Thursday, April 15, 2010

OO Tax Recap

To recap the Object Oriented Tax Post (OO Tax).

This system taxes an object that sits between income and consumption. It effectively combines the best parts of the income tax with a consumption tax.

Your income would go into a pre-tax account. You pay tax when you transfer money from the pre-tax account into a post tax account for spending. Deductible expesnse would not trigger the tax object.

The tax rate could be progressive. The progressive rate could be based on trailing income, calculated net worth, or a combination of the two.

This struture solves the problem of capital gains. An investor could make all of their trades on the pre-tax side of fence; so as not to distort investment decisions with tax consequences. Investors would get the full force of a progressive tax when they go to withdraw money for personal spending.

This means Warren Buffet will pay a higher tax rate than his secretary.

The tax is account based. The taxes would most likely be collected by the bank. This would shift a massive regulatory burden from America's businesses and help them compete.

The tax would actually be easier to administer than the flat tax.

The difficulty with taxes is that people have to touch each expense multiple times. Businesses have to withhold taxes, individuals have to pay estimated taxes. On tax day, we have to undergo the unpleasant activity of summing up all income and expenses for the year and paying the tax.

The OO Tax gets charged when people move money between accounts in preparation for spending. The system has people paying their taxes during a financial planning step. This will help Americans make better budgeting decisions.

As the name implies, the Object Oriented Tax was designed with object design principles in mind. It would be possible to design the tax so that it encapsulates and extends the current tax structure. As such it would be relatively easy to implement a design where the legacy tax structure runs alongside early adopters of the OO Tax design.

I like the idea because it would save me the day I spend compiling all of my tax records and filing taxes.

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