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All Taxes Should Have These 4 Qualities

03rd February 2011
By JohnSmith3000 in Taxes
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Taxes are a fact in this world, and while Objectivists believe that any tax is immoral, at this point in time it is unfeasible to adjust to a tax-free world. The reasons why will come in the next post, for now we should be focused on making taxes equal, certain, convenient, and minimally intrusive.

Readers who have read Adam Smith's the Wealth of Nations should find these qualities familiar. Smith was a brilliant man when it came to describing the foundations of a free market, but he also contradicts his own writings when excusing the disproportionate amount the rich ought to pay considering their size of wealth. Here I disagree with him and hold that taxes should fall as the same burden upon every citizen.

1. Equality

Simply put, all taxes should fall equally on each citizen in proportion to their position in life. Here, this is not referring to any certain tax, but the combined effect of all present taxes. A person, whether he earns $1,000,000 or $10,000 should have equal percentage of taxes paid.

Several types of taxes fall equally upon each individual. A sales tax, a tax on consumption, is one of the most simple, yet also equal, taxes a government can have. It is true that the tax is regressive on the poor, but consumption is not a requirement of living, producing is, and as such each person has the option of consuming a product or service, and by extension not paying the tax.

A flat income tax, with no deductions and tax credits, is also equal upon each person. Here all people are taxed in accordance of how much they produce. Flat income taxes though do harm the poor, the middle-class, and the rich. Without producing one's livelihood, a person has death staring them in the face, as such it is immoral to tax production.

2. Certainty

How much do I owe given the legal requirements? A person should be able to compute how much tax they owe per activity that is taxable. The amount that is certain empowers the individual to continue their activities without having to worry on whether they have paid enough taxes.

Taxes can become ineffective over time due to increased uncertainty. Deductions, subsidies, and tax credits not only influence behavior, they are hardly ever last more than the government policy that enabled them. In this scenario, the U.S. Income tax system would be among the most uncertain.

As the number of deductions have increased over the years, the burden of compliance has increased accordingly. For personal income taxes, not including self-employment, no deductions, credits, or allowances should be in force. Businesses then ought to only have what profit is left after expenses to be taxed.

Certainty also infers a responsibility on part of the politicians. Tax law changes should be kept to a minimum, only increasing or decreasing the percentage taxed, with plenty of warning beforehand of the change. This can be kept to a minimum via constitutional amendments that address when a tax can be changed and under what circumstances.

3. Convenience

Each and every tax should be easy to comply with, meaning it does not cost the taxpayer much time or effort in complying with the law. How convenient a tax is though has changed over the years, and can still vary from place to place.

Sales taxes are one of the most convenient taxes one pays, with the tax applied upon each purchase. The business then sends the tax amount directly to the government entity. Income taxes can also be made convenient via withholding or paying the entire amount owed once per tax period.

The Internet has helped make taxes more convenient for those in developed countries. Software that computes, files, and correctly displays what is owed or not have cut the time of compliance down for personal income owners. This venue should be extended by allowing business to maintain forms, tax deposits, and any related paperwork directly upon a secured server for the government revenue entity.

Local and state governments can also participate by allowing a one-stop website where taxpayers can pay all their local and state taxes owed in one payment, then the accountants of the state can send the correct amount of money to each government entity as needed.

4. Minimally Intrusive

Taxes must be as small a burden as possible upon citizens. Some deficit spending is unavoidable for a government, there are times when expenses can spike due to outside influences such as commodity changes or through temporary employment increase. As these can be planned for somewhat ahead of time, the government should take no more than what is necessary to cover expenses and a small amount more for savings.

Expenses must be covered, but with it comes responsibility on part of the politicians and voters. How large a government a population desires should reflect how large of the level of taxation. Minimalist governments then ought to have low taxation, while large government have high taxation. There's no magic formula for determining how large a government should be.

Voters will have to decide how much they want, via elections and the democratic process. If politicians are expanding at a rate the public does not want it to, the voters should have a voice in scaling back the government by electing new officials and calls for referendum and recalls.

Taxes should also be as minimally intrusive upon producers, who are essential if a population is to survive. Imagine what would happen if the farmer stopped producing, and then imagine what would happen if the shopper stopped buying. One scenario would be disaster for a society, the other would be hard but adjustable to.

When taxes have the qualities above, it makes for a transparent and effective policy for a nation. People benefit in knowing exactly how much they will pay as they earn more money, and that the amount will not change disproportionally to their income. Both voters and government have a responsibility to make taxes convenient and to determine how to best keep them minimally intrusive, which is best decided in a democratic government.

So what taxes do follow these four qualities? Income tax certainly doesn't, and neither does capital gains or most progressive taxes. Check back here by visiting here. Or by visiting
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