Is it theoretically possible to do away with the usual forms of taxation?

Jake Tarragon

I am not asking this question because I don't like government and other public institutions having money to spend. I am just curious as to whether there is an alternative form of government revenue to taxation (that does not involve "selling" in any form) because taxation seems to be awfully complex and opaque.

So how could a government raise money each year without any kind of taxation? When considering this question, let us assume we are talking about some large but completely isolated "island economy", or if you prefer a World Government - for the sake of simplification.

Now clearly, if the government is not involved in economic activity itself then any form of revenue/spending power is effectively "taxation" - which is why the title of this discussion refers to doing away with the "normal" forms of taxation - e.g. income tax, sales tax etc.

My first stab at an alternative form of taxation is this : the government simply increases the money supply and pumps its coffers up with whatever it needs. This means of course, that a dollar will tend to decrease in value (deflation I think it is called?) because there are more of them in circulation every year to represent the "national cake" . On the other hand though, the national cake often tends to get bigger because of new efficiencies and technologies, so that might ameliorate the deflationary atmosphere somewhat. Anyway, the year on reduction in the value of the dollar/yen/euro tends to happen already !.

As well as being easy and controllable to administer , such a money-"printing" system supports both left and right economic and political philosophies. On the left hand, we have a government that can raise however much spending it wants. On the right hand there is administrative efficiency with a big reduction in economic deincentivization (there would be a flat rate of "tax" in effect for everyone).

What's to go wrong??!!

Jake Tarragon

Continuing ... here is how the idea might work in practice.

It requires that all payment transactions go through computers. Basically, the currency that you hold in your account is being devalued because of extra currency being created centrally. Suppose you start with the currency - let's call it the dollar - at its end of year zero value of 1.0. By the end of year one it might be worth say 95% of its year zero value.

Your dollar total is constant (if you don't spend that is..). But when you make a payment of any sort the computerized system applies a scaling factor to compensate for dollar devaluation. So, if you start year one with a thousand dollars, you will still have a thousand dollars in your account, but as they are only worth 950 Year Zero dollars your account will read to you that you have just 950 dollars. Year Zero dollars are now worth 1000/950 = approx 1.05 now-dollars. If you buy something at the end of year one for the advertised price of 100 year zero dollars, the system will actually reduce your account by 105 dollars (and 26 cents :) )

In practice, the exchange rate would change a little bit each day, and not once at the end of the year. It would be a continuous thing. However, as all prices, wages etc are expressed in Year Zero prices there is continuity of price meaning. And given that the government is continually pumping in more currency, the amount in circulation rises and so people's bank account will tend to have more dollars in them as time marches on - though not necessarily more dollars at Year Zero prices of course.

Paper currency could still be viable, but with the proviso that the face value refers to that value of dollars at the time of printing only, and that you would have to ask your phone what that "100 dollar" note is worth in today's dollars.

I think I have invented the future!

BC

If printing more money to finance government operations devalues the coin of the realm, isn't that a form of taxation?

Unless a government engages in commerce to generate its own revenue, I don't see how you can avoid a tax of some kind, no matter how rococo the scheme.

Taxation plans do not need to be complex or opaque. Our tax system got that way as a result of Congress and legislatures inserting programs into taxation (benefits, subsidies, rebates, incentives, etc.).

The government used to finance itself by taxing imports and excise taxes. That was fairly simple as long as the amount of money needed wasn't too great. The Civil War resulted in a need for more revenue, so an income tax was imposed (and discontinued after the war). World War I presented the problem that imports dropped during the war, so again, alternative revenue sources were needed. Prohibition ended the revue stream on alcohol. Again, necessitating income taxes.

The important thing in the current tax bill working its way through the gaseous constipated, festering bowels of congress is that by giving more money to corporations and rich people, the deficit will be increased, making the economy more precarious for the many.

Jake Tarragon

If printing more money to finance government operations devalues the coin of the realm, isn't that a form of taxation? — Bitter Crank

Indeed, as I mentioned, it is. I am wondering what unusual forms of taxation might work.

tim wood

Indeed, as I mentioned, it is. I am wondering what unusual forms of taxation might work. — Jake Tarragon

I've had in mind the suspension of all taxes or tax-like revenue sources, replaced by a single national sales tax. The sales tax could be tweaked very year or two or as necessary, and could reasonably have lots of qualifications, limits, and exemptions. .

Figured as a percentage of sales price, what do you imagine that rate would be? I think it would stun most Americans and likely be around forty percent!

Clothing up to a certain amount, tax-free. Food, tax-free. Most basics under a certain amount, tax free, Basic shelter expense, rent or cost of a reasonable home, tax free. A vacation home, recreational boat or vehicle, or home over a certain price, 40% tax. Or maybe one year, 35%, or another 41%, and so forth.

These rates seem crazy, but at the same time, everyone starts with 100% of their income. A discretionary expense is just that, discretionary; you get to choose. If you don't buy, you get to keep your money.

Another advantage is weekly/monthly tax collection, from businesses that are - should be - always already set up to pay them.

Jake Tarragon

a single national sales tax. — tim wood

Yes, that's quite an interesting idea because of the relative ease of administration and differentiation of tax rates. But the categories would have to be straightforward, and I don't think keeping tally on how much a person has spent so far on clothes is practicable.

tim wood

↪Jake Tarragon

At first cut, no individual record keeping at all. No buy, no taxes. All taxes paid through purchase. No tallying annual amounts - or anything - by an individual. And the categories could be straightforward, or at least publishable. In any case, you'd know at point of purchase.

This for individuals. Business-to-business is not so simple. It could be simple, but would require some thought to make it simple. First try: businesses pay zero income tax. They just forward the sales tax they've collected, and pay sales tax on their own purchases. Raw materials might be more expensive, increasing the cost of finished products.

Second try: Businesses pay a set rate on a relatively simple aspect of their financial activity. Some investment accounts charge fees based on both income and capital. A business could pay a fee based on both income and assets. And so on. Lots of simple ideas spin out of this.

Agustino

40% tax. — tim wood

That is ABSOLUTELY insane. 40% tax on sales, meaning on revenue?! The government doesn't even need that much money, not to mention that such a tax would effectively cripple the economy.

(R-C)/R = P/R -> that's your profit margin.

Now if revenue is taxed at 40% that means that you need a profit margin of at least 40% to stay in business. Pretty much no one has such a profit margin. So everyone shuts down their businesses, and takes the dough home and sits on it. Or alternatively, everyone raises prices by 40% to swallow your tax, leading to a huge inflation. Either way, such an economy will fail.

http://fortune.com/2017/06/07/fortune-500-companies-profit-apple-berkshire-hathaway/

Agustino

This means of course, that a dollar will tend to decrease in value (deflation I think it is called?) because there are more of them in circulation every year to represent the "national cake" — Jake Tarragon

Inflation, but it's a terrible idea. Can you imagine the huge inflation that we would incur if the government had the Central Bank print all the money it currently needs? Prices would go up in a galloping manner that would be very difficult to predict & control - and thus it would be very difficult to do business in that environment.

Agustino

If printing more money to finance government operations devalues the coin of the realm, isn't that a form of taxation? — Bitter Crank

No, because it leads to inflation and the devaluation of money. The poorest will be most affected anyway.

Unless a government engages in commerce to generate its own revenue, I don't see how you can avoid a tax of some kind, no matter how rococo the scheme. — Bitter Crank

I actually think the government ought to engage in commerce, especially in certain key industries. They should also lower taxes on businesses and reduce red tape with regards just to small businesses while raising taxes on profits from financial speculation and gambling for everyone.

The biggest problem is that the government never goes bankrupt, so basically the same people get to stay in power even when they screw up. They just print more dough, borrow money from the IMF, etc. etc.

I would also set a 0 tax on all individual incomes under a certain amount, though the tax should probably be progressive moving upwards, because lowering taxes very much leads to high economic growth based just on increased consumption, and that's not very sustainable.

Also, perhaps banking should all be nationalised.

Jake Tarragon

Can you imagine the huge inflation that we would incur if the government had the Central Bank print all the money it currently needs? — Agustino

Yes. In fact I started a thread about it! Turns out that it could be very manageable with the aid of computers. Please have a considered read!

Jake Tarragon

Business-to-business is not so simple — tim wood

Indeed. In the UK businesses get their purchase taxes back - only the end consumer pays it without reclaiming. It' almost as much admin as income tax.

BC

↪Agustino

A sales tax, which can be targeted and vary with different products, seems rational to me, but why collect it at the check out? Why not back up 1 step and charge a tax on merchandise up-stream from retail? Tax it, for instance, at the point of wholesale purchase by the seller. Fewer transactions to monitor, that way.

Services need to be included as taxable, though these again can be targeted and can vary.

At least in most US states, gambling winnings are very taxable. It's hard to nail down winnings from back room games. Personally, I don't like gambling. I'm not psychologically suited. I can't play tic tac toe without a certain amount of anxiety. Gambling needs to be more widely recognized as a disease, too. Not for everyone, but a lot of gamblers are compulsive and can't stop until they've spent every last dime they've got.

VAT?

Agustino

A sales tax, which can be targeted and vary with different products, seems rational to me, but why collect it at the check out? Why not back up 1 step and charge a tax on merchandise up-stream from retail? Tax it, for instance, at the point of wholesale purchase by the seller. Fewer transactions to monitor, that way. — Bitter Crank

Why a sales tax? What's the rationale?

VAT? — Bitter Crank

I think VAT should be eliminated honestly - you don't have it in the US do you?

A tax on sales or revenue doesn't make sense to me. Only profits should be taxed in order to encourage businesses to reinvest as much as possible and not run profits year after year. But I see no reason to tax revenues. For example, in EU you usually have to pay some taxes on employees too. So then you end up paying tax on the salaries you give employees and another tax on sales (which is what you give them salaries from). That's effectively taxing you two times on the same amount of money... And just basically makes you raise price for whatever the VAT is.

BC

↪Agustino

No, we don't have value added taxes here, as far as I know.

Employers and employees here both pay social security taxes (Federal Insurance Contributions Act); corporations and employees pay income taxes (to the Fed, State, and sometimes local government), which are all deducted by the employer and turned over to the appropriate processing agency (quarterly, I believe). Sales taxes are levied by the state and county, at different rates. Then there are property taxes which largely support county and city government, and schools. So, it's a lot of taxes. Sales taxes are quite selective. Food, clothing, Rx, and services are generally excluded. Interest on savings accounts is taxable too, the same as other income (for individuals, anyway). Property taxes are payable in installments or in a lump sum.

Tim Wood suggested a 40% rate. If I remember correctly, 30% to 40% of gross income is what I paid for all taxes when I was working, rolling up all taxes together, so 40% isn't bad as an upward starting figure.

Yes, some taxes do hit the tax payer twice. Maybe quite a few do. I really resented counting interest on savings as income (back when interest rates were worth thinking about). The savings came from wages; which had already been taxed. Bad policy, it seemed to me, discouraging saving.

Some people say the individual tax payer ends up paying for most of the governments' requirements, because wage payers (businesses) reduce wages to help cover their own costs of taxation. I don't know how well that works out in actuality. Theoretically, if corporations were not taxed, they would pay higher wages. (I doubt it would work that way in actuality.)

Agustino

30% to 40% — Bitter Crank

Yeah, here all taxes added up to 30-40% too on gross income for employees, and the employer is also responsible for deducting that. But that's very high - effectively you need gross income to be 30-40% higher than what you pay someone in hand. And people don't care what their gross income is, just what they get in hand anyway.

VAT is much lower than that though. It ranges from 15%-27%. And I think that's normal. VAT is passed unto the consumer anyway mostly, for most products, especially where the demand is inelastic (such as basic food). How the tax burden is split is determined by the relative elasticity of the supply (producer) and demand (consumer) curves.

Yes, some taxes do hit the tax payer twice. Maybe quite a few do. I really resented counting interest on savings as income (back when interest rates were worth thinking about). The savings came from wages; which had already been taxed. Bad policy, it seemed to me, discouraging saving. — Bitter Crank

Yeah, it's an interesting thing. We think most of our economy is based on consumption, but it's really savings and investments that drive the economy. Consumption is actually quite a negative thing in excess - it basically means simply consuming value that is produced, ie destroying value.

Also, the way consumption is calculated, it includes even some elements that are actually investments (or consumption for the sake of production) - those elements are actually good.

Here's a good article.

Some people say the individual tax payer ends up paying for most of the governments' requirements, because wage payers (businesses) reduce wages to help cover their own costs of taxation. — Bitter Crank

It's not necessarily reducing wages, it can also be increasing prices (inflation). But yes, taxes are in the end passed off from one actor to another.

Theoretically, if corporations were not taxed, they would pay higher wages. (I doubt it would work that way in actuality.) — Bitter Crank

It does happen actually, but not the entire tax saving is passed onto workers as higher wages, and the higher wages aren't distributed uniformly - meaning people at the top get bigger increases than people at the bottom.

ArguingWAristotleTiff

I've had in mind the suspension of all taxes or tax-like revenue sources, replaced by a single national sales tax. The sales tax could be tweaked very year or two or as necessary, and could reasonably have lots of qualifications, limits, and exemptions. . — tim wood

If we nominate you, will you run? If you win, will you serve?
<begging

ArguingWAristotleTiff

Tim Wood suggested a 40% rate. If I remember correctly, 30% to 40% of gross income is what I paid for all taxes when I was working, rolling up all taxes together, so 40% isn't bad as an upward starting figure. — Bitter Crank

Exactly what we are paying today. If they take away itemizations we will be screwed.

Is it theoretically possible to do away with the usual forms of taxation?

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