Monday, December 29, 2008

Death and taxes

Ok, not really “death AND taxes”, just taxes.


In principle, I don’t have a problem with taxes.  They’re a drag on commerce.


However, someone has to pay the guys who protect us and build our roads, then someone has to pay the people to maintain the roads.  And someone has to inspect our food.  And someone has to…  well, you get the picture.  So the government seeking ways to make revenue is a fact of life.  Like death.  (Ok, so it IS death and taxes.)


Import tariffs seem unfair due mainly to the fact that one of our founding principles is no taxation without representation.  Foreigners shipping goods to the US do not have representation and should, therefore, not be taxed.  Besides, we end up paying for that, anyway, with lazy, bloated corporate and manufacturing infrastructures.


I have absolutely no problem with re-import tariffs (taxing goods brought into the US by US firms, but that seems to be nearly impossible to enforce).


So, that leaves corporate sales and income tax, capital gains, dividends, and personal income taxes in addition to various and sundry fees that support various and sundry regulatory agencies.  Eventually all of these costs—with the exception of personal income taxes, excepting, too, from those the company’s portion of payroll taxes—are passed on to the consumer by way of overhead included in the pricing of each and every widget we buy.


Because corporate taxes—and the company’s half of the payroll taxes—are eventually passed on to the consumer, and the consumer pays the other half of those payroll taxes, as well as personal income tax, and by way of purchasing something—even milk—pays a small portion of the corporate tax and that payroll tax the company so benevolently paid on behalf of the employee, it would seem that the personal income tax is the least fair of all the taxes that are required to be paid.


Let me clarify that for just one moment:


Let’s say you make $30,000.  $2,000 is paid by your employer in payroll taxes, matching the $2,000 paid by you.  You also pay another $2,000 in income tax.  (All numbers completely hypothetical.)  You go out and buy a $10.00 widget.  In that $10.00 for your widget is included a portion of each and every employee’s payroll tax in addition to the corporate taxes owed by the company from sales to property to inventory to income—all the way up the board.  No, you’re not paying all of the company’s taxes, but you’re paying all of yours, and some of the company’s.  Nobody is paying part of yours for you.  You don’t get to pass that cost on to your consumers because you don’t have them.  So, by right of paying personal income tax AND purchasing various widgets, we, the consumer, are being taxed double—once on our income, and once on the company’s various taxation duties.


But there you have it.  It simply is what it is…  taxes are a fact of life.  And to the extent that they are a fact of life, they should be implemented as fairly as is humanly (and legislatively) possible.  Companies are going to pass the costs on to us.  Fine.  That’s how things are.  I can deal with that.  But who do we get to pass the costs on to?


Ok, so personal income taxes should be as low as possible just for fairness’s sake.  If they can go away, hurrah!  If they cannot, so be it.  How, then, do you implement an income tax system that is fair?


I don’t buy this “redistribute the wealth” crap.  Sure, that may be an outcome of a graduated taxation system, but it shouldn’t be the GOAL of a taxation system.  A tax system should be implemented for one reason and one reason only—to generate revenue for the government.  Done and done.  Fees and fines should be implemented to try and adjust behavior.  “Sin Taxes” on liquor and smokes should be called “Sin Fees” or “Sin Fines” because their intent is to reduce the consumption of products that are bad for you.  Call a lottery what it is—a “Stupid Fee” or “Idiocy Fine”.  Yes, it’s bad marketing, but it’s truth in advertising.  Slap a “Fat Fee” on sugars and High Fructose Corn Syrup.  Call them what they are.  If you want to “take” from those who make more in order to redistribute wealth, call it a “Over Earner’s Fee” or “Windfall Fee”.  Don’t hide behind tax structure, be a man about it.  Ok…  rant portion complete.


I’ve said before, I think the most fair way to implement a personal income tax is not a flat tax where everyone pays the same rate, but a graduated tax where the last dollar through the door is taxed at a higher rate than the first dollars through the door.  Why?

Because the first dollars are spent on the same necessities by everyone in the country—food, shelter, clothes, transportation, diapers, medicine.  The last dollars are spent on premium foodstuffs, the vacation home, ANOTHER purse, ANOTHER car, designer diapers, and botox.  You go to get food and you need pasta--$1.49 a box, thank you.  But if you have some extra scratch, you go for the good stuff at $1.99.  That first $1.49 paid for the pasta, the last 5 dimes paid for the premium quality of the pasta—whatever that is.  Same goes for cars.  If a $5,000 car will get you to and from work reliably, but you decide to spend $15,000 on a car loan, the extra $10,000 paid for other stuff—nicer upholstery, fresher paint, “reliability”, status, whatever.


So, if we need to raise taxes, we should raise taxes in a sensible manner.  Without revenue we have no services.


Just don’t ask me to get behind the redistribution of wealth.  That may be an outcome of a tax policy, but it should NEVER be the purpose of the tax policy.




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