This approach to funding the Federal Government attempts to solve several problems. First, everyone keeping records of everything they do, then giving them to IRS, who then compare everyone's records and try to hunt down 'cheats,' or those just too confused to manage strikes me as wasteful, stupid, and a sign of a certain obsessiveness as a prized trait. How much time is wasted as all parties to most every piece of business keep records of it? Second, while some don't think tax policy is a good tool to affect human behavior, the fact is, whatever revenue system exists Will effect economic activity in response to it. Our current system subsidizes indebtedness, through the mortgage interest tax credit, and speculation, through the capital gains tax being lower than the income tax. Our current system makes us pay to work, though we can be unemployed for free, thus encouraging everyone to try to work off the books, with immigrant workers setting a very low base rate for off-the-books work. What follows is part of a larger piece a link to which is at the end.
Cash transactions under $1000 will be untaxed and largely unregulated. If a person can make a living on cash alone, he or she can avoid taxation.
The Federal Government will offer a secure credit card to compete on the open market with other credit cards. The government credit card will only work in the hand of its owner (or with some other excellent biometric security to prevent fraud and theft) and charge a maximum interest of 12-15%. The government profit from the national credit card as revenue to replace the income tax: revenue by offering a legitimate service nobody is forced to take. People just working to make money would not be taxed.* The current system punishes work and saving and rewards debt and indolence, and the system I am envisioning would do exactly the opposite, leaving work and saving untaxed, and taxing people based on their tendency to get mired in debt. Still, being mired in debt at 12%-15% for the public good is better than being mired in debt at 25% plus for some investors based in South Dakota.
*(Business should not be taxed, but people have a right to expect other people’s businesses to carry adequate insurance. Gov’t is built on rhetoric and influence, but insurance is built on statistics. We may not like insurance regulations, but they are usually based on provable facts, and not just wishful thinking.)
Seamless Safety Net
Those who cannot keep up with payments on this credit card will be de facto ‘on Assistance.’ When somebody gets into economic trouble, an economic social worker will work out a strategy with them to address whatever the problem is, which should be obvious enough from having all the purchase records and possibly a home visit. Account restrictions will stop that person from making certain purchases (porn, alcohol, Harley Davidsons) while allowing purchase of household essentials, healthy foods, etc. The economic social worker will receive a bonus each time a ‘problem’ account regains solvency, so it is in their interests to ‘lose’ all their cases by having them regain solvency as quickly as possible. The position of economic social worker will be one of considerable stress and power, and it’s important to set up the system of incentives for them that helps keep them on track. The economic social worker should be firm, but kinder than a collection agency. The economic social worker is a professional equipped to help the individual figure out what’s wrong and fix it. For those who stay in arrears, or chronically have to be bailed out by they system, an additional social worker may be assigned, specializing in substance abuse, or care of the functioning insane, or Alzheimer's, whatever the trouble seems to be.
Tax Electronic Funds Transfers.
Replace other taxes with a user fee on each electronic transaction, usually amounting to less than 1 cent on each transfer of up to $1000, less than a dime on each $10,000 transfer, etc. Many times the gross national product passes in currency electronically from account to account as things are now. Mechanisms already exist for government to keep tabs on all this money for tax purposes, but don't tax the movement itself. Banks take a fee, and whatever company provides the wire, so it is not as if money transferers expect it to happen for free. In exchange for this fee, the Federal Government in my system will be responsible to guarantee the integrity of the currency and the electronic funds transfer system, providing enforcement against fraud and theft, and insurance against losses of those victimized anyway. Here again the government is providing a useful service in exchange for its money, which no one is required to use. If some transactions seem likely to contain money from crimes, and we constantly hear of banks laundering money for criminal organizations, the rate the government charges to insure the transaction may be considerably higher, perhaps as high as a dollar for each $10,000. The government will keep all transactions transparent, and it will have a powerful interest in sniffing out anyone transferring funds in secret. So instead of taxing work and frugality, we will tax credit and speculation.