An Alternative to our current US tax system?

I don't think I'm alone in thinking the US tax system seems overly complicated. It doesn't look like it really works. It discourages savings, makes running a business too complicated for some to consider, seems to favor those who can trick the system, and it requires an army of people in the IRS as well as a comparably large army of accountants.

"The President requested $12.6 billion to fund IRS's fiscal year (FY) 2011 operations, including $5.8 billion for enforcement, $4.1 billion for operations support, and $2.3 billion for taxpayer services." - U.S. Government Accountability Office

There have been a lot of ideas for simplifying the tax system. Criticisms are typically that they wouldn't generate enough revenue, they'd tax the poor unreasonably, or they too would be overly complicated.

The X Tax: The Progressive Consumption Tax America Needs? looks like a well thought out, interesting alternative that keeps these criticisms in mind. I'd be interested in hearing what others think of it.


"Good tax policy should be pro-growth, simple, and fair. An income tax, unlike a consumption tax, penalizes saving, which undermines economic growth and introduces complexity. An income tax is often thought to be fairer than a consumption tax, however, because it taxes saving, which is disproportionately done by higher-income individuals. In reality, however, a consumption tax can be designed to be as progressive as the current income tax. The Bradford X tax offers an attractive, if little-known, form of progressive consumption taxation."
- December 2008
 

Innovation, Full Employment, Workers Rights and all that good stuff

In arguments between the dominant two political parties in the US we often hear debates on employment, benefits, workers rights and such subjects pitted as big business versus workers. How can business thrive, so that people can have jobs and people can have investments for their retirement that have a positive return, while at the same time people can have work that pays, has benefits and isn't oppressive?

Flea Market Browsers at White Cloud, Kansas, near Troy, in the Northeast Corner of the State. It Is Sponsored by the Ma Hush Ka (Iowa Indian Language Meaning White Cloud) Historical Society to Raise Money for the Local Museum Housed in the 100-Year-Old Schoolhouse. Area Indians Participate in the Flea Market in Which Native Crafts as Well as Antiques Are Featured. The Town Is Named after the Last Great Iowa Indian Chief Whose Tribe Was Given Area Land by Treaty 09/1974

At the same time we hear how small business is the backbone of the country, the biggest employer, etc. So why is small business pretty much ignored? Laws and financial help from the government center on either big business or workers. Companies are bailed out when they're too big to fail. The assumption is that this is the only way to save our economy and people's jobs. In reality it's insanely lazy and really only helps big companies, big investors, and big unions.

Money is handed out to banks with the assumption it will magically trickle down to small businesses. But those small businesses are risky. They're owned by people who have often wrecked their credit to make those businesses work, or who started a business when they were broke from lack of work. Banks don't like risk. Handing a mega bank a truckload of money and thinking it's going to somehow make it to local dry cleaners and pool cleaning companies is beyond naive.  If you operate a small business you're pretty much on your own.

What could the government do to benefit small businesses? Probably the best thing to do would be to stop what they are doing. Get out of the way. Stop propping up big businesses. Stop charging the American people to hand money out to big banks thinking it will benefit anyone other than banks, big business and share holders of big business. Stop thinking unions are the representatives of all people who work.

Once they stop what they're doing, maybe they can help small businesses. Why would you want to do that? Small businesses are nimble, they innovate, they employ locally. What could be done to help?

Health insurance - break down barriers to allowing small companies to get affordable insurance. If a national scheme works, fine. Otherwise, just allow insurance companies to operate across state lines, allow groups to organize themselves, etc.

Access to capital - a slow down of a couple of months or a need to invest in equipment can be a death sentence for small businesses. Make money flow easier. Work more with SCORE to help small businesses get guaranteed loans. Establish micro lending operations like have been done to help businesses grow in the third world.

Mindset - it may seem to run contrary to common logic, but the reality is many businesses in America are too big to succeed. They are slow to change and innovate. They don't have a good handle on the profit and quality of the individual components of their products. They struggle endlessly with their relationship with employees.

With a small company a larger percentage of employees are owners. They'll work as hard as they need to and as hard as they are willing to succeed. If you're an owner you don't worry about your treatment by management - your treatment is a result of your success or failure.

When people don't have opportunity, they make their own opportunities. They start businesses. I started my business when I didn't have work. Undocumented workers start lawn mowing, childcare, house cleaning and piece work manufacturing operations that they can do from home when they can't find work.

What if instead of trying to stop these things from happening by artificially supporting huge companies, treating unions as the representatives of all the employed, worshiping employment statistics, and legislating against businesses we instead helped people work and own their companies.

Some things that make a war in Iran not seem that silly

I'm not advocating war with Iran. I don't particularly love Iran - I think Mahmoud Ahmadinejad is a nut. I think the people of Iran seem quite repressed and they don't seem to have any rights. Iran poses a constant threat to Israel, they execute more people than any country other than China, despite being the 17th most populous country, and evidence points to them supplying insurgents in Iraq.

Often times when you hear the possibility of war with Iran raised you'll hear pundits and commentators criticize the thought of getting into a third war. That might be true, but in some ways it's like saying you're eating two slices of bread and you might have some peanut butter when you're having a peanut butter and jelly sandwich.

The reason I say this is, as you'll see from this cute map I found, Iran is right in the middle of Iraq and Afghanistan. In fact, Iraq and Afghanistan are less than 900 miles apart, all through Iran. So if you wanted to move troups and supplies between Iraq and Afghanistan, instead of having to go through Pakistan, across the ocean and land, you could go across Iran. In case you're thinking Iran might be a rugged frontier like Afghanistan I'd like to inform you that according to what I learned in college from writing a paper on the train system of Iran in a Persian history class, their infrastructure is quite good, at least in places.

Aside from supply line logistics, there's the issue of where terrorists and insurgents are getting supplied from. Any talk of fighters in Afghanistan, Iraq or Israel will at some point make mention of Iran.

Just to clarify, I'm not advocating war with Iran, or saying I'm in favor of it. I just want to point out that it's less like deciding to fight another country in a far off land and more like consolidating lines and removing sources of unrest in the areas we're already in. Of course, the fact that they are an Islamacists government and their country has oil and they can't seem to stop trying to make nukes doesn't help their case.

Bush tax cuts

I'm no economist, so my thoughts on the Bush tax cuts expiring are not initially whether this would spur economic growth or remove a revenue stream. What I notice more is the problem with the debate about them.

Our Congressman are arguing vigorously about whether the tax cuts for those earning over $250k a year should be renewed or allowed to expire. If you're a Paygo person, believing that all payments or tax cuts should be paid for as you go, then you need to know where the money will come from to pay for this tax cut. Who is supplying the money those earning over $250k a year aren't? That makes sense.

What doesn't make sense is how Congressmen on one side of the aisle argue that this is a tax cut for the wealthy, while those on the other side argue that allowing the tax cut to expire would harm small businesses. They appear to be arguing with each other, but are saying completely different things. In addition to not being an economist, I'm not a trained mediator. However, in my experience, if there's an argument the first thing that has to be done is to clarify what's being argued about.

It would be really great if everyone sat down calmly and answered the following questions:

• Does this tax cut benefit those earning over $250k year?
• Are those who earn over $250k always wealthy enough that taxing them like this is not unnecessarily burdensome? Always? Some of the time?
  
• Would this have a negative impact on small businesses? Just a small percentage of them, or most?
• If it would harm small businesses what could be done so they wouldn't be harmed?