[geeks] On Fairer Taxation...

[Jonathan C. Patschke]

On Sun, 18 Apr 2004, Andrew Weiss wrote:

> If there was only a consumption tax (or sales tax), then sales taxes
> would go up to recover lost funds.

Naturally.

> Unless you removed the sales tax on small items, that would be unfair
> to poor people,

Actually, the current bill (HR25) addresses this in Chapter 3.  People
get refunds for an estimate of the taxes paid on the basic necessities
of life (food, clothing, etc).

> and at the same time this fools with the message this country is
> spoon fed every day...consume.  If consumer taxes go up people will
> buy less stuff.

Not if stuff ends up cheaper.

How much does your employer spend complying with the tax code?  A lot of
estimates put the aggregate at around $125 billion for the country.

Consider this scenario, a loaf of bread.

  A farmer buys seed, fertilizer, a tractor, land, water, and pays hired
  hands to work the land.

  The farmer sells his wheat at the market to an industrial flour
  company.

  The industrial flour company grinds the grain and makes flour and
  sells it to a bread company.

  The bread company makes bread and buys bread wrappers and sells the
  bundled product to the grocery store.

  I buy bread from the grocery store and make a sandwich.

Now:

  The farmer's hired-hands have to pay income taxes on the money they
  made working for him.  If the farmer owns a large farm, he may be
  organized as a business and thus "pay his half" of the taxes.  So,
  that has to be figured into the price of the grain, along with the
  costs involved with retaining a tax accountant.

  Same with the flour company, except that there are likely more
  employees, possibly getting paid more, so there's a greater tax burden
  due to the sliding scale.

  The bread company gets a double-whallop because both the flour it buys
  and the bread wrappers it buys have their prices inflated to cover the
  income tax burden of the employees involved in creating both products.
  Also, the bread company likely has more employees than either, what
  with the delivery trucks, and all that.  All more taxes that the
  employer of which "pays half".

  Then it hits the grocery store, for $1.25.  Nearly $0.40 goes to pay
  for the income tax for everyone involved in making that loaf of bread.
  And then you pay 8% in sales tax on top of that.

What if we did away with income tax and had a 30% consumption tax at the
federal retail level?

  The farmer doesn't pay the embedded tax on the seed, tractor, and all
  that.

  The flour company doesn't have to worry about paying half of its
  employees' taxes or complying with the now non-existant tax code.

  Ditto for the bread company, but the flour and wrappers are also
  cheaper as a result.

  By the time the bread gets to the store, you've eliminated almost all
  of that $0.40.  30% tax on 0.85 brings the total price to $1.11, a 10%
  savings.

Plus, you get to cut the fat off the IRS enforcement crew.  The only
people that lose are the IRS employees and tax accountants, and, if
they're good accountants, they can concentrate on performing other
services for companies.

The net result is an efficiently consolidated revenue stream.  Retailers
are the only tax collectors.  Not XYZ, Inc. selling its industrial
apple-polishing machines.  Not ReallyBigSoftware Corp., who only sells
through OEM and chain-store channels.  Just the grocery store, the
computer store, the CD store, and all that.  Look at how much more
efficiently things would run if only retailers had to worry about taxes,
and how efficiently collection would be if the tax man only had to visit
retailers!

What all that trimming, the 10% reduction in tax wouldn't even be felt
by the general fund of the US treasury.  In fact, it might end up being
a net gain.  And, the tax system would be fairer, which was what started
this tirade, right? ;)

-- 
Jonathan Patschke  ) "Being on the Internet is not the same as being
Elgin, TX         (   famous.  That's like calling Cheetos 'dinner'."
USA                )                                    --Metal Steve