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May
22

Eliminate all taxes except for one, simple, fair tax

3% on every single transaction in the economy. No exceptions, no loopholes, no rebates. All transactions. Including financial, insurance, food; everything.

No more income tax. No more property tax. No more complex tax structure. No more armies of accountants and lawyers.

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How the Ultra-Rich Betray America
The betrayals come in many forms. Here are a few of the more outrageous, and destructive, examples: Evasion: Corporations suddenly stopped meeting their tax responsibilities. While corporate profits h…

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47 comments

  1. Shauna Myers says:

    Unless you include taxing the interest gained on bank accounts, this would still be disproportional.

  2. Chris George says:

    +Shauna Myers That would be a financial transaction as the entity paying the interest would be transferring funds (transacting) from themselves to the entity receiving the interest.

  3. Jack Huesman says:

    +Chris George So if transferring funds is taxable, that means when I go to the ATM to get $100 I have to pay $3 in taxes? Oh, and I paid $3 in taxes when I deposited the money. Did I pay $3 for cashing the check too, or did cashing/depositing only count as one financial transaction?

  4. Chris George says:

    +Jack Huesman It was your money to begin with, so no transaction was required. When you buy, when you sell. It is a sales tax. It just applies to everything instead of the usual loopholes and exemptions for the rich.

  5. Jack Huesman says:

    +Chris George But when I cash a check, I'm transferring money from the writer's account to my account, right?
    And in reality, my "account" isn't a vault full of money sitting at the bank, it is money I'm loaning to the bank…the money goes into the bank's pool of funds that they use to write loans and such.
    When I want to withdraw the money, it has to come out of the bank's general fund.

    The point is, you have to be so specific when you say put a tax on "transactions" that you're probably going to end up increasing the number of tax lawyers.

  6. Jack Huesman says:

    +Chris George you write, "When you buy, when you sell. It is a sales tax." but told Shauna that earning interest would be classified as a taxable transaction. I don't see how both can be true.

  7. Chris George says:

    +Jack Huesman The interest the bank pays you on your deposit would be taxed, but the money itself would not be.

    In practice it would be a couple of magnitudes simpler than the existing system. It would also increase the amount of due diligence people would do before investing money as day trading, flipping and computerized idiocy would suddenly have a real cost. Anything we can do to drive financial flim flammery back into the real, productive world, has to be a good thing.

  8. Chris George says:

    I am selling the use of my money to a bank for a specified period of time. The purchase price is the interest. That is taxable.

  9. Jack Huesman says:

    +Chris George So the bank has to pay taxes on the interest I'm paying on my home loan, car loan, small-business loan, etc., right?

  10. Chris George says:

    Yes. Interest you pay to them is the same as interest they pay to you.

  11. Jack Huesman says:

    +Chris George Okay, so every loan the bank makes is instantly going to have 3% added to the rate. (Unless you believe banks are so altruistic that they're just going to lose that money instead of passing it on to the people taking the loans.)
    Sorry, doesn't seem like the best plan to me.

  12. Chris George says:

    If I borrow $100,000 at 4% for one year I will pay $4,000 to the bank. The bank will pay 3% on their sale, or $120.

    I think they can afford it.

  13. Chris George says:

    +Jack Huesman That $120 dollars may well be added to the transaction. If I earn $100,000 per year and suddenly find myself not liable for the 30% income tax, the property tax on my home or the existing 12% sales tax paid in my current jurisdiction, I think that I too can afford it.

  14. Jack Huesman says:

    +Chris George I didn't say you couldn't afford it, I don't know you.
    But on a 30-year, $250k home loan, you're looking at an extra $50/month just on that loan.
    Small business loans would be even worse…and they're the ones who don't necessarily have that nice $100k/yr job earnings coming in.

  15. Jack Huesman says:

    +Chris George
    You seem to think you'd be fairly rolling in cash if this were passed…"not liable for the 30% income tax…property tax…sales tax…". But you do realize that prices are going to go through the roof, don't you? If you start taxing the wheat the farmer sells to the mill, then the flour the mill sells to the bakery, then the bread the bakery sells to the grocery store, … you don't think that 3% grows with every transaction?

  16. Sheye Anne Blaze says:

    +Jack Huesman that seems a bit alarmist. Sales taxes where I live are currently 9.5% already. So, 3% multiplied up to 9% doesn't seem so bad in comparison. However, how does this apply to state vs federal? That's where I see the real issue coming in. After that, we'd end up at like a 6% or higher sales/use tax instead.

  17. Jack Huesman says:

    +Sheye Anne Blaze I can give you the formula I'm using if you want the details, but it's the formula for percent increase. Comparing prices with the 3% (so a multiplier of 1.03) to the prices without this tax (a multiplier of 1, if you will) here are some results.
    For this calculation, a farmer selling wheat to a mill is a taxed transaction, the mill selling flour to a bakery is a taxed transaction; I believe this is in agreement with Chris's explanation of how the tax would work.

    If no profit is taken at any step of the production chain (unrealistic, but for the sake of argument) and there are 5 transactions in the chain, the end-buyer, retail price goes up by 15.92%. If there are 10 transactions in the chain, the retail price goes up by 34.39%!

    Now, take into account that right now, you're not paying sales taxes on things like milk, bread, lunch meat…but after this plan goes into effect, you're going to see all those prices go up by 15% or more.

    Bad plan on many levels, in my opinion.

    Oh, in case you're interested:
    PI (percent increase) = 100 * (New Price^x – Old Price^x)/Old Price^x
    where, for these calculations, New Price = (Old Price)*1.03 and x is the number of transactions between the start of the supply chain and the retail buyer.

  18. Chris George says:

    +Jack Huesman The farmer buys $100 worth of inputs to produce $200 worth of grain.

    $3

    The miller buys $200 worth of grain to make $2000 worth of flour.

    $6

    The baker buys $2000 worth of flour to make $10000 worth of bread.

    $60

    Consumer buys $10000 worth of bread to eat.

    $300

    Total tax increase = $369 on a $10000 purchase or 3.69% increase.

    We eat more than that every year in monetary inflation.

    I do not make anywhere close to $100k per year, it was simply an example.

  19. Jack Huesman says:

    +Chris George Your numbers are not realistic.
    A 1000% profit for the miller? If that's the kind of profit margin they're running, I'm getting out the math and physics field and opening a mill.
    A 500% profit for the baker? Again…I might have to rethink my career choices.

    Now, let's consider the baker, since there's at least a chance of making it reasonable.
    The baker sells $10000 worth of bread today. He had to buy $2000 worth of flour to make that bread, and he paid $60 in taxes on it. But he also had to buy $4000 worth of milk and $1000 worth of butter and salt, so we're looking at a total of $210 in taxes, or 3.5 times what you stated.

    The most profitable sector in the economy as of 2009 (the last year for which Forbes has compiled the numbers)
    http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/
    only has a profit margin of 20.4%…so even the 30% I was leaving above for the baker is wildly unrealistic.
    Only the top 9 have a profit margin over 10%.

    Now look at everything from #32 down. They have a profit margin of less than 3%. So what happens to all those industries when you increase their prices by at least 3% through taxes?

  20. Jack Huesman says:

    +Chris George Let's say we have the world's most efficient farmer, miller, and baker. So efficient they make a better profit margin than all but 9 real-life economic sectors…10%.

    As it is now:
    Farmer spends $100, sells for $110. 10% profit
    Miller buys for $110, sells for $121. 10% profit
    Baker buys for $121, sells for $133.10. 10$ profit
    Bread eater pays $133.10

    As it would be after 3%-per-transaction tax:
    Farmer spends $100 + 3% = $103 to get the same seeds/fuel/etc., so has to sell at $113.3 to make 10% profit.
    Miller buys at $113.3 + 3% tax = $116.70, so has to sell at $128.37 to make 10% profit.
    Baker buys at $128.37 + 3% tax = 132.22, so has to sell at $145.44 to make 10% profit.
    Bread eater pays $145.44 + 3% tax = $149.80

    So the retail price has gone from $133.10 to $149.80, an increase of 12.55%.

    So much for 3%, huh?
    And, as I pointed out to Sheye earlier, you're going to be paying this on bread, milk, your electric bill, your rent (right? paying that rent is a transaction, isn't it?), medicine, and a host of other things you don't pay sales taxes on how.

    You're welcome.

  21. Chris George says:

    +Jack Huesman OK.

    Farmer to plate (not including farm inputs) the profit margin in meat, poultry and dairy is 400%.

    For grains this rises to 9400% which is why government and industry focus on them in our food guides. The big jumps in the profits in grains are found in the milling/refining. Bakery gross profit is also very large as labor is a large input and does not factor in to the calculation. Do not forget that it is a sales tax and does not call for taxing labor on either the input or output side. This negates your attempt to use industry profitability as a metric as you would first have to remove labor from the equation.

    These numbers were from 2008 or so, I could look them up for you. The other inputs do need to be accounted for, I agree. I was intentionally simplifying the concept. With these raw profits in mind I felt my margins were in line with reality.

  22. Jack Huesman says:

    +Chris George Yeah, I want to see the source of those numbers.
    But even if those are correct, the parenthetical (not including farm inputs) invalidates the whole argument.
    You don't turn a newborn calf into slaughter-ready beef for free, and if you're going to put a 3% tax on all the feed, antibiotics, electricity, fuel, etc., etc., etc., required to raise that calf, it's nonsense. You might as well say the cost of a gallon of gasoline only starts when it's dumped from the tanker truck into the local station's holding tanks.

    And for grains? LOL at that one.
    Do you know how many gallons of diesel farmers go through per acre just plowing, discing, and fertilizing the fields getting ready to plant? And you want to take that out of the calculation? Sorry, that's totally invalid.

  23. Chris George says:

    +Jack Huesman I do not want to take them out of the equation. It will simply take some effort to find the numbers as they were not included in the 400%/9400% numbers i read about. So rather than intentionally deceive, I disclaimed.

    I will return with numbers.

  24. Jack Huesman says:

    +Chris George
    http://www.ers.usda.gov./Publications/EIB66/EIB66.pdf
    As you can see from the table on page 27, the average profit margin is 11%. The mega-big-corporation farms (53k of them) were able to generate over 24%, huge family operations like the King Ranch (200k of them) did pretty well ranging from 16% to 25%, but the most numerous type of farm, small family-owned farms (550k of them) were bringing in less than 6%.

    Yes, your numbers (400% to 9400%) from earlier are completely invalid.

  25. Chris George says:

    Farmer to table. You must include the factory that turns the corn into HFCS and the soda plant that turns that into coke.

    And subtract the labour component from everything along the way.

  26. Jack Huesman says:

    +Chris George And, as I said, "farmer to table" is meaningless when you take out all the money being spent to grow the crops or livestock. It is, exactly as I said, like saying the profit on gasoline should only be measured from the time it's put into the tanks at your local 7-11. Ridiculous and meaningless.

    "And subtract the labour component from everything along the way." Why would you do that? Labor is, almost universally, the largest component of a company's costs of production. Yeah, if you take out the labor component, everything would be generating 1000%+ profit margins. Your barber would have an almost infinite profit margin if he doesn't include wages as a cost of business.

    But if you can find those numbers, I'd like to see how they arrived at them. I'm sure they're invalid, even disregarding the farming costs.

  27. Chris George says:

    http://www.ers.usda.gov/publications/aer780/aer780d.pdf

    Farm sales in 1997 = $120 billion. It is reasonable to assume that the labor portion would be similar to the labor portion of the "marketing" from the pdf. So roughly 40% off for labour leaves $72 billion less 10% of sales as profit = $60 billion in taxable inputs.

    $1.8 billion in taxes paid by the farm.

    $441 billion in "marketing" costs, 40% of which is labour or $176 billion.

    $18 billion in profits.

    $7.4 billion in taxes paid by business.

    $561 billion paid out by consumers.

    $16.8 billion taxes paid by consumers.

    Total taxes paid: $26 billion or 4.63% total.

  28. Chris George says:

    The only reason to take out labor costs is that they are not taxable. Including them skews the equation. Same with profit, not taxable.

  29. Jack Huesman says:

    +Chris George "The only reason to take out labor costs is that they are not taxable."
    But under your 3% system, labor costs would be taxable.

  30. Chris George says:

    As a businessman, you pay no tax on money paid out as wages or accumulated as profit. Only on your taxable inputs. The raw materials only.

  31. Jack Huesman says:

    +Chris George
    And I'm still not seeing the 400% and 9400% profit margins here. In fact, looking at Figure 4 of that pdf, I'm seeing a 3.5% profit margin. (3.5 cents of each dollar is profit…pretty easy calculation.)

  32. Jack Huesman says:

    +Chris George "As a businessman, you pay no tax on money paid out as wages…"
    But when I pay an employee, money is being transferred from one entity to another; that meets your definitions of a transaction, so surely there is a tax there somewhere, right? And since the reason I'm paying wages is that I'm buying the time, effort, and expertise of my employees, I'm the one who has to pay that 3%. Right?

  33. Chris George says:

    Between the $120 billion out of the farm and the $561 billion out of the consumers pocket is 470%. I will see if I can find an online source for the 9400%/400%. I suspect it was in a book and it appears it would have been built on gross margins, not profit.

    The exercise of seeing what the numbers actually look like has been valuable. I remember when Canada was discussing the implementation of the VAT up here that an economist back east ran the numbers on the 3% solution and determined that it would be a net plus for the country as the reduction in "friction" (all those accountants, lawyers etc) would be a net savings and all else would be equal. His numbers included paying off the nation debt inside of ten years and dropping it t 2% once that was accomplished.

    They implemented a 7% VAT, riddled with loopholes and exemptions and ripe for more "friction".

  34. Chris George says:

    +Jack Huesman Strike the concept of transaction from my earlier comment. It was imprecise. It is a sales tax. It cascades upwards. It is simpler to administer and fairer than the existing scheme.

    You would pay it on your inputs and collect it on your outputs. You would not pay tax on wages paid to your employees. You would not pay taxes on your profits until you purchase something with them.

  35. Jack Huesman says:

    +Chris George No, you forgot to subtract the $120 billion. The market bill is $441 billion for a 367% markup.
    But the markup does not equal the profit margin (as I think you alluded to at the end of your first paragraph).

  36. Jack Huesman says:

    +Chris George So we remove taxation of interest (either earned or paid) as well, right?

    See, when you wrote earlier, "I am selling the use of my money to a bank for a specified period of time. The purchase price is the interest. That is taxable." my first thought was that since I am purchasing the time of my employees, I'll have to pay taxes on their wages.

  37. Sheye Anne Blaze says:

    +Jack Huesman — I have to point out that on payroll issues – 3% would be a much less tax on a business. At minimum a US business currently pays a 7.65% payroll tax (on top of our FICA contributions) just straight off the top to the feds. That doesn't even get down to state and other local taxes.

  38. Chris George says:

    Interest, bonds, stocks, insurance policies (including CDS and other derivatives), all financial products would be taxed. The interest example is straight forward.Stocks and bonds would be an interesting purchase. You would need to make sure you were committed to the investment and willing to hold it long enough to recoup the 3% plus a return. Short term flipping for profit would become untenable, forcing money out of the speculative arena back into the "Main Street" marketplace where people actually make things that have benefits to society instead of simply betting on outcomes in finance.

  39. Jack Huesman says:

    +Chris George But your taxation of interest but nontaxation of wages isn't consistent.
    If the bank "sells" me money (a home loan, let's say) or when I "sell" the bank my money by depositing it in an interest-bearing account, the interest is taxable.
    But when an employee "sells" me eight hours of their time, there isn't any tax? Why not? I bought their time, effort, and technical expertise.
    (See why I said this isn't going to cause a decrease in the number of tax lawyers?)

    +Sheye Anne Blaze I'm only trying to show that labor costs cannot be excluded from the cost/benefit analysis of this proposal.

  40. Chris George says:

    What is the difference between a person and a thing?

    The concept is to tax things for the benefit of people. The tax on interest paid is simple and straightforward. I am purchasing the use of money and the purchase price is the interest. A persons labor is not a thing, there is no tax on it. As an employer, I can tell you that this would be a refreshing change of pace from the current system.

    I do not see an inconsistency here as I can plainly see the difference between things and the labor of a person, which is not a thing. When performing a thought experiment of this nature it is important to not drag old baggage forward. Just because something has always been done in a certain way, doesn't mean it always should. Our current economic arrangement treats a person's labor as a thing, a commodity, to be bought and sold on a market. Changing the way we pay our entry fee into civil society gives us the opportunity to change this outlook. So we should.

  41. Jack Huesman says:

    +Chris George writes, " I am purchasing the use of money and the purchase price is the interest."
    Yes, and I am purchasing time, coding and typing expertise, skills.
    What's the difference? We are both purchasing something.

    Then you say, "A persons labor is not a thing…"
    Of course it is. If it weren't a thing, I wouldn't pay them for it. If their labor, skills, and time had no value, I wouldn't employ them. They have a set of skills that matches the skills I need and I have money they need (or at least desire greatly). So I buy the use of their skills. They, by using their skills, produce things of value to me.
    How can you say this is not a purchase? I am enriched by the value of what they produce and they are enriched by the money I pay them.

  42. Chris George says:

    We appear to have very different ways of looking at economics.

    We already tax income and we tax profit. By this, we encourage the valuation of things and discourage the valuation of people. All profit really is is people's labor stored for either consumption or re-investment as capital. Tax what you do not desire and do not tax what you do desire. Basic tax ideology.

    By removing taxation from people's labor we encourage people to work in the same way that by removing taxation from profit we encourage businesses to profit. By taxing things and the consumption of things we discourage their consumption. This has benefits to the environment and to society. This is the use of tax policy for social ends, just like our current system. It is just the ends that are different.

    By treating people's labor as a thing, our current economic system reduces the person to a commodity. The truth of this statement can be seen in the way that we treat the poor in our society and where we lay the blame for their predicament. Are they unmarketable commodities? Or human beings? We are encouraged to treat them as the former and to discount the possibility of their being the latter.

    I cannot in my mind justify equating a person's labor with the legal fiction of interest. But that is probably just me.

    If people are only ever of utility to you for the value they can provide for your benefit, then you need to find better people.

  43. Jack Huesman says:

    +Chris George "If people are only ever of utility to you for the value they can provide for your benefit, then you need to find better people."
    When did I ever say anything like this? Sheesh, let's not get into word twisting, shall we?

    But do you hire people and pay them wages if they do not have skills that enrich your or your company?

    I'm also wondering if you're read Smith's Wealth of Nations? I don't have room here to go through how people outgrew the ability to produce everything they needed or desired, and how that led to the barter system, and how that led to money and wages, but…the general definition of a purchase is an exchange of the money (or any goods of value) of one person for, at a mutually-agreed-upon amount, the goods of value of another person.
    Time and skills are goods of value. I spent quite a few years in college making my skills as valuable as possible; most of the people who've ever worked for me have done the same. So we enter into an agreement where I give them money (plus fringe benefits like insurance) in exchange for their skills.
    That is a purchase.
    I am not purchasing the person, I am purchasing the time and productivity of the person.
    If they feel their skills are worth more than I'm offering in exchange, they don't take the job, ask for a raise, or quit. If I feel their skills are not what I'm looking for, I don't hire them; if they work for me but I feel their productivity is no longer worth the money I'm paying, I either ask them to take a pay cut or I fire them.

  44. Chris George says:

    People have more than economic value. I attempt to design a system that recognizes this. Our existing system does not.

    The 3% consumption tax can apply to labor if you like at which point it does not make sense and the status quo is safe for another day.

  45. Chris George says:

    +Jack Huesman Thanks for helping to clarify my thinking. The 3% consumption tax fails on the principle that it does not treat all participants equally.

    Back to the drawing board. I think I will stick to the principle of eliminating government privilege from economics instead of attempting to justify it.

  46. Jack Huesman says:

    +Chris George Have you ever heard of the FairTax? It is similar to what you proposed, except that
    1. Tax is only charged on new, retail purchases.
    2. A monthly "prebate" is given to everyone based on the amount of tax they would be paying for the necessities (food, clothes, housing, etc.).

    I'm not sure how it handles stock transactions, it's not something I'd thought a great deal about before, but it might be worth looking into.

  47. Chris George says:

    I will look it up.

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