I haven't thought this through nearly enough, as it only just popped into my head while reading a comment to a post about reforming the Federal Income Tax, so I decided to blog it so we can kick the idea around a bit. It just might be an elegant solution to funding a properly limited Federal government. A basic truth is that taxes are often more about control than revenue. To encourage behavior, governments subsidize it; to discourage something, they tax it. Punitively taxing income and savings is counterproductive to a free market economy; if anything we should be taxing consumption. This is why I have long been an advocate of the Fair Tax; but even that is convoluted and messy in its implementation.
I would like to do away with the IRS, or at least its interface with individual citizens in any way. How much income we have, how we earn it, and how we choose to spend it, is none of the Federal government's business. What if we were to fund it entirely with excise taxes instead of income taxes? What if banks and all other financial institutions that provided banking services, were charged a small excise fee as a percentage of every transaction on the debit side of their ledger, and permit them to pass that cost on to their customers as a transaction fee? That way, depositing earnings and other income from whatever source would not be taxed. Only the act of withdrawing funds, one way or another, to spend them for whatever purpose, would be effectively taxed. No exceptions or deductions would be necessary or desired.
It would be naturally progressive as the more one earns, the more one spends, and the more likely one will incur multiple hits, by moving money around between accounts for various purposes. Yet, even the poorest citizen will be able to consider himself a taxpayer, even if only during the cashing of his check at a check cashing service, which would need to pass on its own excise fees incurred by the transaction. l sort of like the idea that the professional gamblers, euphemistically refereed to as 'day traders,' 'commodity speculators,' et al, would be paying handsomely for their generally disruptive sport, whether they win or lose.
Given the velocity of money, I have no idea what the excise tax rate would need to be; but if we could get the Federal government back out of the entitlement business, and other areas they are not Constitutionally empowered to be involved in, I am sure 1% would be much more than needed to fund its legitimate affairs. It even occurs to me that the salaries, benefits, and office expenses for Congress and their staff, probably should be paid by their constituents, not Federal taxes. Universal suffrage is highly overrated, so I think a substantial poll tax could be collected to cover these expenses. The thought of that engenders all manner of pleasing thoughts in my mind.
I could go on, and certainly will; but it should be enjoyable to brainstorm the idea, so please join me… ◄Dave►