What Is A Fair Tax?

The simplest answer is that any tax paid by someone else is fair.

The current rhetoric is irrational. That’s as you would expect with rhetoric. You can try to assess the fabric of a fair tax.

Why does the government need the money?

To provide the services necessary to operate the country effectively and, dare I say it, efficiently.

Under this view, a fair tax is the one that raises the necessary money at the least cost to do so.

That is barely considered as a factor. In the United States some years ago, a flat tax on family income at 17% of the amount in excess of $40,000 annually would raise more. Easy to administer. Easy to file the return. Less than the price most people would be willing to pay for sound government services.

The problem is envy. This tax is indifferent to who pays.

Why is progressive more fair?

It actually isn’t but it looks like those with more income can afford to pay more. From the most able to the most needy is the philosophy.  That philosophy ignores an important question. “What would those high earners have done with the money if they had not sent it to the government?

The rhetoric implies they would have spent it on luxuries. The evidence does not support that.

Maybe it is not. What are the alternatives.

Thomas Sowell’s question #1 regarding choosing a program. Compared to what? Have you ever seen evidence why this is the optimal choice. My guess is it is politically expedient and that relates to the envy many voters might have. Think about incentives. You get less of what you discourage. If that reduces the creation of wealth, who wins? Apparently only the envious.

What unseen costs are there?

Unseen does not mean absent. Some are fairly clear. Aside from the reduced incentives to provide economic growth, there are dislocations in society.

  • People migrate for tax reasons,
  • People choose business options on tax factors.
  • People work less than they could for tax reasons.
  • Families may need two income earners because of the loss to taxes.

Money equals power

Governments like power and they know money will get it for them. They must invent problems so the people will give them money to resolve them. There is little consensus on what we need, so part of the political problem is to “sell” the need.

Peter Drucker – “There is nothing quite so useless as doing with great efficiency something that should not be done at all.”

I wonder how useless doing it inefficiently would be. That’s more common. The question is, “Is there any tax that would be fair if its purpose was to do something that need not be done?” Fair expenditure should matter too.

Adjusting social things

Can taxes act as a disincentive or as an incentive to modify behaviour.

  1. Do municipal taxes affect how big new houses can be?
  2. Is the tax system neutral to family structure?
  3. Does it minimize personal charity?
  4. Are hidden taxes moral? There are hundreds of them.
  5. Do complex tax systems permit or even require lobbying and the growth of inefficient factors that suit only a few?
  6. Do tax effects direct investments towards ineffective uses of money?
  7. Is the taxing structure too complex to be understand?
  8. Can the structure be changed?

to think about;

  1. Should income earned that is reinvested, be taxed at all?
  2. What would happen if much more capital came available?

Should the structure move toward taxes that are only payable on consumption?

If Jeff Bezos had to pay a sales tax of 100% on his new $500 million yacht, but nothing on money invested in businesses, would that be okay?

The takeaway

Fair tax is a meaningless concept if your only criteria is that high income people have more money available to pay it. They might be contributing more to society by using their wealth effectively than the government would do if they had the money.

Some people would willingly choose to have less wealth if those who had more than they lost more. There are studies showing that. Envy is a not a useful contributor to anyone’s wellbeing.

Consider putting governments on a money restricting diet. The easiest increases in overall value will be found by stopping useless spending.

I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com 

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