Open Meeting

America does not have a tax problem. We have a bloated government problem.

A series of scandals has pushed tax collection into the limelight.
 

Anger over tax collection draws people into the freedom movement. Tax reform is likely to be a major issue in 2014 and possibly 2016.

Unfortunately, a loud group is using the anger about the IRS to push a disruptive change called The Fair Tax.

The Fair Tax replaces the current income tax with a 23% sales tax on new goods and services. The program includes a massive new government entitlement called a "prebate." The vocal supporters use a number of questionable claims like the Fair Tax is somehow supposed to end the tax collector. What it does is replace the IRS with a different agency.

The Fair Tax uses the same basic structure as ObamaCare. It is a Federal Program mandated through the states. The states would be charged with collecting Federal Tax.

Even it the bill was not disruptive, I would consider it a bad law.

The problem is that the Fair Tax is currently poised to force their issue as the primary Tea Party Issue.

Passing the Fair Tax would require every ounce of political capital of the Tea Party and GOP. If it passes, then the Fair Tax becomes the definitive piece of legislation of the Tea Party. If it does not, the push for the Fair Tax is likely to split and destroy the freedom movement for a generation.

Wishing to avoid the Fair Tax, I challenged to debate the FairTax. To make the debate interesting, I took a thought experiment I performed a few decades ago as a counter proposal.

My counter proposal is "The Object Tax." The idea is that we could use Object Design Methods to transition from an "income tax" to a consumption tax. Object Design is used to create interfaces. It is used the Internet, Smartphones, etc..

The design starts by creating an abstract model of the current program. We then investigate news ways to implement the old design. Essentially, we would start with the existing tax structure and find different ways to implement it.

Quite frankly, it is an interesting way to explore a topic.

I doubt that supporters of the Fair Tax would take up the debate challenge. However, a Tea Party group wanting to discuss tax reform might be interested in a presentation that explores tax reform. I would be happy to give a presentation on the Object Tax followed by criticism of the Fair Tax to any group interested in a fun conversation.

The ideal meeting would combine both a presentation on free market health care and tax as the two issues are linked. If you would like to attend a meeting, please contact me.

A Challenge to Fair Tax Supporters

I've been reading web sites promoting the Fair Tax.

Most the sites do little except repeat empty talking points. Most of the talking points are absurd.

The Fair Tax will not eliminate the need for a tax collector and audits. There will still be a Treasury Department that collects the taxes and audits businesses.

The Fair Tax is not a true consumption tax. It is a tax on businesses. The flow of the money determines the nature of the tax. Money in the FairTax flows from business to the government. Money in a consumption tax flows from consumers to the government.

The Fair Tax places a massive 23% tax on the sale of new consumer goods and services. This sounds intriguing. The idea falls about when one attempts to apply it to the extremely complex supply chains in the current work world.

The FairTax attempts to place a uniform sales tax on all goods and services. If you look at state and local sales taxes, you will find that they are highly differentiated. A hotel pays a different tax rate than a department store. Many places tax food at a lower rate than clothes. Gas and utilities have a truly strange mix of taxes embedded in the price. In some places, Papa Murphy's Pizza iis taxed at a different rate than Domino's.

It is common for charities and government agencies to go untaxed.

When we have a sales tax in place, business associations will hit Capitol Hill with a vengeance demanding special treatment for their tax concerns. The FairTax will quickly devolve into a lobbyist's dream and a citizen's nightmare.

State Sales Tax is already highly differentiated. The idea that a National Sales Tax will remain pure is absurd.

The Fair Tax does not decrease political targeting. It actually makes it more problematic.

With the FairTax, all businesses will need to apply for tax IDs. All businesses will be subject to audit.

The Tax Scandals of 2013 involved the IRS delaying the processing of tax status applications for Tea Party groups. The Fair Tax gives the IRS (or whatever the new entity is called) the mandate to process tax applications and audits on a business by business basis.

You can be certain that the IRS will take the nature of the business into account when processing the tax filings and audits.

The Fair Tax does not decrease class warfare. It actually makes it worse.

The FairTax is a massive tax placed on business owners. The Fair Tax takes money from business owners and gives it to voters (who no longer directly pay taxes) in the form of a prebate.

A socioeconomic system in which the business owners pay all the taxes and the people receive the benefits will have even worse class related clashes than we have today.

A truly fair tax would have everyone processed through the same tax structure.

We can move toward such a reform without the disruption of the FairTax.

I engaged in a fun experiment in which I applied the general principles of computer system design to tax reform. I called the reform The Object Tax after Object Oriented Programming. OOPs is a programming method used in modern operating systems. It's used in the design of web browsers, smart phones, and the Internet itself.

I jammed out a short blog post called: "The Object Tax in a Nutshell."

I put forward to the Fair Tax crowd an open challenge to debate the FairTax. In the debate we will compare it to incremental reform made in The Object Tax.

The Western Conservative Summit will be in Denver on July 26th. I can't afford a ticket to WCS and I wouldn't expect them to host the debate anyway. The debate could take place on the July 24th or July 25th.

The gauntlet is down. Are any of the supporters of the Fair Tax brave enough to put their precious FairTax?

PS: I've never engaged in public debates, nor have I ever engaged in public speaking. Even though I have never spoken in front of an audience, I could destroy the fair tax in a debate because the Fair Tax is a phenomenally bad and disruptive idea.

You can take up my challenge on my contact form.

Design Matters

Design matters.

In Silicon Valley, engineers have learned that the way to create quality design is to start by creating a quality design process.

Tax Reform could be a winning issue for the Tea Party Movement. Unfortunately, the tax reform proposals on the plate are poorly designed and excessively contentious. Notably the Fair Tax seeks to create radical change through economic disruption.

Creating a quality design starts with a quality design process. If a Tea Party group were to discuss tax reform from a design perspective, they would draw people into the movement.

I believe that the best approach to tax reform is to start with a proven design methodology.

I named "The Object Tax" after a design methodology used in Object Oriented Programming. Object Oriented Design is a proven design technique. Elements of Object Design exist in all software projects. The ideas were used in the development of your web browser, smart phones, etc..

The Object Tax starts with the question: "Can we use the design techniques from Silicon Valley to improve our tax system?"

Please note. The Object Tax does not seek radical change. The goal is simply to create a better interface for the collection of taxes.

The best way to develop a quality interface is to separate the logic of taxation from the interface.

In the design process we create an object model of the existing income tax system. This is a critical design element of the tax. The Object Tax can be implemented as the current income tax. This eliminates disruptive change.

With the object model in hand, we can invite third party financial firms to step in and create new interfaces for the tax system. In the essay "The Object Tax in a Nutshell," I present my vision of how we could apply better design to the tax code.

One way to implement the code is through a system of "Tax Aware Accounts." A Tax Aware Account works as follows. Employees would have their entire paycheck deposited into a Tax Aware Account. People will pay taxes (at a progressive rate) when they withdraw money from their tax aware account.

The Tax Aware Account eliminates payroll withholdings. It eliminates W2 Forms and 1099 Forms. If done correctly, the program can even eliminate the need to file tax returns.

Please note, the system can be implemented as the current Income Tax or as Tax Aware Accounts. Only people who want to use the new interface will use the new interface.

The Object Tax allows third parties to develop new interfaces for the tax system. I imagine that people will come up with exciting new ideas.

The Object Tax taxes an abstract object between income and consumption. This allows us to create a program that combines the best of a progressive income tax with a consumption tax.

The Object Tax is a true consumption tax. The important aspect of a consumption tax is that the money flows from the consumer. (The Fair Tax is actually a tax on business). With the Tax Aware Account, people pay their taxes when they withdraw money from savings for consumption. This encourages savings.

By using proven design techniques from Silicon Valley, the Tea Party could create a better design for our tax code. Creating a better design for the tax code would help legitimize the ideals of the Tea Party.

The first step of bringing this idea to life is simply for a group of people to meet and discuss tax reform.

Cyber Begging Link

A ticket to the WCS is $295. If I raised money and went to the summit, the money I raised would go to the summit and not me.

My goal for attending the summit is to raise issues that I think would advance the freedom movement at an event.

If a person or group wanted to engage in a discussion about health care or tax reform, I would be happy to set up a completely independent meeting. I would not be able to pay the whole cost of the meeting. You can contact me through my Contact Form.

I'd love to go to the Western Conservative Summit in Denver. But, I lack the resources to do so.

I have two ideas that I think would be of interest to the freedom movement.

The first is called "The Medical Savings and Loan." This program provides an argument for a return to fee-for-service medicine.

The second proposal is called "The Object Tax." This argument applies Object Design to tax reform.

Object Design is the method used to create interfaces for things like smart phones and the internet.  The system that allows you to read this post was highly influenced by this design method.

The Object Tax starts by making an abstract model of the current income tax.  The abstract model says that we will tax financial objects between income and consumption at a progressive rate.

Taxing an abstract object between income and consumption allows us to combine the best of a consumption tax with a progressive income tax.

The program builds a tax model that can be implemented as the current income tax. We then invite private financial institutions to design and create products that implement the tax.

The program harnesses the creative genius of the free market to create new implementations of the tax code.

Anyway. Both of these topics result in fun conversations about free market reform.

For the last five years, I've been on a quest to find people with enough interest in preserving the American Experiment in Self Rule to engage in a discussion about market centric centered reform. I exhausted my personal resources tracking down leads.

But, I would dearly love to keep trying.  I notice that sites advocating The Fair Tax are covered with "Donate Buttons." I decided to create a donate button, which I put on a "Cyber Begging Page." If anyone donates to the cause, I would use the funds to attend the Western Conservative Conference or other event. If I can find no events interested in reform, I would host my own. Dagnabbit.

An Interface to Government

The Object Tax might best be understood as simply a new interface for the income tax.

Object Oriented Progrramming is often used in interface design and computer games. In many games, the graphic user interface is more important than the logical structure of the game.

The reform does not seek to impose a radical economic or governmental change. The goal of the reform is to create a more intuitive system for the existing tax code.

The current withholding system was designed by Milton Friedman. In this system, employers withhold taxes from an employee. They send employees a W2 firm. People are then required to file an annual tax return.

This is an awkward interface.

The Object Tax makes an abstract model of this interface and invites developers to develop a new implementation of the tax code.

I used the term "implementation" in "The Object Tax in a Nutshell," to emphasize that the reform changes the flow of money from the taxpayer to the government.

In the income tax, money flows from the employer to the government.  In the Object Tax, money flows from a Tax Aware Account owned by the taxpayer to the government.  Changing the flow of money transforms the tax from an income tax to a consumption tax.

Changing the flow of money is a substantive change.

However, most people will simply experience the Object Tax as an interface change.

People interface with the income tax through pay-stubs, W2 forms, an annual return and random tax audits. With the Object Tax, people will have a streamlined interface developed by their bank.

Anyway, I've been wracking my brains trying to explain why the interface matters.

This morning, I was reading through FairTax.org. To my utter astonishment I read the following sentence attributed to Leo E. Linbeck, Jr. (cofounder of the FairTax). This sentence was on the page www.fairtax.org/site/PageServer?pagename=about. I read it on June 23, 2013.

"The tax system is the most fundamental interface of the citizen with his government. And in America, uniquely, the citizen is sovereign."

I was astounded to see this wording by a cofounder of the Fair Tax because the Fair Tax effectively destroys the use of taxes as an interface between the people and the government.

The Fair Tax replaces the income tax (a direct tax on income) with a 23% sales tax imposed on retailers and service providers. The Fair Tax is a direct tax on sales. People pay the tax indirectly.

Advocates of the Fair Tax advertise that the tax would destroy all aspects of the direct interface between the governed and the government.

The primary claim of the Fair Tax crowd is that it will eliminate the side of the IRS that interfaces with taxpayers on an individual basis.

The Fair Tax is doing the exact opposite of what Leo E. Linbeck, Jr claims the tax will do. Replacing direct taxation with indirect taxation destroys the interface between the people and government.

If one believes that sovereignty flows from the people to the government, then taxes should flow from the people to the government. By chainging from a direct tax to an indirect tax, the Fair Tax destroys a direct interface between the people and the government. It also destroys individual sovereignty.

People who hold that sovereignty flows from the people to the government (as I do) should look for a mechanism like the Object Tax which uses computer design techniques to create a robust interface between the people and their government. People should shun the Fair Tax which replaces a direct interface between the people and the government and replaces it with an indirect one.

A Container of Objects

The Object Tax is an approach to tax reform. The program starts by creating an abstract tax model that can be implemented as an income tax. We then invite third parties to create new implementations of the tax. This process allows us to engage in tax reform with minimal disruption.

The abstract model involves abstract thinking about taxes.

The model starts with the assertion that all financial objects be taxed at a progressive rate at sometime between income and a tax year of consumption.

The model is very abstract. The financial object could be anything. It could be a cow, it could be a dollar bill, it could be a gold coin. It could be stock in a company, an adorable loveseat, a painting or anything.

All financial objects will have a tax attribute. The financial attribute indicates if the item was taxed and how much the tax was.

Accounting object by object gets tedious. We want a way to group objects.

We group objects by creating a thing called an "account." An account is a collection of objects.

NOTE: An account is an object. So one can include accounts in accounts or daisy chain accounts together.


A Tax Aware Account is a collection of objects that records summary information about the tax status of objects in the group.

The Tax Aware Account could be hosted by a bank or financial firm. It could be maintained in a standard five column ledger. Accounts could be written on papyrus scrolls of even chiseled as cuneiform into the sides of obelisks.

The Object Tax says that people are liable for a tax when they withdraw money from a Tax Aware Account for consumption. The way one collects the tax would depend on the nature of the account.

If the account is hosted by a bank, the tax would be an automated transfer to the government.

If the account is maintained by an accountant, it might be a quarterly tax payment.

There is room for third parties to innovate.


The object tax creates an abstract model of the current income tax. (The tax can be implemented as an income tax, which minimizes disruption).

The project invites third parties to develop innovative new implementations of the tax. These third party products would go through rigorous testing to assure they collect the same about of tax as the standard income tax.

Software firms will develop implementations of the tax for different markets. Accounting firms would develop a product in which the Tax Aware Accounts are recorded on standard ledgers.

A bank might create an implementation in which the tax aware account is a bank account. Trading firms such as E*Trade might incorporate tax aware accounts into their trading platform.

Groups that that advocate bartering will create software products to track one's bartering efforts. Barterers tend to have items they are holding for trade and items they wish to consume. A barterer might trade an old license plate for a string of beads, then trade the string of beads for a chicken. They would pay a tax on the estimated value of the eggs they consume from the chicken. The barterer pays tax on the eggs consumed but not on the trading chain that resulted in the eggs.

People with complex finances are likely to have more than one account. Developers will create products that daisy chain Tax Aware Accounts together.

The object tax creates an abstract tax code that can be implemented in numerous ways. This design should result in a new generation of innovative financial tools aimed at improving individual finance.
 
The products would go through rigorous testing for certification. The public would then be free to choose which products they use. People would use the products they find the most useful.

I suspect most workers would choose a Tax Aware Account hosted by a bank. People with complex finances would use accounts with software that daisy chains accounts together. Those who wanted to live off the grid, would have products that let them pay their taxes and use nothing but cash (or silver coins).

Separating the tax code from the implementation will result in a myriad of new software tools that let people pursue the lifestyle they dream of pursuing.

The Object Tax in a Nutshell

The Object Tax is named after a software design technique used in complex system design. It is used in products such as the smartphone. The smartphone is in incredibly complex device with an easy to use interface.

The Object Tax has the goal of transitioning from an income tax to a consumption tax with minimal disruption. The design is likely to create an intuitive interface for the tax system.

Object Design starts by making an abstract tax code that can implemented as an income tax or as a product offered by a third party.

The first step is to separate the tax from the implementation. The designers would create a model of the tax code stripped of the detail used in tax collection.

The abstract model might start by saying: "Financial objects will be taxed at a progressive tax rate at some point between income and consumption."

The abstract model can include things like standard deduction, exemptions, itemized deductions and other prominent features of the current tax code.

The abstract model can be implemented as an income tax or developed into a product delivered by a third party financial firm. The model will include rigorous test scenarios to assure that different implementations of the model come up with the same result.

With the abstract model defined, we would invite private financial institutions to step in and design products that implement the code.

The third party products would be put through rigorous testing and certification to assure the taxes collected are comparable to the income tax.

Financial institutions would line up to develop products because they are all competing for customers. The financial institutions that implement the code will compete on creating secure intuitive interfaces for collecting the tax.

The process is similar to the development of the smartphone. Providers compete to develop robust but intuitive designs for their products and services.

The Object Tax separates the tax from the implementation of the tax. The design creates one tax code with many possible implementations. Each person will choose their method of implementation.

The tax is designed so that it can be implemented as an income tax. We invite financial institutions to create other implementations of the tax. Taxpayers will not switch to the new taxing method until financial institutions come up with innovative designs that compel people to switch. The design is not disruptive.

The Object Tax creates an abstract tax code with many possible implementations. Accountants will develop implementations in which the tax is collected as part of the standard bookkeeping process. Others will create implementations of the code for people who want to live off grid and do their finances in cash.

There can be implementations for people who want to do all their financial transactions in silver coins and for people who engage in bartering.

The Tax Aware Account is simply one possible implementation. (BTW: The tax aware account design does not assume the account is held by a bank. The money in the tax aware account could be paper securities. It could be in gold coins held in a safe at the bottom of a pit under a doomsday bunker guarded by hungry pitbulls.

The Object Tax is one tax code with many possible implementations. Third parties create implementations. Third parties will create innovative products to process the tax.

One possible implementation of The Object Tax is a Tax Aware Account. A Tax Aware Account works as follows: An employer will deposit a workers' entire paycheck into the Tax Aware Account. (This eliminates the tax withholding and need to file a W2 Form). When the employee withdraws money, the Tax Aware Account will execute the tax code.


So, lets say you put $1000 into your tax aware account and that your progressive tax rate is  20%. When you withdraw the money; The Tax Aware Account will give you $800.and pay $200 in taxes.

The Tax Aware Account can implement a complex tax code with exemptions, deductions, tax credits and whatever Congress throws at it.

Since the account is processing the tax code in real time, it should be possible to eliminate the need to file an annual tax return.

A Tax Aware Account is a true consumption tax. Employees get their entire paycheck. The account is invested in securities of the workers' choice. The tax is collected directly from the worker at the moment the worker transfers money from the account for spending.

Collecting taxes at the moment the taxpayer prepares to spend money helps protect the taxpayer's privacy. The government does not see how the money is spent.

In contrast, a sales tax is not a true consumption tax. A sales tax is collected by a business. The money collected flows directly from the business to the government.

The goal of a consumption tax is to encourage savings. The goal of the consumption tax is best achieved when the money flows directly from a taxpayers savings at the moment the taxpayer chooses to spend.

The money collected in a sales tax flows from the retailer to the government. Because the flow of money is indirect, the sales tax does not create a direct incentive to save.

To understand an economic system, follow the money.

The effect of a tax is determined by the flow of the money and not the point of collection. The money in a sales tax flows from the business to the government. Such taxes suppress business. They have only an indirect effect on savings. The effect is often opposite of what we desire (more savings).

In a true consumption tax, the money should flow from the consumer to the government. The Tax Aware Account created by the Object Tax is a true consumption tax. Money flows from the consumer's savings. This directly encourages savings.

We can use the creation of the Object Tax to handle other complex challenges such as the Capital Gains and Inheritance Tax.

I would eliminate capital gains as follows. I would say that investors can buy and sell stock from a Tax Aware Account without any tax considerations. Investors would be taxed at a progressive rate when they transfer money from their Tax Aware Account for spending.

Money earned by investment would be taxed at the same rate as money earned by working.

I would like to tweak the progressive tax rate a bit. Currently the progressive tax rate is based on yearly income. I would like the progressive rate to be aware of the total size of an investment. Warren Buffet should pay taxes at the highest progressive rate even if his declared income is small.

The Object Tax handles inheritances as follows. It says that the heirs will inherit the tax status of  the assets. If the parents have a Tax Aware Account, the heirs will inherit that account in full. They would pay taxes at a progressive rate when they withdraw the money for spending.

If the family farm was held by a Tax Aware Account, the heirs could inherit and continue to work the farm without disruption. The heirs would be forced to pay taxes at a progressive rate if they chose to sell the farm.

I named the Object Tax after design techniques used in Silicon Valley to create complex software projects. The goal of the design is to create a new generation of software products that collect taxes at an individual level.

This approach creates a mechanism to switch from an income based tax to a consumption tax with minimal disruption. This approach will also end up creating a new generation of software products that help individuals master their finances.

Immigration is an Foreign Policy Issue

Immigration is an foreign policy issue.

We do great damage to our nation by treating immigration as a domestic policy, or by trying to derive immigration laws from first principles.

Comprehensive immigration reform is destined to fail because it attempts to treat a foreign policy problem as a domestic issue.

The immigration restrictions that we have at this point in time are a result of international conditions. A huge imbalance in migration almost always indicate some sort of international issue.

Most often the imbalance is a result of oppressive economic policies abroad.

Whenever we see a large imbalance in migration, we simply must address the cause of the imbalance.

Realizing that immigration is an international issue, our immigration debate should start by looking out international conditions. Where there are imbalances we must address the cause of the imbalance.

For example, if there is a large influx of immigrants from country X and we find that the imbalance is due to

America was built on a tradition of immigration. Throughout our nation's history we have had immigration laws that are liberal in contrast with other nations.

I am a fan of international travel. I would like to see the United States use its immigration laws to encourage a global liberalization of immigration and visa laws.

Unfortunately, our ability to use our immigration laws to influence the world is sharply limited by the culture war debate that presents immigration as a domestic issue.

I am for liberal immigration laws. I want the United States to be a leader in pushing liberal immigration laws around the world. Unfortunately, our unwillingness to enforce immigration laws destroys our ability to have liberal immigration laws.

The proper enforcement tool for immigration laws is deportation.

Deportation is not an excessive punishment. When one crosses the border one is entering a contract. The enforcement penalty for violating terms of the contract is deportation.

This fact is similar to repossession in the auto industry. A person might take out a loan at a car dealer and buy a car. The loan is a contract. If the buyer fails to comply by conditions in the contract, the dealership is in its rights to repossess the vehicle.

Taking a person's car is an harsh punishment ... in the context of a car loan it is a just punishment.

The effort to pass comprehensive immigration reform is fundamentally flawed. The debate starts with the false assumption that immigration is a domestic issue. The defining character of international immigration is that such migration crosses national borders. As such immigration is fundamentally a foreign policy issue.

I support liberal immigration laws. I wish that the United States would take an active role in supporting liberal immigration laws throughout the world.

Unfortunately, our unwillingness to enforce immigration laws means that we are unable to pass liberal immigration laws.

The world is being made worse by this poorly conceived comprehensive immigration reform.

The Income Tax is a Sales Tax on Labor

Proponents of the Fair Tax want to replace the income tax with a national sales tax on goods and services.

The proponents of the Fair Tax seem to have forgotten that the income tax is a sales tax.

When you are employed by a company, you are selling a service to the company. The income tax is a tax on the service that you are selling.


Income tax is a tax placed upon the service that people sell to their employer.

The Fair Tax is unlikely to achieve the positive effects its supporters imagine because the Fair Tax simply replaces one sales tax with another sales tax.

People who realize that employees are selling a service to the employer and that all jobs are a service performed by individuals to employers are apt to reject the Fair Tax.

The absurdity of the Fair Tax becomes clear if you look at it from the perspective of an individual contractor. Imagine for a moment that you were an handy man or plumber. The Fair Tax will create the following economics. If you sell your service to an individual, you will be required to pay a 23% tax. If you provide the same service to a corporation, you will not.

The people who created the sales tax realized that everyone engaged in the economy is selling a service. The selling of a service at an individual level is the most equitable place to place a tax.

One historical oddity is that the income tax system was designed by a radical free market thinker named Milton Friedman. Milton Friedman is the author of Free To Choose and founder of the Chicago School of Economics.

Milton Friedman realized that an individual sales tax on the sale of labor would be extremely difficult to collect; so he devised the withholding system.

The withholding system requires that employers take money from workers' paychecks. Each year, workers fill out a tax return. The annual tax return is the actual point that finalizes the payment of taxes.

Since the money flows from the business to the government, most people see the income tax as a tax on their employer. But the employer is simply withholding money on behalf of the employees. The income tax is a tax on the services sold by workers.

The income tax and the Fair Tax are both sales taxes. The Fair Tax simply changes the trigger for the tax.

The Fair Tax shifts the tax from the point where individuals sell services to employers to the point businesses sell products and services to individuals.

This change will relieve voters of the responsibility of paying their tax. It will put the entire burden of taxation onto the backs of business. Business associations will respond to the Fair Tax by demanding different tax rates for their members. The Fair Tax will quickly devolve into an unfair tax with businesses receiving different tax rates (based partially on the aggressiveness of business association lobbyists). A case in point is that state sales tax has different rates for different types of business.

The Fair Tax does not get rid of the IRS as its proponents claim. The accounting for a national sales tax will be as tricky if not more tricky than the income tax. The Fair Tax only charges a tax on business to consumer spending. But businesses will need to keep a full itemization (with tax id) of every business they do business with. The IRS will cross check the tax returns of each business against all other businesses giving the government a full matrix of all business to business spending in the nation.

This matrix will be misused.

Switching the point of taxation from income to the point of sale does not really accomplish anything. It will create a period of extreme disruption and opens American business for abuse.

A better approach to tax reform is to create a replacement for the tax withholding system.

My tax reform proposal creates an alternative to payroll withholding called a Tax Aware Account.

An employer would deposit employees entire paycheck into the Tax Aware Accounts. People would pay their taxes when they withdraw funds from the account. This reform will eliminate payroll withholdings and the need to file an annual tax return.

I would replace the capital gains tax by allowing traders to buy and sell stock through a Tax Aware Account. Investors would pay a full progressive tax when the withdraw money from their Tax Aware Account for consumption. The program would do away with inheritance tax by allowing people to inherit the tax status of the assets. The children would inherit a tax aware account from their parents. They would pay money when they withdraw the funds.

In conclusion. The income tax is a sales tax. It is a tax collected on the sale of labor. The Fair Tax simply shifts the point at which the sales tax is collected. Doing so will create disruption and complications.

A better reform is to simplify the payroll withholding system.

Western Conservative Summit

There is something called "The Western Conservative Summit" going down in Denver from July 26-28.

The event is out of my price range. However, if anyone is going to the event and wants to attend a presentation on free market health care reform (or on tax reform) either before of after the event. I would be happy to sneak across the mountains to my hometown. (I am a third generation Coloradan.)


I would love to have an opportunity to talk with people about free market reforms and ways that the freedom movement could restore the promise of America.

It is funny. I live in "The Most Conservative State." I have yet to meet a single person in this state who is interested in restoring the American Experiment in Self Rule.

I find it strange. In places where conservatives are a minority, conservatives support freedom. When conservatives have a majority they expand government. When conservatives have a super majority, they begin suppressing discourse.

Modern Conservatism and Modern Liberalism appear to simply mirror each other.

I agree with the things Conservatives say when they are in minority, and want to find ways to put the ideals of limited government back into action.

I have two presentations that might be of use to the freedom movement.

The first is called "The Medical Savings and Loan." This is a math heavy presentation that argues that the third party payment system is the problem in health care. I demonstrate that restoring the concept of self-funded health care would restore the pricing mechanism and provide people with better care at a lower price.

The presentation argue that we should create a self-funded alternative to insurance. Creating such an alternative would provide a path to repealing ObamaCare.

The second presentation is called "The Object Tax." the Object Tax is a framework for discussing tax reform. The Object Tax uses ideas from Software Design to create a tax code that would allow use to shift from an income tax to a consumption tax. It starts by creating an abstract tax that can be implemented as the current income tax or through a system of Tax Aware Accounts.

This mechanism allows us to transition tax to a consumption tax with minimal disruption.

The program creates a new thing called a Tax Aware Account. You would have your entire paycheck deposited into the account. You would pay a progressive tax when you withdraw the money for consumption.

People would have a choice of sticking with the income tax, or moving to a Tax Aware Account hosted by their local bank.

Small employers would love the new system because it allows them to streamline their HR process. They would no longer be required to withhold taxes and would no longer have to file W2 forms.

Anyway, the Western Conservative Conference sounds really fun. I can't afford a ticket myself. But I would enjoy a trip to my hometown and would enjoy the opportunity of speaking with people either before or after the convention.

It is humorous. Colorado is a swing state. To attract votes, Colorado Conservatives are eager to talk about free market reform. Utah has a super majority of Conservatives. It is the most oppressive state in the nation. Conservatives in Utah actively suppress open discourse.

I love the ideas at the founding of this nation. I think it be wonderful to cross the mountains to see my home town and find people who appreciate American ideals as well.

Auditing and the IRS

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.

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.

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. 

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.

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.

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.

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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.

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 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.

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.