There is simply no way that a "simple consumption tax" could fund our federal government without being horribly regressive. Attempt to fix it through vouchers or exemptions and your "simple consumption tax" quickly becomes quite complex and more difficult to administrate or enforce.
Now I'm not saying that sales taxes or consumption taxes don't have their place. It makes sense that some states would want to fund their budgets through a sales tax, particularly states which rely on tourism for a large part of their business.
But the idea that sales taxes or consumption taxes are the only sort of taxes we should have are trapped in an old Republican frame. It's the idea that taxes always act to inhibit the activity that is taxed. Tax incomes, and there'll be less incentive to make an income. Tax beer, and fewer people will drink it. The converse of this idea is that taxes should only be imposed on things we want to curtail.
And this idea is seductive. Our own crazy candidate supports a version of a national sales tax, and many people think that since our consumer culture is out of control, taxing consumption kills two birds with one stone. It funds the government and it puts a bridle on our runaway credit card addiction.
But this idea is wrong and it should be avoided. Consumption taxes have their place, but it is not in the general funding of the Federal state. We should tax the consumption of things like gasoline, cigarettes and alcohol because the consumption of those things creates a measurable social burden. The funds from that tax should go directly to alleviating that burden and preventing its spread. It should scrub the air of carbon dioxide, fund alternative energy research, pay for part of healthcare, and for education and addiction programs.
But the taxes we pay to fund the general operations of our government are not taxes. Taxes are punitive; they are taxing. They are payment that citizens make for the privilege of having a civil society. Government is a product, or a service to be more precise. It funds and organizes projects that private citizens, states, counties, cities and towns could not be expected to do on their own. It creates and maintains the infrastructure that makes our way of life possible.
And since it is a payment, then the rules and ethics of paying for something should apply. If a good or service is very important or valuable to you, you will be prepared pay more for it than someone who has only a passing interest, and if you find yourself face to face with a good retailer, you really will pay a pay more for it, even if you know exactly how much it costs to produce it. This simple supply and demand, and so long as there is open and honest communication between the parties, it is hard to find the one who would dispute that it is fair and good, and simple.
So who finds the goods and services provided by our government to be the most valuable? Is it the welfare mother who actually pays no federal taxes except for a pittance in payroll taxes to (hopefully) fund her meager retirement and some of her health care costs? Is it the middle class blue or white collar worker who pays what seems to them to be a small fortune in income taxes and payroll taxes, and who, at most, find themselves or their children eligible for modest financial aid for sub-standard education? Or is it the billionaires like the Walton family or the Bush family who in fact pay taxes every year equal to several time your or my yearly income?
Now we currently fund our Federal government primarily in two ways. First, we tax income, and second, we borrow money. The first bit of money we borrow comes from our Social Security Insurance fund, which comes out of a pretty badly regressive payroll tax. Now, ultimately, the money we borrow has to be paid back, except arguably for the money we borrowed from Social Security (sorry kids) so in the end, nearly all the money we get to pay for the government comes from income taxes, proportionately heavier on the lower end of income than the higher end of income.
And this certainly doesn't make any sense. After all, a change in your income doesn't necessarily amount to a change in the subjective value of having a civil society. What does change it is the amount of wealth that you have. You might say, wait, aren't those the same thing? or close enough? No, I'm sorry, they're not, and in this context, it's not even close. You see, that welfare mother gets damn little benefit from the goods and services provided by a federal government. As far as she's concerned, interstate highways may as well not exist. Public education was clearly a failure for her, and the pittance she may receive from food stamps or welfare truly is a pittance, only barely enough to keep her from starving to death. Our middle class Joe gets more benefit from having a government, but not much. He gets the highways to drive on so he can go to work (Yay! /snark). He gets some benefit from the existence of a court system, so he doesn't get royally screwed every time he enters into a contract. And yes, he even gets some access to an education for himself and his kids, such as it is.
But that billionaire? Oh ho ho! Without the benefits of a Federal Government, they wouldn't even exist. Wal-Mart would never have made the billions of dollars it made for the Walton family without the interstate highway system. Halliburton couldn't make the billions of dollars in defense they make without an educated workforce. The very wealthy benefit more from adequate police protection and fire protection far more than the poor and middle classes because, quite frankly, they have more to lose. If those protections aren't adequate, they have to pay for private replacements. They have to build walls and gates, which impoverishes them far more than even the highest tax. They have to put in sprinkler systems and pay for permanent maintenance crews. And if, God forbid, a foreign power manages to invade us or there is an internal insurrection, the only reasonable worry justifying the existence of a standing army, the wealthy have the most to worry about. It's always their heads that end up in the noose or on the chopping block. All us poor schlubs have to do is dodge bullets, and most of us will succeed.
How much is it worth it to you to have free health care? I bet a lot. But however much it is, I guarantee it's worth more to General Motors, the members of their board and all their stockholders. How much would you pay to ensure you could get a good education? It might be a lot, but I bet it's worth more to McDonald's, who has to spend gobs of money putting pictures on their cash registers so their tellers can do their jobs. Then again, that better educated teller might ask for more money, and the bosses might not like that much. After all, a trained monkey could do that job. But they still need educated folks who can design and build those cash registers that do the counting for you. And the fryers. Hell, the whole damn building takes skill and training to produce. And when we replace those tellers with cute little Asimovs that education will be all the more important to them.
Interstate highways are probably the easiest case to make from an intellectual perspective, but the Justice system is the easiest case to make on the evidence. We spend scads of money for the privilege of having a court system. By far most of the court time and resources are spent on the issues of the wealthy and their instruments, the corporations. Most regular folks are lucky if they ever get any benefit from going to court in their whole lives. Many of those who are billionaries or who own or control national corporations are lucky if they or their representatives aren't in court trying to make or keep that extra couple million every year or even more often.
And all of this makes perfect sense, because if you have a lot of money, then you can afford to take full advantage of the opportunities a civil society, and all its infrastructure, provides. The more money you have, the more advantage you can take. But the reverse is also true. The less you have, the less important government is to you. You're too worried about just getting by to have time to care about what your taxes buy you. It's perfectly natural that the great majority of people view government with contempt. They have to pay for it, but it's rarely worth it for them.
The problem is that the very wealthy have cynically co-opted this attitude of contempt of government for themselves so that they don't have to pay their fair share. Everyone wants to get something for nothing, and the wealthy are pulling it off at the expense of everybody else. But the wealthy are playing a losing game, because as they shift the bill and increase the contempt, the infrastructure that makes their wealth possible starts to fall apart. The answer to their cynical ploy is as simple and clear as I hope my ranting above has been. We have got to shift from an income tax to a wealth tax. How much money you make in any given year has no relation to how valuable government is to you, but how much money you have and have control over is central to that value.
And since it's really stupid to borrow money to run the government when the economy as a whole is making more than enough to pay for it, the budget as a whole should be balanced. When my government borrows 1/2 a trillion dollars a year, that's 1/2 a trillion dollars that's not available for anyone else, maybe me or you. If we hit a recession or need to fight a war, then Congress can pass a special exception with a sunset clause.
Wikipedia, on their distribution of wealth page, claims the US has a progressive system of taxation. If we look at the data provided by the L-curve and compare it with the information provided by the Tax Foundation on page 34, we find that the picture is pretty bleak. We find that the wealthiest 20% of Americans held 81.6% of the total national wealth in 1998, and yet they paid a measly 50.6% of the taxes collected in 2000.
In order to get accurate numbers regarding the distribution of wealth, I went to the Federal Reserve and found that the poorest 50% of this country possesses only 3% of the nation's wealth, yet according to the Tax Foundation, the poorest 40% paid 13.4% of the taxes in 2000. The wealthiest 10% of our citizens possessed 68.6% of the wealth in '98, and yet the wealthiest 20% paid only 50.6% in '00.
So much for progressive taxation. The truth is that this fix would be very easy. The poorest 80% of us already pay half the federal budget, and it's not until we reach the richest 5 to 10% of us that things start getting really all out of proportion. If we're gonna have a balanced budget, the amounts the rest of us pay in taxes is probably pretty close to what we should be paying. We probably don't need to change the way we tax the poorest 80 or so percent of us. After all, an income tax is pretty easy to administrate for folks who earn wages. But the richest 10 or 15% should be in a different tax system.
Every one of us owns a certain proportion of the national wealth. For most of us, this is a very, very small fraction. For the very wealthy, this fraction is merely very small, rarely above 1% for any household or individual, to do that you've got to be worth more than 1/2 a trillion dollars. For the richest 10 or 15%, rather than paying income taxes or some other such nonsense, they should pay that fraction of the federal budget. Let's say you're one of those few lucky individuals who finds themselves with a net worth of 1/2 a trillion dollars, so that you possess 1% of the nation's wealth. Let's say the federal budget that year is 2 trillion dollars. Your tax bill should be 20 billion dollars.
Let's be more realistic, cause nobody's worth 500 billion dollars. Let's say you were worth $1 billion. That means that you'd possess a mere .002% of the nation's combined wealth. Federal budget stays the same as above. Then you'd have to pay $40 million to support your government that year. Only worth $1 million? Back in the day, that was good enough to put you in the top 5%. Your tax bill is $40,000. The calculation of your bill couldn't be simpler, all you need are three numbers, two of which would be provided by the government, your net worth, the combined net worth of the nation, and the projected federal budget. IRS enforcement could be refocused to the highest 10%, as they would be the most likely to try to cheat. Unclaimed assets should be seized and made part of the public commons.
What do you think
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