform.

I call my proposal the Object Oriented Tax.

Needless to say, the tax takes a fresh look at the challenge of taxation and comes up with an extremely clever system that focuses on the needs of the individual.

The OOT creates an abstract object that sits between a person's income and their consumption.

People will have two types of accounts. They will have a pre-tax and post-tax account. Imagine that your savings account is a pre-tax and your checking account is post-tax account. People will have their paycheck deposited into their savings account. They will be taxed when they transfer money from savings into checking.

It is an individual-centric sales tax.

I have a large number of pots on the burner at the moment. I opened a Disqus thread and will will develop the different ideas in a circular fashion.


Scott Hinrichs said...

The FAIR taxers believe that the invisibility of the ultimate taxpayer is one of their system's virtues. That is, getting rid of the progressive nature of taxation is a good thing in their mind, since the government essentially has no business knowing as much about you as it does, including how much you earn. Nor do they believe government should have any clue as to what you individually spend.

Since all of the tax would be collected at the point of sale, government would know no more about you than state governments know about your current spending habits by way of sales taxes.

But the FAIR taxers then turn around and ruin this apparently vitally impersonal nature of their method by having government assign values to individual lifestyle choices and circumstances in order to preserve some progressiveness in taxation.

The way it would work is that everyone would have to pay the taxes up front, but would then receive a subsequent refund based on the factors politicians decide to be worthy of subsidy. The government would still need to know a lot about you and would still create market-skewing incentives based on political whim.

I suppose the FAIR tax would sort of work OK if it could be implemented wholesale without politicians ever being able to tweak it. But we don't live in a utopia where that would ever be the case.

IMHO our taxation method will not change until dissatisfaction with it reaches critical mass AND an alternative is presented that appears to be less painful.

y-intercept said...

The people proposing the FAIRTAX want a structure where the government writes everyone a check once a year. This will make people hate business and love government.