Tuesday, July 02, 2013

The Failure to Make Sales Leads to Inactivity

I have a confession to make.

I am the worst salesman EVER.

For example, I spent the last five years and spent over $10,000 with the goal of finding a half dozen people willing to spend an afternoon discussing health care. I could not find anyone with 700 miles of Salt Lake City willing to attend a meeting. I drove to Reno, Las Vegas, Phoenix and Denver ... just to be put out at every turn.

My inability to sell people on attending a meeting is but one example of my inability to make sales. I've been unable to sell other things. My neighbor recorded an album with a dozen nice tunes. I offered to help him sell the album. In three years of work, I was was able to sell one CD for one penny (free shipping) on eBay. He ran screaming from Utah and is doing okay in San Diego. (The iTunes Button loads recent albums).

Ryan Hiller
I've noticed in my long history of being unable to sell things that all of the economic activity that would happen if I made a sale never happens.

This a fundamental economic principle: When a business fails to make a sale, the economic activity that would follow the sale never exists. This is especially true with innovative new technologies.

When sales don't happen, economic activity ceases.

The FairTax adds a 23% national sales tax onto existing state sales tax. The sales tax will be around 30% in many states.

This sales tax is high enough that it will stop a large number of sales. When selling stops, the economic activity supported by the selling disappears. The suppressing force of a tax on sales can easily offset any savings.

A huge direct tax on sales is an extremely dangerous experiment.

There is an economic theory that holds taxing consumption is better than taxing production. The theory is that a consumption tax would increase savings. Increased savings would lead to more sustainable consumption down the line.

Supporters of the FairTax cite this belief. They claim that an income tax is a production tax and sales tax a consumption tax.

They are wrong in their assertions. The difference between a consumption and production tax is determined by the flow of money and not by the event that triggers the tax.

Sales tax revenue flows from the business. Therefore it behaves as a tax on business. A 30% tax on sales will adversely affect the ability of businesses to close sales. This will stop economic activity.

A true consumption tax needs to flow from the consumer.

It is possible to create a tax that flows from the consumer. I created a fun new tax method that I called the Object Tax.

The Object Tax is named for Object Oriented Programming techniques used to create things like the Internet, Smart Phones, modern operating systems and certain advanced manufacturing techniques.

The Object Tax creates a new interface for collecting the income tax called a Tax Aware Account.

To minimize disruption, the Object Tax modifies the existing tax code so that it can be implemented either as a system of payroll withholdings or through Tax Aware Accounts. The Tax Aware Accounts will be created by financial institutions.

The accounts work as follows: People would have their entire paycheck deposited into a Tax Aware Account. They will pay taxes at a progressive tax rate when they withdraw money for spending. People will pay taxes when they do their budget.

With the Object Tax, people pay taxes when they prepare to spend. The tax money flows directly from the consumer to the government. Object Design allows us to create a true consumption tax with minimal disruption.

Because people paid their taxes in the budgeting process, taxes will not interfere directly with sales.

This difference is huge!

The Object Tax directly affects a person's decision to take money from savings for spending.

The Fair Tax hits at the point of sale and can disrupt the sale and destroy all the economic activity supported by the sale.

The effect of a tax is determined by the flow of the money. With a sales tax, money flows from the business. It is a business tax that affects the ability of a company to close a sale. The effect such a tax has on consumption is indirect. The effect on business is direct.

The Object Tax kicks in when people transfer money from savings to consumption. The effects on savings are direct. The effects on sales are indirect.

For a consumption tax to have the positive benefit of increasing savings, the tax must be collected at the moment a consumer decides to remove money from savings.

My last two posts were trying to sell people on having a meeting about tax reform.

Sadly, I am the worst salesperson EVER. A meeting on tax reform that discusses the difference between the Object Tax and Fair Tax would be really fun. For three years I tried to help my neighbor sell his CDs. I sold one for one penny. Things got better for Ryan when he got out of Utah.

NOTE, Ryan went to LSU. In his senior year, he got caught up in a whirlwind named Katrina that dampened his New Orleans experience. Ryan completed his degree at the U and moved to San Diego.

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