With nearly every election and federal budget delivery comes with a renewed campaign to overhaul the tax system. Some highly paid bureaucrat will publish a report with his name as the title, recommending a bunch of complex changes to “improve” the tax system. Up pop catchy new names for these new taxes. Deficit Tax. Carbon Tax. Yet Another Tax. Yet another special case of revenue collection with its own peculiarities to administer. Let’s not do this. The tax system is a dog’s breakfast.
This post is the first in a series that aims to outline a simple, generic, yet effective tax system that can be applied by any government, easily and seamlessly.
Let me point out I’m a software engineer. I’m not an accountant, lawyer or a tax expert, so to those people this whole exercise may display a certain amount of naivety, but please bear with me. I believe the tax system doesn’t have to be as complicated as it is. There are too many rules. Too many exceptions to the rules. Too many special cases. I don’t understand why it has to be so hard to grasp (unless the reason is to justify the existence of tax accountants, their need for qualifications, their secret jargon no one else understands, and the resulting tendency to charge a lot of money). But I can visualise how a tax system could be implemented. I see no reason why the tax on anything cannot be expressed by a very simple formula with only two tweak values. With this system I propose that kids in year level 2 will be balancing the federal budget as a homework exercise. Maybe… Maybe not.
I stress this is a tax system. It is designed to collect revenue for the government, whether we like it or not, it needs to exist. It is not a welfare system. As such, one of the key features of this system is that it doesn’t care what type of tax-paying entity you are. You will pay the same tax as every other tax-paying entity according to how much you spend (did someone say consumption tax?). If you think you deserve some sort of concession, rebate or grant, then apply for welfare. More on that another time.
The advantages of this system are:
- Seamless transitioning from the old system to the new.
- No abrupt effects on inflation during the change-over.
- No dependency on income and no arbitrary cut off levels of income.
- No earning brackets with different levels of tax. No bracket-creep!
- Reduced resentment by the poor of the rich (hopefully!)
- Base level of tax pays for basic government expenditure.
- Additional tax on certain things pays for the ill effects of those things.
- No loopholes, intentional or otherwise.
- Abolishment of all tax reduction incentives. For incentives, see welfare.
- Has inherent support for environment protection.
So over the next few posts, I will discuss how we can achieve this with the following topics:
- The Theory
- In Practice
- Integration & Transition
- Selecting D-Factors
- Possible Scenarios
- Problems and Pitfalls
So, read it, examine it, criticise it, offer suggestions, improvements. But please keep it civil.