Despite all the brilliant-ness of this tax system, it has some shortcomings. Here I will try to cover all the problems I can think of before anyone else points them out!
The Rich are not singled out
One is that there is still argument that the rate at which the rich pay tax should be higher than for lower income people. This system does not address that except by allowing for a higher D-Factor on transactions favoured by the rich.
How to Tax Composite items
Another is the complexity in the tax payable on composite items. Everything these days is made of both raw and recycled materials. Under this scheme all the ingredients for a given product will be taxable at different rates, by their differing D-Factors. It might be difficult to calculate the cost of an item off the cuff. Bad luck, use your app to work it out. It shouldn’t be that hard.
Take the example of a piece of furniture made of freshly felled timber and coverings made of recycled materials. Let’s say the timber is hardwood – not easily regrown and is considered, at least for this exercise, non-renewable and attracts a high D-Factor. The recycled stuff on the other hand has a low D-Factor. This is payable on the purchase by the manufacturer at their respective rates and contribute to the pre-tax cost price of the furniture. The furniture itself might have a neutral D-Factor only because it’s furniture, not because of the combination of high and low D-Factor components. Unlike today’s tax system (at least in Australia) the manufacturer would not be entitled to input credits. None of that rubbish in this system, remember! Every transaction is taxed according to its D-Factor and what the product or service is, regardless of its final use.
Misrepresentation of products and services
There may be temptation by businesses to sell things under a different identity in order to use a lower D-Factor and avoid paying the correct tax. This would be highly illegal and may result in finger-lopping.
This is a Federal Tax
Another problem is that this is a tax at the federal level. It makes no provision for state government income. State governments typically earn most of their revenue from speeding fines, with a little bit from stamp duty on things like houses, loans and car registration transfers. Oh, and some federal GST revenue.
Perhaps it’s too Easy to Change the Parameters
It may be too easy to change the rates of tax simply because the D- and G-Factors are technically very easy to change. However, there are acts of parliament that need to be passed/changed in order to alter any taxation laws. To prevent the government fiddling with D-Factors willy-nilly, these laws would have to apply to the alteration of D-Factors. Would there need to be separate acts for certain categories of product and service? I don’t know. I write software, not legislation.