A New Tax System: Possible Scenarios

Previously I discussed the selection of appropriate D-Factor values. In this post I will go over in more detail some of the unusual types of payments we make and explain how this tax system applies to those payments. I won’t talk about the standard payment for goods and services as they are straight-forward enough.

Loans

Loans are paid for by interest. The tax (G x D) would apply to the interest each time it is paid.

Investments

Shares

Sale of shares

Shares can be considered a tangible product which can vary in value over time, like anything else. Tax is payable with an appropriate D-Factor at the time of sale. This means tax is still payable on shares that have dropped in value. Compare this with taxing the profits on the sale of shares and the difficulty of taxing a loss.

Dividends

If shares are considered collateral for a loan, then dividends are basically bonuses paid by the company to the shareholder and are treated as interest repayment for the loan. Tax is applied to the dividends with an appropriate D-Factor. This obviously applies no matter how many times the shares change hands.

Bonds

Treated the same as shares.

Incentives

Welfare

Welfare is considered a transaction for which nothing is expected in return. Therefore it shouldn’t be taxable. D = 0.

Grants

Business and community grants are considered welfare and are not taxable. D = 0. Business grants may provided with the expectation of receiving something in return. TBD.

Transport

Just another service. D-Factor applies.

Cars

Purchase of the car itself is just like any other product type with its own D-Factor.

Fuel

This is a good example where an environmental approach to determining D-Factors, versus an industry friendly approach can lead to big differences in D-Factors. Otherwise it’s just a product. Except that a distinction should be made between renewable and non-renewable energy sources in order to assign appropriate D-Factors.

Servicing

Just another service. D-Factor applies to costs.

Public transport

Just another service. Again, environment versus industry for appropriate D-Factors.

Demand Control

The government could temporarily adjust demand when industry doesn’t, by fiddling the D-Factor for specific products, services or categories. I imagine the use of this should be rare. This could be an alternative to adjusting interest rates for controlling spending.

Fines

Usually issued by the government agencies and attracts no tax. D = 0. But maybe…

Council rates

Usually issued by a local government and attracts no tax. D = 0. Unless the rates are considered payment for services provided by local council… but wait, that’s exactly what they are. Tax may apply. But local government is already a form of government that would be collecting tax for another form of government. I don’t know. You decide.

Employer/employee

This is what is traditionally the wages-for-labour relationship which attracted income tax. In this system it is simply another transaction: One entity (the business) buying a service (the work of the individual). It could be that this type of transaction has a standard D-Factor across the board. Alternatively, different types of labour might attract different D-Factors. Rather than tax people with higher incomes at higher rates, apply higher D-Factors to labour transactions that required greater discouragement. Conversely for jobs where encouragement is needed.

Typically the low-paid jobs such as cleaners, emergency workers, etc. are the ones that are essential so these may have low D-Factors to encourage people into those jobs.

Contractor/subcontractor

Same as Employer/Employee. Identical, in fact. It’s the same transaction: money for labour. If a company hires an individual on a full time basis it’s the same as hiring another company or business to do the work. Of course the subcontracting company will have a similar relationship with the people it employs to do that work.

Superannuation

Super is an investment. It is a loan from the employee to the companies in which the money is invested in the case of shares and bonds. If Super is invested in property, the tax would apply to the purchase price in the same way as any other purchase of property. Essentially there is no difference, tax-wise, between investments made as part of a Super scheme or as a regular investment. Does there need to be a difference? If concessions are required for superannuation investments, perhaps this is another case for a grant.

Discourage Decriminalised Goods

The D-Factor tax system could be used to control the purchase of questionable goods that may be decriminalised to prevent black market distribution.

Sale of a Business

Selling a business is the same as selling anything. Tax with appropriate D-Factor applies to the purchase price.

How to Make the Rich Contribute More Tax

This is always a contentious issue. The 90-odd percent of citizens who resent the fact that the rich seem to pay little tax would love to see these people pay their fair share. How can this be imposed with what is essentially a transaction tax? The rich might just be tempted to stash their cash under the bed and not spend anything.

Basically the amount of tax paid is dependent on how much people spend as opposed to a large chunk dependent on earnings. One way to make the rich pay more is to apply higher D-Factors to services that the wealthy traditionally occupy. Maybe a high D-Factor for executive services, financial control services, company director services, politicians, etc. would be desirable.

Other ways might be just to let nature take its course. The rich will spend or invest the money they have and earn more simply by charging more for their services.

Have I missed anything?

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