I would like opinions about the following program that I called the Object Tax?
I developed this idea a few decades ago when I was studying Object Oriented Programming. The idea started with a simple thought experiment that asked: Could we use Object Design to transition the income tax to a consumption tax.
The model creates a tax code that can be implement through the current system of payroll withholdings or through a system of Tax Aware Accounts. The accounts would be implemented by accountants or financial insitutions.
The goal of the program is to create a new interface for collecting taxes.
I will use the term "Tax Profile" for the data accumulated by the IRS on each taxpayer.
Taxpayers would have the option of continuing with payroll withholdings or moving to a Tax Aware Account. This minimizes disruption.
A Tax Aware Account works as follows. You have money deposited into an account. You pay taxes to withdraw money from the account. When you withdraw money from a tax aware account, the account will query your profile for your progressive tax rate. You then pay taxes according to that rate.
With this structure, you pay taxes when you decide to transfer money from a Tax Aware Savings Account for spending. It effectively combines the best of the progressive income tax with the best of a consumption tax.
The Tax Aware Accounts would be developed by private Application Service Providers. The ASPs will most likely be financial institutions. The groups that develop the programs will be able to improve the efficiency of collecting taxes.
The program does not seek to impose radical change in society. The primary goal is to create a clean interface for the existing tax system. The program opens a conversation about taxes and will make room for some reforms. For example, the current progressive tax rate is based on yearly income. I would like to to take into account both income and net worth; so that Warren Buffet would pay a higher tax rate than his secretary.
I would like to replace the capital gains tax as follows: People could hold stock in a Tax Aware Account. They could buy and sell securities in that account without being taxed. They would pay a tax at a progressive rate when they withdraw money for spending. This way people can make investing decisions without the distorting influence of taxes ... but are still taxed at the high progressive tax rate when they choose to consume.
The Object Tax does not seek to create radical change through taxation. The reform simply seeks to create a new interface for the current tax.
The program creates an abstract object model of the current income tax that can continue to be implemented through payroll withholdings. It invites third parties to develop new and better interfaces for paying taxes.
The programs created by these third parties are likely to included budgeting features and simulations that help consumers understand the full impact of their spending choices.
I like the idea of collecting taxes in a budgeting tool when people transfer money from savings to spending. Such programs would help create a financially astute society that is likely to prosper.
I should mention, I came up with this idea way back when people switched from C to C++.
The reason I am pushing the "Object Tax" at the moment is because I am scared that people might fall for the FairTax.
The FairTax is based on an academic argument that it is better to tax consumption than production.
The academic argument holds that if we tax consumption, people would put off spending and save more. A naive interpretation of this principle says it is better to tax at the point of sale than on income.
I contend that the difference between a consumption tax and production tax is determined by the flow of money and not the point of taxation.
The FairTax replaces a tax that currently flows through consumers and places it on business. Because the Fair Tax changes the flow of the money it will behave as a business tax.
The Fair Tax is a direct tax placed on sales. It is likely to impede sales which simply stops economic activity.
The argument for consumption is not that it stops sales, but that a consumption tax increases savings (which increases sales in the long run).
The Object Tax kicks in when a person transfers from savings to spending. This money from the tax flows from the consumer to the government. Because the tax flows from accounts held by the consumer, consumers will automatically receive a full accounting of the taxes they pay.
The Object Tax is a direct tax on removing money from savings. Any effect it has on retailers is indirect.
The Fair Tax is a direct tax on retailers. Any effect the tax has on savings is indirect.
The flow of money and not the point of taxation determines the nature of a tax. The Fair Tax is a monstrous new business tax. The tax replaces the IRS with two new government agencies called The Excise Tax Bureau and The Sales Tax Bureau. Because the Fair Tax is a direct tax on business, the new agencies will be able to directly target businesses and groups they do not like.
The Object Tax creates a new interface hosted by third party providers. These providers want to protect their customers and will help act as a shield to tax collector excess.
Now, America does not have a tax problem. It has a bloated government problem.
Creating a new tax regime will not solve the problem of government bloat. But tax reform is in the air.
The Object Tax does not seek radical change through tax reform. It simply looks to creating a new interface for collecting taxes that gives people greater control of their finances.
Creating a new generation of financial software that gives people greater control over their finances could lead to improvement. Although the Object Tax has a funny sounding name drawn from the computer industry, I believe that is is a better and less disruptive approach to tax reform.