Efficiency is clean, healthy, spare, aesthetically and morally correct.
I love efficiency.
Inefficiency is fat, bloated, wasteful, lazy, slothful, ugly, and just flat wrong.
The United States income tax system is a fucking pig.
Leaving aside that a tax on the personal income of US citizens appears to be unconstitutional, even leaving aside that the friction of taxing productive labor is arguably among the best ways to ensure mediocre productivity, the way the US income tax system is structured and administered is so wasteful and riddled with parasitism (parasite: a non-productive entity that exists by siphoning resources from productive entities), that were we to wholesale replace the entire income tax system with something better, the resulting gains in direct financial efficiencies at the government level and accounting and operating efficiencies at the personal and business levels would be a significant step toward a solution to our current economic woes.
Here, in three spare, efficient steps, is my* modest proposal:
- Get rid of the income tax
- Get rid of the IRS
- Implement a national value added tax (VAT) at an appropriate percentage to make up for the elimination of income tax revenue.
On Taxing Consumption vs. Productivity
I think a VAT would be better than a “flat tax”. Here’s why: the difference between a VAT and the various flat tax proposals that have been floated is that a VAT is taxing our consumption whereas a flat tax is taxing our productivity (like our current system). You might naively assume that if you design the rates so that either the VAT or the flat tax generated the exact same gross revenue as the current income tax system that it would be a wash between the two, and a net efficiency win either way because of the elimination of all the wasteful machinery involved in our present system. But I don’t think so.
Although I do think that a simple flat tax would be more efficient than what we have now, when you tax productivity, you are putting a drag on the very engine of the economy. When you tax consumption, you are instead skimming off a percentage of the excess that the economy ultimately produces. Even though money is fungible in the big picture, and 2 = 2, I believe it makes a difference where and when in the financial cycle you take the money from. In practical terms, taxing consumption rather than productivity is going to automatically skew where in the financial cycle, and who the tax money comes from, and it is going to skew it in a way that does the least damage to the overall health and productivity of the economy. Taxing consumption leads to greater overall efficiency than taxing productivity.
For tax year 2009, IRS employees: 92,577; IRS total budget: $11.708 billion (on average, $126,474 per employee). The CBO projects that the IRS may need to add an additional 16,000 employees over the next ten years just to cope with the tax provisions of the new health care legislation.
Outside the IRS itself, private sector tax accountants, tax prep firms, tax attorneys; all hamsters running on their wheels, generating only heat and no light. Take away our massively inefficient income tax system and none of these professions actually add anything of value. Even with the income tax system we have, they are net 100% non-productive in terms of wealth (or capital) creation. I’m not trying to say anything bad about them as people, but their current function in our economy is entirely parasitic. Do away with the income tax and we free all of these people to become productive members of society. They might not like it in the short term, but their karma and our economy will thank us in the long run. I promise.
Think about how much hassle and expense is involved in preparing your income tax return. Not just those couple weeks in April, but the whole year’s worth of receipt tallying, expense categorization, paying professional parasites and etc. Now multiply that time, energy, and monetary expense by every single tax-paying individual, corporation, and organization in the US.
OK, here comes the good part: now imagine just tossing that entire bolus of bullshit out the window completely, cleanly, and forever. Wow, doesn’t that feel great? None of that work, none of that expense is necessary in any way at all. Instead of all that paperwork, stress, expense, and uncertainty, you’ll just pay your taxes — the same taxes that everyone else is paying — absolutely mindlessly and effortlessly, a tiny little bit at a time, as you buy your milk.
The sheer complexity of the tax code, with nearly 100 years of special interest modifications baked into it, all written in impossibly complex legalese that no normal human can understand, is perfectly engineered for gaming by those entities that are wealthy and sophisticated enough to manage it. Thus, the current tax system is skewed toward exacting more from those who can afford it least, and less from those who can afford it best.
Now imagine replacing that chthonic pig with a small, simple, agnostic VAT, that applies to every consumer equally. What a breath of fresh air! I think that whoever pushed such a change through our collective constipation should definitely get a seat in the first-class cabin on the flight to heaven.
Of course there are people under a certain threshold of income who do not now pay income tax and for whom the additional tax on their life necessities would be unduly burdensome. This can be managed through any number of welfare subsidies such as food stamps without significantly eroding the gains in efficiency from replacing the income tax with a VAT.
On What Sucks
There are all the above reasons and many, many more to adopt this modest proposal. There is only a single, simple reason not to. It is the same reason that neither this, nor any other proposal that makes sense for all of us collectively will ever be implemented outside of a crisis when it will already be too late to hold off catastrophic consequences. It is the case that there are people who have gamed the system as it currently stands who have a vested interest in maintaining the status quo because it is tilted to their advantage. And surprise, those people are the people who make the laws (or pay the real salaries of those who make the laws).
Vested interests criminally suck. And to the degree that we continue to allow the vested interests of a few to obstruct the enactment of policy and systems that would be so obviously better and more healthy for the US as a whole, I gotta say, collectively, we really suck too.
*not really “mine” of course. I’m just sayin…