Thursday, September 1, 2011

Taxes and Simplicity ...... A KISS Proposal

Economists generally agree that taxes should be simple, broad based and fair.

Since fairness can be found only in the eyes of the beholder, today we'll stick with the simple and broad based approach to government spending and taxing.

As with all straightforward suggestions, KISS (keep it simple, stupid) rules apply. In this regard, a simple tax system is one in which the rules are easily understood and the taxes owed are easily collected.

Of course, our federal, state and local tax rules and collection mechanisms aren't anywhere close to easily understood today. To cure that, here's a suggestion about how easily understood and transparent this spend and tax collection system could be. We could implement it immediately.

Here's the tax simplicity, transparency and accountability proposal.

Each government entity (i.e., national, state and municipal) would present to its respective taxpayers for approval its tax and spend amounts for the upcoming year. Voters would approve the proposal as presented or refuse to fund it. The process would be reiterative until final approval.

Then each taxpayer would know his overall individual tax obligation for the upcoming year. Our broad based and progressive income tax system would be divided into 5 groups. As an example, the lowest income group #1 would incur a total tax of bill of 10% of its income, group #2 would pay 15%, group #3 would pay 25%, group #4 would pay 30% and the highest income group #5 would owe 40%. Or something similar.

In other words, we would first decide how much we want to spend on government, and what we want for that expenditure. Then we'd proceed to collect that amount in taxes. The government would then send everybody a bill for the amount owed by each taxpayer.

Here's how we begin.

For example, let's say the federal government now spends $4 trillion, state governments spend $2 trillion, counties and municipalities spend $1 trillion, public school districts spend $1 trillion and all other government entities spend $2 trillion of government monies on highways, postal service, sewers and debt service, including such things as public facilities and programs, as well as interest and principal payments on the public debt.

That's a total of $10 trillion for all government spending at all levels. {I have no idea whether most of these numbers are close to reality, but they will suffice for our purposes.}

And let's stipulate that we currently collect from taxpayers a total of ~$8 trillion. That leaves a $2 trillion receipts-to-spending shortfall.

Here's how KISS rules solve the problem. Either we agree to each pay another 25% in taxes, or each governmental body commits to reduce its spending by 20%. In other words, we go from spending $10 trillion to spending $8 trillion, or we agree to pay $2 trillion more in taxes.

Following KISS rules, we'll eliminate income tax withholding, payroll deductions, gas taxes at the pump, sales taxes, property taxes, excise or sin taxes, entertainment ticket taxes, dividend, capital gains and estate taxes, and all other forms of taxation that exist today.

We'll also eliminate tax deductions for mortgage interest, property taxes, state income taxes, sales taxes and charitable donations. All others, too.

In other words, KISS rules mean that we use the tax rules to collect money and not to encourage or discourage specific kinds of behavior. The lobbyists, factions and special interests will absolutely hate this one. So will many favor granting and earmarking politicians.

Transparent KISS rules for taxpayers will require us to pay once a year, once a quarter, once a month or once a week. But whatever the required frequency of payments, we'll know exactly how much we're paying for the government we're getting. That will make us "appreciate" what our politicians are doing for or to us, as the case may be.

Upon collection, the government tax collection wing will allocate the money received to the appropriate governmental entity for its individual use. KISS also mandates that each government agency will publish in clear and transparent KISS fashion how much money it receives and how it spends that money.

All citizens will then know how much government we're paying for, and the government officials will know that taxpayers know where our money is being spent.

My best guess is that this transparency would lead to much better government performance and stewardship, as well as less expensive and more accountable government. Another guess is that this approach would be welcomed by citizens everywhere. Finally, the last guess is that government agencies and officials would hate this very idea of KISS and transparency, because that would inevitably lead to accountability. But those are just my guesses.

Here's what I know for sure. Government officials don't act as if they want to be held accountable to "We the People". In my view, that's a very big reason why citizens like us really don't know what the total tax bill is for all governmental bodies, let alone what value we're receiving for our money.

But we can change it if the willpower is there. And my bet is that today it is there, and that it will remain in place for a very long time to come. And that's great.

Thanks. Bob.

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