I case you've been living under a rock somewhere, gas prices have been high. The national average these days is hovering around $3 a gallon. There are a lot of people unhappy about that and a lot of politicians that are up for re-election this year.
If you've read some of my previous posts you'll understand that I believe one of the two main objectives of tax legislation today is to buy votes. This plan is a perfect example of that.
Here are other people's thoughts on the idea:
"100 percent political pandering."
- John Berthoud, National Taxpayers Union
"One of the dumbest ideas of the year."
"Simply a please-vote-for-me-in-November payment."
- Jerry Taylor, Cato Institute
Showing posts with label Taxes. Show all posts
Showing posts with label Taxes. Show all posts
Friday, April 28, 2006
Tuesday, February 14, 2006
Uncollected Revenues
Critics of FairTax often cite the their concern as stemming from the difficulty they perceive with collecting the tax. Basically, they fear that the system is easy to cheat. I'm in a store, I want to buy something for $100. I tell the store owner something like, "you know, I don't have $100 but I do want to buy your item. I do have $70. Why don't I buy it for $70 and you don't charge me tax on the item?"
Cheating the system is definitely a fair point of discussion. And the above scenario not only can happen but inevitably will happen. But let's face it: there are problems with the income tax system as it exists today. A report out today says income taxes in 2001 cost the government (you and me) $345 billion in lost revenues. $345 billion! Apparently it's not that difficult to cheat the current system.
The question is not is either system foolproof. The question is, which system will result in less cheating? One big difference between the current system and FairTax is that today I can fill out an incorrect earned income (whether by accident or on purpose) and send it away. Until it's evaluated by the government, there is no other check. With FairTax, someone has to be willing to cheat with you. I can't buy something without paying taxes if the store is not willing to sell it to me without charging taxes. By the same token, the store can't easily charge me taxes without me realizing that I'm not being charged taxes.
Certainly these scenarios will occur. I just don't think it'll be very common. Under FairTax, two people have to be involved in order to cheat a system. Under the current system, only one. It sounds much more likely that a store would rightfully charge someone tax and then keep the tax for themself and not pay it to the government. But that's possible under the current system. Once again, I think the advantage goes to FairTax over the current system.
The good news (other than FairTax is coming :)) is that the government does hope to collect an additional $55 billion or so of that unpaid debt. I wonder how much those attorney and collection fees will cut into that.
Cheating the system is definitely a fair point of discussion. And the above scenario not only can happen but inevitably will happen. But let's face it: there are problems with the income tax system as it exists today. A report out today says income taxes in 2001 cost the government (you and me) $345 billion in lost revenues. $345 billion! Apparently it's not that difficult to cheat the current system.
The question is not is either system foolproof. The question is, which system will result in less cheating? One big difference between the current system and FairTax is that today I can fill out an incorrect earned income (whether by accident or on purpose) and send it away. Until it's evaluated by the government, there is no other check. With FairTax, someone has to be willing to cheat with you. I can't buy something without paying taxes if the store is not willing to sell it to me without charging taxes. By the same token, the store can't easily charge me taxes without me realizing that I'm not being charged taxes.
Certainly these scenarios will occur. I just don't think it'll be very common. Under FairTax, two people have to be involved in order to cheat a system. Under the current system, only one. It sounds much more likely that a store would rightfully charge someone tax and then keep the tax for themself and not pay it to the government. But that's possible under the current system. Once again, I think the advantage goes to FairTax over the current system.
The good news (other than FairTax is coming :)) is that the government does hope to collect an additional $55 billion or so of that unpaid debt. I wonder how much those attorney and collection fees will cut into that.
Tuesday, January 10, 2006
The Purpose of Taxes
I was thinking tonight at dinner about my dream from a couple of weeks ago. The dream where I was the governor of Georgia. What would I do as governor? Well, to start with, a governor can't do much. The governor doesn't make laws. The governor does have nice platform on a state level and even occasionally on the national level - especially if your last name happens to be Schwarzenegger - to force the agenda that he wants to see. This started me thinking about my agenda.
My first priority is tax reform. There are 2 elements to the current tax system. There's the amount of money that the government collects from us all and then generally turns around and spends and there's the processes that we as taxpayers have to go through to feel reasonably safe that we've paid the government what we legally owe and aren't going to be subject to any sort of an audit. I think any reasonable person would agree that the amount of money that the government spends is certainly something that can be curbed. That's not going to be easy to do, though. People are accustomed to certain programs and expenditures being available and there would be a lot of resistance , even if only very vocal resistance by a few people who were affected by program X. Because of that, I think the process would be the easiest thing to change.
I think you'd be had pressed to find any reasonable person that believes that the current tax process is a good idea. I'm personally a big fan of at least the basic premise of FairTax (read my review of The FairTax Book or buy your own copy). I think implementing something similar at a state level would not only be a great thing for the state but would also be a great thing in that it would be another example that the federal government could draw upon to prove the concept. I say another example because there are numerous states that do something that is in some respects very similar. The largest and most notable are Florida and Texas. Neither state has a state income tax and instead collects the majority of its revenues through sales and other taxes. I digress, though.
The best thing in my mind about a program similar to FairTax is that it removes the temptation from taxation. Taxation is a temptation for politicians, I believe. In my last post I talked about the different temptations that politicians undoubtedly face. Taxation may be the largest. Originally I think taxation was pure. The earliest revenues were used for building a federal infrastructure with legislative buildings and courthouses and beginning to assemble what is today the greatest national defense that the world has ever known. Some of our tax revenues still go to reasonable causes but so much doesn't anymore.
Today there are two main reasons that tax laws are passed. I don't remember if this came from The FairTax Book or another source or if I happened to assemble this. Regardless of the source, I've long believed this to be the case. The main reasons tax laws are passed today are to influence behavior and to buy votes. Think about that for a few minutes. Think of the different tax laws that you're familiar with. Homeowner's deduction. You save money on your taxes if you own a home. It's meant to encourage home ownership. Investerwords.com says, "The deduction is intended to encourage renters to become homeowners, under the belief that home ownership encourages upstanding citizenship and reduces crime." How about another one. Your 401k. 401kFocus.com says, "In order to encourage savings, the government created special tax advantages for 401k participants." Non-profit deductions are meant to encourage giving to charitable organizations. Student loans and interest deductibility are meant to encourage education. Get the picture? The government gives you a small financial reward for doing what it wants you to do.
The second reason, buying votes, is a little bit harder to get your arms around. Lets start with a relatively easy one: prescription drug coverage for seniors. This is not about whether it's a good idea or whether or not some seniors could use help paying for prescription drugs. God knows if my grandmother were still alive and needed help paying for prescription drugs I'd be working a second job now instead of writing this blog entry to help her pay for them. But take a step back for a second and remember - this is not about whether or not prescription drug coverage for seniors is a good idea. This is about whether or not it's an attempt by the government to buy votes. Now lets think this through. The basic way this program works is that a smaller amount of money is taken from every tax payer (roughly 280 million Americans that should be paying taxes) and redistributed to a much smaller number of seniors that are eligible for prescription drug coverage (less than 12 million enrolled as of 1/1/2006). If the government takes $50 each year from each person, most people aren't going to miss $50 over the course of a year. Especially not when it's automatically withheld from your paycheck and there's no clear easy way to see how much you paid or understand where it's going. That's another story, though. That $50 from 280 million people turns into almost $100 every month for 12 million seniors seeking prescription drug coverage. That extra $100 makes 12 million people very happy and therefore very eager to vote for you. 12 million people may or may not sound like a big number when you're talking about buying votes but the last 3 Presidential elections combined were decided by less than 12 million votes! 12 million is a HUGE number of votes.
Vote buying happens in other ways as well. The entire aspect of a progressive tax is meant to buy votes. The tax system that we have is called a progressive system. The more money you make - the higher the tax rate you pay. Your rate, in addition to the amount of taxes you pay, gets progressively higher. Think about it. The higher the annual income level, the fewer people who make it. More people make at least $10/hour than $15. More people make at least $15 than make at least $20. More people make at least $50 than make $100. The higher the income level of the people you raise taxes on the fewer people you affect. And raising taxes on fewer people gives you more money to spend on more people.
A concept like FairTax removes a politician from these temptations and as I've described previously, these have to be some very strong temptations. Any effort to reform and cleanup government would have to start with something like this. Remove from the equation not just all the headaches associated with the current process but also the temptations that the process places upon the politicians. Don't tempt them to influence your behavior or buy your vote.
My first priority is tax reform. There are 2 elements to the current tax system. There's the amount of money that the government collects from us all and then generally turns around and spends and there's the processes that we as taxpayers have to go through to feel reasonably safe that we've paid the government what we legally owe and aren't going to be subject to any sort of an audit. I think any reasonable person would agree that the amount of money that the government spends is certainly something that can be curbed. That's not going to be easy to do, though. People are accustomed to certain programs and expenditures being available and there would be a lot of resistance , even if only very vocal resistance by a few people who were affected by program X. Because of that, I think the process would be the easiest thing to change.
I think you'd be had pressed to find any reasonable person that believes that the current tax process is a good idea. I'm personally a big fan of at least the basic premise of FairTax (read my review of The FairTax Book or buy your own copy). I think implementing something similar at a state level would not only be a great thing for the state but would also be a great thing in that it would be another example that the federal government could draw upon to prove the concept. I say another example because there are numerous states that do something that is in some respects very similar. The largest and most notable are Florida and Texas. Neither state has a state income tax and instead collects the majority of its revenues through sales and other taxes. I digress, though.
The best thing in my mind about a program similar to FairTax is that it removes the temptation from taxation. Taxation is a temptation for politicians, I believe. In my last post I talked about the different temptations that politicians undoubtedly face. Taxation may be the largest. Originally I think taxation was pure. The earliest revenues were used for building a federal infrastructure with legislative buildings and courthouses and beginning to assemble what is today the greatest national defense that the world has ever known. Some of our tax revenues still go to reasonable causes but so much doesn't anymore.
Today there are two main reasons that tax laws are passed. I don't remember if this came from The FairTax Book or another source or if I happened to assemble this. Regardless of the source, I've long believed this to be the case. The main reasons tax laws are passed today are to influence behavior and to buy votes. Think about that for a few minutes. Think of the different tax laws that you're familiar with. Homeowner's deduction. You save money on your taxes if you own a home. It's meant to encourage home ownership. Investerwords.com says, "The deduction is intended to encourage renters to become homeowners, under the belief that home ownership encourages upstanding citizenship and reduces crime." How about another one. Your 401k. 401kFocus.com says, "In order to encourage savings, the government created special tax advantages for 401k participants." Non-profit deductions are meant to encourage giving to charitable organizations. Student loans and interest deductibility are meant to encourage education. Get the picture? The government gives you a small financial reward for doing what it wants you to do.
The second reason, buying votes, is a little bit harder to get your arms around. Lets start with a relatively easy one: prescription drug coverage for seniors. This is not about whether it's a good idea or whether or not some seniors could use help paying for prescription drugs. God knows if my grandmother were still alive and needed help paying for prescription drugs I'd be working a second job now instead of writing this blog entry to help her pay for them. But take a step back for a second and remember - this is not about whether or not prescription drug coverage for seniors is a good idea. This is about whether or not it's an attempt by the government to buy votes. Now lets think this through. The basic way this program works is that a smaller amount of money is taken from every tax payer (roughly 280 million Americans that should be paying taxes) and redistributed to a much smaller number of seniors that are eligible for prescription drug coverage (less than 12 million enrolled as of 1/1/2006). If the government takes $50 each year from each person, most people aren't going to miss $50 over the course of a year. Especially not when it's automatically withheld from your paycheck and there's no clear easy way to see how much you paid or understand where it's going. That's another story, though. That $50 from 280 million people turns into almost $100 every month for 12 million seniors seeking prescription drug coverage. That extra $100 makes 12 million people very happy and therefore very eager to vote for you. 12 million people may or may not sound like a big number when you're talking about buying votes but the last 3 Presidential elections combined were decided by less than 12 million votes! 12 million is a HUGE number of votes.
Vote buying happens in other ways as well. The entire aspect of a progressive tax is meant to buy votes. The tax system that we have is called a progressive system. The more money you make - the higher the tax rate you pay. Your rate, in addition to the amount of taxes you pay, gets progressively higher. Think about it. The higher the annual income level, the fewer people who make it. More people make at least $10/hour than $15. More people make at least $15 than make at least $20. More people make at least $50 than make $100. The higher the income level of the people you raise taxes on the fewer people you affect. And raising taxes on fewer people gives you more money to spend on more people.
A concept like FairTax removes a politician from these temptations and as I've described previously, these have to be some very strong temptations. Any effort to reform and cleanup government would have to start with something like this. Remove from the equation not just all the headaches associated with the current process but also the temptations that the process places upon the politicians. Don't tempt them to influence your behavior or buy your vote.
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