Taxes - Starting Over

Before I begin to discuss my ideas for radical transformation of our tax system, which (spoiler alert) involves the use of dynamite and hand grenades, I need to first address a few underlying issues which always come up in any discussion of taxes and government.

First, I believe in the need for government.  I am aware that many do not, and I understand the argument but we are going to set that aside for a moment and proceed under the assumption that government is necessary.  And if government is necessary it is going to require resources to make it work, and so some form of taxation would also be a necessity.  Later on we can return and have this argument and we can discuss the idea that all taxation is theft and all government is immoral.  But for now we will set that argument aside. 

Second, I am aware of the strong feelings that many people have about the proper form that taxes should take.  I have friends that are fervent supporters of the Flat Tax and Fair Tax and those that believe that Sales Taxes are created by Satan.  I will address, but not resolve, those arguments.

Finally, I am also aware of the vast disagreement regarding the proper role of government.  Some people feel the role of government is to take care of all of the needs of all of the people and to do whatever is needed to keep everyone happy and fulfilled and equal with everyone else.  Others see government as enforcing a long list of rules that keep people from doing things the majority feels are inappropriate.  My personal view is that government exists to protect the life, liberty, and property of its citizens and nothing more.  I am a minarchist, favoring the minimal amount of government, and therefore requiring the smallest amount of taxes necessary to accomplish this task.

The first idea I want to put before you is that States should collect all taxes.  The federal government should be funded by payments from each state based on the number of citizens in that state.  Money would flow from states to the federal government, but NEVER in the opposite direction.  Please take a moment to let that sink in.

Missouri currently receives almost half of their operating budget from the federal government.  There is no need for that.  Instead of sending all of that money to Washington to be handled and skimmed and then sent back to Missouri with strings attached, Missouri should simply send to Washington the amount that Washington needs, and keep the rest.

We can do away with the IRS.  Of course the amount you will owe your state in taxes will increase dramatically, but there should be no need for an individual to pay taxes directly to the federal government.  Similarly, state functions such as education will not need to receive federal grants and handouts; states can decide how best to educate their children and then fund it.  We can do away with the federal Department of Education.

States will care for their poor and retired and the ill and decide how best to do so and how to fund those things.  Without the burden of heavy federal taxes there will be significantly more money in the pockets of each state’s residents for them to decide how best to care for the needs of their citizens.  

We will still need a federal government, and it will still need to be funded.  As I indicated earlier, we would need to decide on an appropriate amount for the federal government to be reimbursed for each citizen, and then each state will need to multiply that amount by the number of citizens they have and forward the money to the federal government.  The need for an ever-expending federal government would be gone, replaced by 50 individual states who will receive no benefits from a larger more expensive federal government and who would directly bear the burden of a more costly one.  The pressure for fiscal responsibility would be immense.

Each state would be able to decide the best way to raise both the money they need to operate and the money they owe the central government but the per-person share they owe to Washington would be the same.  The issue of our massive federal debt would likely be dealt with using a split per-capita payment by the states; part to fund current expenditures, and part to retire the debt.

And let’s address the issue of how to raise those taxes in each state.  Let me start by separating out spending from taxation.  We must spend money to enact those things the people feel are legitimate functions of government.  The people may decide that transportation and education and police and fire protection and courts and public parks are legitimate government functions.  They made also decide that charity and free meals and sports stadiums and corporate welfare are legitimate government functions.

I would like to suggest that whatever the people decide they want the government to do, they do it on the SPENDING side of the equation.  If you want to give breaks to certain people or employers or organizations or to promote certain activities, then spend or give money to those people or groups.  We should not use the tax code as an instrument to perform the duties of government.  Taxes are used to FUND government, not to hand out goodies or to change behaviors or reward political donors.

Let us start with a blank slate and look at the total cost of running the government for a year.  Now, divide that cost by the number of citizens and distribute the cost evenly.  That is a fair distribution of the cost of government.  If you are worried about poor people or middle class people or older people or people with more children, then send them a check, from the spending side.  When you do, the tax burden will rise for everyone.

Take a moment and imagine the impact of this simple change.  Everyone will bear an equal part of the cost of running the government, and so everyone will be in favor of lowering the cost.  You can still be as charitable and progressive as you wish on the spending side, but then everyone will feel the pain.  Also, on the spending side, things are more transparent.  It is easy to see the cronyism and corporate welfare when government actually writes a check.

I realize this is too much for some of you so let’s realize that each individual state will have the option of making their own tax plan.  Some will favor property taxes and some will favor sales taxes and some will favor income taxes or fees or fines or a combination.  Each has its pros and cons, of course.  Property taxes tax the same property year after year, and some people do not own property, and they require people to disclose to the government what property then own and then get penalized for it.  Income taxes penalize those who earn more income and require the disclosure of a person’s economic status on a yearly basis to a government agency.  Sales taxes are regressive and punish economic activity; thereby discouraging it.

As I said, the debate over the best way to tax people will not be settled here, but it could well be settled by having 50 separate states experiment over time. Of course I like my plan – divide the cost of government equally among all of the citizens, then come back and help the needy on the spending side.  No need to report income or property or collect sales taxes, and everyone has the same skin in the game.  Eliminate all deductions and exemptions and allowances and assessments and subsidies and reduce the amount of lobbying and cronyism and cheating.

It will take a while for things to settle out, but when each state adopts a different strategy then resources will shift accordingly.  Employers and homeowners and rich and poor people will slowly gravitate to the states that provide them with the best scenario, and then other states will need to react accordingly.  When the federal government is as dominant as they are today it is really not possible for everyone to pick up and move to another country, but moving to another state is a different matter.

I am aware that these two ideas are not going to become reality overnight, but I am also aware that we are on a course that is unsustainable.  Something is going to have to give.  Perhaps we should start considering, and discussing, and becoming more comfortable with ideas for different ways of doing things.  Sooner or later we are not going to have a choice.