There is a deep, serious flaw in our tax system – it is too damn complicated. Which is to say, administrative costs dig in to what revenue it brings in and it is spurious (which means it is unfair). Whatever incentives and breaks might be won for the sake of the lower classes, there is an inherent bias in favor of those who can afford good accountants. Also, the process of having a governmental cash-ectomy would at least be less painful if it was quick.
There are a number of tax reforms, mostly proposed by the Right, to make things “fair” (same law applies to everyone) and simple. Some of them are quite ingenious and appealing, but I’ll explain why they all suck and mine is better (even though I’m not an economist… I hope a real economist gets a hold of the idea and fills in the cracks). I for one am not a right-winger (quite the opposite) but rather I think like a programmer. Where I see spaghetti code, I want to untie it and I see more spaghetti in our legal system than in an Italian restaurant (zing!)
This taxes products at the end of the value chain – when purchased by the end-user. This replaces all the complicated mess of even paying taxes with a tax on final goods sold. The beautiful part is ordinary people don’t have to fill out paperwork. If you own a business, you simply have to pay the sales tax on what you sell. Genius. One problem with this is that, naturally, as you get richer, the proportion of your money you use to buy things decreases (the likes of MC Hammer and Steve Martin’s character in The Jerk notwithstanding). In this way, it disproportionately taxes the poor. FairTax partially gets around this through (p)rebates to families based on income.
On the Wikipedia article, you’ll see this picture. Yeah, that’s what I mean by untying spaghetti code. All those books are our current tax code, and that man is holding FairTax. Awesome.
I believe this was Milton Friedman’s brainchild or at least he’s commonly associated with it. I think it sort of fell out of fashion among Libertarians in to FairTax, but it is also a good system. You pay the government a fixed percentage of your income, minus a fixed amount, the percentage and amount being the same for _everyone_. If it happens to be a negative amount (which happens if your income divided by the percentage is less than the fixed amount), the government pays you. Your tax is a linear equation. If you took math in middle school you are halfway to being a CPA. Awesome.
The system is, however, likely to be a lightning rod for fraud. Tax evasion now is simply a loss of income for the government (and therefor taxpayers), but if you could convince the government you make nothing, you automatically receive welfare. This also still has the disadvantage of making every citizen go through the trouble of filling their taxes. Okay, next.
Now to my proposal, EcoTax. Turn FairTax on its head. Instead of only taxing things at the end-product level, we only tax raw materials as they are taken out of the Earth. We’re not talking about any tariffs right now, since that’s complicated and really another subject. As far as product created within America is concerned, the tax is at the beginning and it’s up to these primary producers (homotrophes, to use an analogy to ecology) to increase their prices to offset their costs. In this way, the costs of things to a greater degree reflect their true ecological costs. This would naturally mean no subsidies for farmers (rather, they would be taxed for the water and soil they use).
The way EcoTax would work is this: the EPA would be given a new job assess the degrees to which various natural resources are renewable, the degree to which various activities are harmful to human health, etc. They will make no fiscal decision, but rather calculate a schedule of ratios. The income needed by the government to meet its operations and economic predictions will be factored in to create a multiplier. The taxes for the different activities will simply be the ratio in question times the grand multiplier. It’s so simple. The only thing an accountant needs is the latest copy of this (which the government should supply as a free PDF, too). Perhaps the government could supply free software with source code for this purpose to make it even simpler. The important thing is for the ratios to not be politically determined or for other concerns to be taken into account (that’s the job of politicians setting fiscal policy on how to use revenue and what to set the multiplier to).
Note this is related to the idea of Ecotax (or Pigovian taxes in general), but it’s different (you can tell because I capitalize the T). The best way to summarize the difference is this: I propose the only tax being Ecotaxes and the rationale is slightly different. The capital in the free market is derived from two main sources – labor and natural resources. I say you own that which your labor created, but that which is derived from our common natural heritage or which clearly has a negative externality you don’t truly own. Certainly, no one owns the atmosphere, though a section of it will be on your land at any given time and a part of the water table, which you also don’t own, may happen to be under your property. I don’t want to get into the specifics of well rights, etc, but just to point out the obvious fact that, as aging hippie douche would say “you can’t own the ocean, man!”
EcoTax isn’t meant to be the panacea of environmental protection. Rather, we’re removing the artificial economic incentive to destroy that which you do not own. Protecting our species’ viability, wild places, natural habitats and so on cannot rely entirely on the government. Indeed, to the degree people value these things (which they should), they shall donate to private charities that buy up land, such as the Nature Conservancy. The government must not force people to be eco-conscious (it’s not the government’s job to make people do the right thing all the time), but to protect that which is everyone’s property from the few.
The biggest drawback I can see with this is there may be a drop in revenue unless the multiplier is set high enough to put some good companies out of business. There should be a transition period where the old scheme is slowly replaced with the new to give people a chance to switch to other industries. There could temporarily be harsher tariffs against countries that use too much farming subsidies to give our companies enough time to compensate, then the tariffs must be dropped again. This may also make things hard on small farmers, but that could be remedied by in the short term paying for Dutch farmers to teach Americans better efficient farming techniques. A purist Libertarian may scoff at the idea that government intervention is needed to counter the ill effects of government intervention, but it is a fact. “Government intervention” refers to too broad a category for that scoff to be taken at face value.