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Taxes (a Government Finance Issue)


Introduction

The functions performed by our governments and the services and benefits they provide cost money. In order to pay for this government spending, our governments must raise revenue through some combination of taxes, levies, fees and fines that are imposed on businesses and individuals. Eventually, one way or another and to varying degrees, this government revenue all comes out of our pockets.

Our sales, use, property, income and various other taxes add to the price of everything we buy. The government uses a good portion of this tax revenue to pay for protecting our economic system and the quality and safety of our goods and services. Without the protection provided by the government, businesses and individuals would need to spend a lot of money to provide for their own protection, which could cost us all a lot more than what we pay in taxes for this protection.

In addition, without the government’s product standards and inspections, the quality and safety of what we buy might be inferior to what we currently have. However, too many government regulations could end up making some things more expensive than they really need to be. Therefore, the proper types and amounts of regulations are needed.

In the previous subsection, we have already talked about some of the things that the government spends money on and how we need to ensure that our governments are spending wisely. In this section, we will talk more about how we can ensure that our governments are taking in enough revenue to support the spending we need them to do, and that we are each paying our fair share of the taxes and no more. We will also look at some new ways for our governments to finance their operations and the projects and programs that we need.

Problems

First off, most people probably would not want to give up the benefits and services that they get from the government, but few of us really like paying taxes. There are a number of reasons for this.

For one thing, most people like the idea of being able to get something for nothing or at least at a bargain price. Of course, if one person gets something for nothing or at a real bargain price, then someone else will end up having to pay for it.

One reason we do not like paying taxes is that we can rarely see a direct connection between the amount we pay in taxes and the things that our tax money gets for us. When we make our own purchases, we can see a much more direct correlation between what we spend and what we get, and we can more clearly see whether or not we got a good deal.

Without being able to see a direct relationship between what we and other people pay in taxes and what we and they get back in return, it is difficult to determine whether or not we or other people are paying our or their fair share. This leads to the issue where we might feel, rightly or not, that we are paying too much in taxes and that certain other people are not paying their fair share.

In addition, we are constantly hearing about government waste and corruption, which can lead us to the conclusion that most of our tax money is being wasted or going into someone else’s pocket. We should hope that most of our money is being spent wisely, but we cannot be sure without some sort of strict accounting of government revenue and spending.

Another big issue with our tax system is that it is too heavily dependent on the strength of our economy. The government revenues that come from our income taxes, sales taxes, property taxes and many other types of economic activity and prosperity type taxes and fees are all dependent on the size of and the growth rate of our economy. On the other hand, a good portion of our government’s spending is inversely dependent on the strength of our economy. This means the government gets less revenue at the very time it needs more.

When the economy is doing well, the government’s revenues are up and the spending needed to provide for the needy is down, which should leave us with a surplus that can be saved for a rainy day. Of course, the extra revenue can be a big temptation to our representatives, who will often try to spend it on new projects or services, or will try to reduce our taxes without concern for what revenues may be needed in the future.

On the other hand, when the economy is doing badly, revenues will be down and spending will need to go up to support the needy and to help stimulate the economy, which will cause the government to run a deficit. If the government has not saved for this rainy day, then it will have little power to help “fix” the economy. If the government tries to reduce the deficit by raising taxes or cutting services, it risks making the economy worse. If it spends too much money on stimulus packages, it can throw the economy out of balance and end up making the deficit even worse, which will end up costing us even more in the future.

Laffer Curve

Laffer Curves The Laffer Curve illustrates the concept that tax revenue will increase with an increase in the tax rate, up to some point, and then will decrease with further increases in the tax rate. It is obvious that a 0% tax rate will bring in no tax revenue. Then again, if the tax rate gets too high, it will raise the cost of goods and services to a point where they will cost too much for anyone to be able to afford to buy them, and in turn there will be no tax revenue. However, the concept states that at some undetermined intermediate tax rate, tax revenues will be at their highest. The diagram shows 3 possible Laffer Curves, where each might be valid for different types of taxes.

This concept parallels the concept of supply and demand that is used by businesses. A business needs to mark up the price of its goods and services by some percent beyond their fixed plus variable costs in order to make a profit, but not mark up the price so high that not enough people will buy them, For a business, the goal would be to maximize profits, so they need to mark up the price by just the right amount. However, a business may also need to be concerned with their competition. This means they may need to keep their markup a little lower in order to beat the competition, which also means a little less profit.

The government also wants to maximize their tax revenue in order to provide the needed government services without running a deficit. Some politicians say that tax cuts will stimulate the economy, and that the increase in economic activity will bring in more than enough revenue to make up for the lost revenue from lower taxes. Other politicians say that higher tax rates are needed to bring in the revenue to pay for needed government spending.

In most cases, these politicians have no idea what tax rate is the sweet spot where we will get the maximize tax revenue. If the tax rate is already below this sweet spot, then lowering it will lower tax revenues. If the tax rate is already above this sweet spot, then raising it will also lower tax revenues. Therefore, the key to maximizing tax revenue is to figure out where this tax rate sweet spot is and then, and only then, lower or raise the tax rate as needed.

Although the concept behind the Laffer Curve points to a specific tax rate that will maximize tax revenues, there is actually a range of tax rates where revenues would only increase or decrease by a small amount. Therefore, the goal should be to find the lowest tax rate that will bring in the needed tax revenue. In this way, we can allow for the maximum economic stimulation, without the need to run a deficit.

However, there is another point to keep in mind. Just because a given tax rate is best in one case does not mean it is best in other cases. Each case must be evaluated to see what the best tax rate is for that case. For example, the sales tax on one product may be best at one rate, but the sales tax on another product may be better at a different rate. In addition, the income tax for a low wage earner may be better at a lower rate than that for a high wage earner. As conditions change, the tax rates that would product the maximum tax revenues may also change, which may then require a change in the tax rates.

The Laffer Curve also shows us that there is a maximum amount of tax revenue that the government can collect. This then sets an upper limit on the amount of money that the government has available to spend. If a government ends up spending more than the amount that can possibly be collected, then there will be a deficit that will require less future spending or will lead to bankruptcy.

Goals

When a government collects taxes, levies and fees, one of its most important goals must be to ensure that it brings in enough money to pay for the things that it needs to do in a way that is fair and equitable for everyone concerned. One of the best ways to do this is by directly getting the money in exchange for providing the specified service. For instance, the government could charge a toll for using a road in order to pay for building and maintaining that road.

When it is not possible to charge for a service directly, taxes should be imposed based on the probability or risk of needing a given service. This would be similar to the way some people need to pay more for insurance based on the probability that they will need a payout. For instance, most people hope they do not need to have the fire department to put out a fire or for the police to investigate a theft, but they need to be available when the need arises. Just like insurance provides protection to all its policy holders, these government services need to be provided to all the government’s citizens.

Therefore, a system needs to be in place to collect taxes so that everyone pays their fair share for these services. For instance, fire protection is most needed by property owners, so property taxes should include a component that charges higher taxes based on the probability that a property will have a fire and how much it would cost to put out that fire. In a similar fashion, people who earn more or who have more personal property may be at a greater risk of being robbed, so income taxes and personal property taxes could be used to help pay for police protection.

Another important tax goal for the government is to ensure that it can collect enough taxes, levies and fees to pay for what it needs to do no matter what the economic conditions are. One of the biggest shortfalls of many governments is that they only plan for how they will handle things in times of prosperity. When the economy turns bad, they do not have enough money coming in to maintain needed services and programs, which means they will start cutting them just when people may need them the most.

One thing that a government must always do, no matter how well the economy is doing, is to not waste money. Along with this should always be the goal of saving for a rainy day, since something unexpected may come up, even in the best of times. If a government has saved enough, then it will be able to better ride out the bad economic times and be able to handle the most unexpected problems without reducing needed services and programs.

In bad economic times, the biggest tax revenue problem is that income tax revenues will be reduced when people lose their jobs, and sales tax revenues will be reduced when people cut back on spending. Therefore, a critical piece to the tax puzzle is for our governments to have a way to even out their revenue stream. Saving for a rainy day will help a lot, but some alternate means of providing services and beefing up tax revenues may also be needed.

When I talked about evening out employment in the subsection on jobs, I touched on one way to help the government maintain its service level. The government could reduce the hours of its regular employees and bring in the otherwise unemployed to help fill in the ranks at lower pay. This would allow government employees to at least keep their jobs and help the otherwise unemployed earn at least some minimum amount to keep them going, while reducing the government’s costs.

Tax revenues can also be helped, by stimulating the local economic activity by putting the unemployed to work on special backup jobs, so that their labor would not be wasted. During times of full employment, these jobs might not have been worth doing because other work would have been more profitable. During times of high unemployment, the income from these jobs would earn the workers and the government enough to offset at least some of the costs that would have resulted from them being unemployed. For instance, people could make goods or provide services that would have normally been cheaper to import, but that would now make more economic sense to be done locally.

Balanced Budget

Theoretically, requiring our governments to have balanced budgets would be a good way to prevent deficits, but it would need to be done in the right way. If we just put spending limits on our governments and not let our governments borrow when needed, it would do little to ensure that our money is being spent wisely and could deprive us of needed services. Sometimes, we must borrow in order to invest in something that will bring us big returns in the future.

What we need to do is to require that each dollar of spending is backed by a dollar of tax revenue. If the spending would reoccur each year, then it must be shown that there should be sufficient future revenue to continue funding the spending for as long as it was needed and not just for the first 5 or 10 years as is often done.

In some cases, current spending is needed to invest in some project that provides benefits in the future. A new road or building may be needed, or money may be needed to cover some unexpected expense. In these cases, it would need to be shown that there would be enough future revenue to pay back what was borrowed and to cover the interest on the loan. If the revenue needed to repay the loan comes directly from the benefits derived from the project, then it helps to show that the project had merit.

Of course, even if it can be shown that there is money to cover some spending, it does not mean that it would be the best use of that money. Our governments should first do the appropriate cost and benefit analysis, and to prioritize our spending on everything to ensure that our money will be spent wisely.

Personal Choices

As individuals, we must decide how we are going to earn and to spend our money. This means making choices as to how much education and work we are willing to do in order to earn enough money to get the things that we need and want. For most of us, we will want more than we will be able to afford to get with what we will earn from the work we are willing to do.

Therefore, we may need to prioritize our wants, so that we can spend what we earn on the things that are the most important to us. When possible, some people might be able to work more, so that they can earn enough to get more of what they want. For most of us, we will need to limit our spending on the things we want based on our available time and money.

Of course, few people will end up making the same choices and most of us will wish we had done at least a few things differently with our work and spending. Nevertheless, we will have been, for the most part, in charge of deciding which of our wants we ended up getting.

Government Spending Decisions

Through our national, state and local representatives, we also need to make many decisions about the role that our governments play in our lives. We must decide what our governments need to do, how much money they will need, and how much each of us should be taxed. The first step would be to decide what things we need and which of those things are best done by our governments and which are best left up to us.

Then we must prioritize the things that our governments should do based on their importance. This prioritization should go down to the lowest levels. That is, each thing should have its parts prioritized and not just its whole. For instance, having a national military may be a very high priority thing, but having more types and larger quantities of some equipment may have a far lower priority than doing many non-military things.

For high priority items, there may be no choose as to whether or not we must raise the money and do them. For lower priority items, there will be a point where higher taxes will be too much of a burden on people to justify the expenditure. Of course, there may be times when some things are too important to wait until they can be paid for through current taxes. In these cases, the government may need to borrow money so that we can take care of them now and then repay the money from future tax collections. In these cases, we must be willing and able to give up some things in the future.

It is also important to decide which government should do what. The national government should only deal with national issues such as protecting the nation, dealing with foreign governments and relations between states, and handling things that need to be the same for everyone. State governments should only deal with issues that vary between different parts of the country, but which are pretty much the same within the state. Local governments should only deal with issues that vary between different parts of the state or that need more of a community or personal touch, which would not be possible to do at higher levels of government.

With few of us agreeing on what our governments should be doing and spending, and how much we should be taxed, it is no wonder that many people are unhappy with our governments. The best course of action is to leave as many things as possible up to individuals or private groups so that everyone has a better say in what their money is spent on.

In cases when there are a lot of people that may want to do things differently than other people and what they want to do would not harm others, then they should be allowed to handle these cases themselves. For instance, different people may want, and be willing to pay for, very different types and amounts of health care coverage, so it should be left up to individuals to make their own choices about their own health insurance.

Government Taxing Decisions

Now, from the other side of the equation, we must decide how much money can be raised to pay for our government spending. This can be very difficult to determine. If taxes are too high, then the governments may have enough money for its programs, but people will not have enough money to do or to get the things they want or even the things they need. If taxes are too low, then people will have more money, but our governments will not have enough money to pay for all the important programs.

A balance must be found where our governments will be able to raise enough revenue to pay for the things that we need and that are best done by them, and we will keep enough money to spend on enough of our needs and wants. The bottom line is that we want to get the most we can for our money, whether it is spent by ourselves or by our governments on our behalf.

The main jobs of our governments are to protect us and our property, and to provide certain needed services. If some people need and use more protection and services than others, then it would make sense that they should pay more in taxes and fees. Those businesses and people who use up more of our national resources or pollute our environment should also pay more in taxes and fees.

For instance, there should be a tax on power plants and factories that is based on the amount of pollution they put into our national air, water and land resources. Of course, not polluting is better, but when it is done, those that do it should pay to clean it up or compensate those people who are harmed by it.

Given the high cost of cleaning up and compensating people for their losses, the pollution taxes would cost companies far more than the investment needed to reduce their plant’s pollution. The hope is that people will want to do the right thing here on moral grounds, but the higher taxes, based solely on the harm being done, can also provide the right cost incentives, so that it also makes it the right thing to do financially.

Providing protection

The most important job performed by our governments is providing for our protection and the protection of our belongings and our wealth. Each level of government plays a different role in our protection and uses different methods for raising the revenue needed to pay for providing each type of protection.

The biggest differences can be seen between our national, and our state and local governments. The federal government must deal with protecting us from foreign threats and threats that cross state lines using diplomats, spies, the military, customs, federal police and various national regulatory agencies. The state, county and community governments must deal with protecting us from local threats using police and fire departments, inspectors and various local agencies.

The federal government relies mainly on personal and business income taxes, property (Ad Valorem) taxes, and fees to pay for providing protection. Many state and local governments also rely somewhat on income taxes and fees to pay for providing protection, but also often rely more heavily on sales and property taxes.

There are 3 main areas that need to be protected. These are our possessions, our lives and our freedoms. In addition, each of these can be considered personally and collectively. For instance, each of us may personally possess some money, clothing, and other personal or family possessions and property, and collectively our public buildings, national parks and other things that our governments are responsible for taking care of for the benefit of all their citizens.

The fairest means of paying for protection would be some way that would base it on need. When it comes to our personal protection and the protection of our collective national wealth, we each should be equally responsible. Those living in a given state would be equally responsible for their collective state wealth. Similarly, local residents would be equally responsible for their collective local wealth. When it comes to our personal possessions, we each should be responsible for paying for the protection of what we each have or had. Therefore, we need at least two very different types of taxes.

In the first case, each of our lives should theoretically be of equal value, and we should share equally in what we as citizens collectively own. Therefore, each citizen should bare equal responsibility for paying our governments for our protection and the protection of our shared possessions. This could be handled through some sorts of national, state and local citizenship taxes, but this can be tricky to do when many people are out of work or just making enough to get by. However, there is a way to handle this fairly.

In the second case, the more we have, the more we could lose from theft, fire and other means. Therefore, our governments will need to spend more to provide the additional needed protection to those who have more, and should therefore impose taxes that are commensurate with our personal wealth. This could reasonably be done with a combination of Income, Sales, Property and resource use Taxes.

Citizenship Tax

The idea of a citizenship tax can be found rooted in the concept of every citizen supporting and coming to the aid of his or her community. In order for a community to succeed, its citizens need to come together during good times and bad times to build or to protect the community. In the past, this might have involved helping at a barn raising or taking up arms against bandits or invaders. Today, it might be helping with a school fundraiser, or being involved in a block watch program.

In a small community, most people know one another and it may be easy for them to know who has been helping out and/or protecting the community and their fellow citizens, and who has been trying to get a free ride. In larger communities, there are far too many people and far too many ways in which people could help for us to know who is doing their part. Therefore, it is important to handle some of this in a more formal manner where we actually impose a tax and keep track of who has paid it.

To start with, different people would contribute in ways where they are best able to do their part. We need to realize that someone flipping burgers for a living may not be able to contribute in the same way as the CEO of a big company. To be fair, we need to base this citizenship tax on what each person can contribute to the community, but not make it a type of income tax.

Even if someone does not make or have as much money as someone else, we all have the same amount of time. We all have 24 hours in a normal day. Therefore, we can base each person’s citizenship tax on the wages they could make for the number of hours that they could contribute to the community. This would be based on what each person makes by working this number of hours or by actually working for the community that number of hours.

Therefore, in order to come up with the appropriate citizenship tax, we would first determine how much it would cost to provide the needed protection for our lives, our freedoms and our shared wealth. We would then convert this cost into the number of hours each citizen would need to work, by dividing the total cost by the appropriate average hourly wage for the given community. Finally, we would multiply these citizenship tax hours by the appropriate hourly rate for each given citizen to get that individual’s citizenship tax amount.

Of course, it is important to come up with the right hourly rate for each citizen. This hourly rate needs to be based on what each person has shown they are capable of or the skills they have. Someone who has only worked at minimum wage jobs and does not have any marketable skills would probably pay a tax equal to some minimum wage times the hours for the citizenship tax. A CEO, doctor, lawyer or other high paid professional or someone who has those skills but may not be currently working would pay based on an appropriate hourly rate for their profession or skill set. We must also make an appropriate offset to this hourly rate to account for the amount of time that an individual needed to spend in school to learn their profession.

As I have already mentioned, everyone would have the option to actually work for the community for the number of hours on which their citizenship tax is based. This would be a very important option for those people who may be short on funds due to being unemployed or underemployed, or for those people who simply prefer actually getting involved in the community or who what to spend their money on other things.

At times, there may also be a need to impose an additional citizenship tax over and above what would normally be imposed. For instance, there could be a flood, an earthquake, a forest fire or some other disaster that needs the community to come together to help out and to rebuild. There also may be instances where the community wants to create a park, build a new community center or do something else where the community can come together to make everyone’s life better. Again, some people may prefer paying this tax with money and others with their time.

There should also be some appropriate credit given towards paying this citizenship tax for people working in certain government professions that are dedicated towards helping protect the community like military, police, fire and rescue personnel.

Income, Sales, Property and Resource Use Taxes

We currently have various income, sales, property and resource use taxes imposed at various levels of government. For the most part, there has been no effort to tie each of these taxes to any specific needed government spending needs. Without some analysis to determine how much of each tax should be imposed based on what each generates in needed government spending, there is no way to know whether any of these taxes are too high or too low.

Given the wide range of different types of income, products, services, property and resources, it will take a lot of work to come up with the right mix of taxes. Given that, one might wish for a simpler manner in which to tax these things. One idea might be to eliminate one or more of these tax types and rely on the others to cover everything or to replace everything with a new wealth tax. The problem with trying to simplify things in this manner is that it would probably be impossible to come up with anything that would be fair for everyone. Therefore, we need to do the work to come up with all the various tax types and rates that will best generate the tax revenues needed to support the various government activities needed to protect us.

The best way to handle these taxes is to look at how much it costs the government to protect our different types of income, sales, property and resources, and then come up with an appropriate tax rate for each. Where appropriate, we should simplify the tax rates, minimize the number of different types of taxes on the same things, and consolidate the taxes across various levels of government. We also may need to add more types of taxes, fees and levies in order to pay for things that are currently being paid for by the revenue from taxes, fees and levies that are unrelated to the things that they are paying for.

I will now talk about most of these tax types and a few new ones here in this subsection. Since the topic of income taxes is so complex, I will save that for its own subsection coming up next.

Taxes on Goods and Services

Goods and services require material, energy and labor resources. Since the world’s available resources are limited, there may not be enough resources available to supply everyone’s needs. In order to protect our access to needed resources, we need to try to reduce our need for them and to try to eliminate, or at least reduce, our wasting them. To do that, we need to track and to manage our resources effectively. In order to pay for this, we could use a variety of sales taxes and some specific resource use taxes.

The basic idea of sales or resource use taxes on energy, goods and services may seem to be as simple as putting an appropriate tax rate on them, but this can get complicated. A single rate on everything would not fairly reflect the costs of protecting each one. On the other hand, if we set different tax rates for each one, it could get very complicated. Instead, we need to find a way to keep the sales and resource use tax rates simple, but also ensure each resource is appropriately taxed.

What we need to do is handle these taxes differently. We should use the sales taxes to pay for protecting commerce, and use resource use taxes to pay for protecting our resources. This way, the sales tax rates could be consistent across most things, while the resource use tax rates could vary according to how much each type of resource needed to be protected and how much the use of each type of resource could damage our environment and our health.

Sales Taxes

Currently, the implementation of sales taxes in the United States is quite complicated. Not only does the tax rate vary from state to state, but in many cases, it can vary by county, city or town, or by different products or services.

There is also the problem where the tax is both the responsibility of the seller and the buyer, who could each be in a different state. For instance, if the sellers are in states with a low sales tax or no sales tax and the buyers are in high sales tax states, the buyers may be responsible for paying the difference in sales tax to their state.

This situation can cause two different problems. In one case, the buyer will need to take the responsibility for determining how much they owe on an out of state purchase and make the appropriate payment to their state. In the other case, the buyer purposefully or through ignorance of the law does not pay the tax amount owed and the state loses out on this tax revenue.

A choice must be made as to whether the sales tax is based on the location of the seller or the buyer. In either case, things can get complicated. If it is based on buyer’s location, then every seller must determine the home state of the buyer and remit the appropriate tax amount to that state. If it is based on the seller’s location, then merchants in high sales tax states could lose sales to low sales tax states.

In order to decide who pays the tax and which government gets the tax revenue, we must first look at what government services the tax is paying for. Since the Treasury Department is responsible for providing and protecting our money supply, any monetary transaction should help pay for its services. In addition, the Commerce Department must protect our commerce, which would include the sales of goods and services, so that department should also get a share of the sales taxes. Both of these department are, at the federal level, so we should have a national sales tax that would apply to any sales in the United States.

Additional sales taxes may also be needed at the state and local level, Each would need to be based on what services are being provided for which a sales tax makes the most sense to pay for them. In some cases, that would be at the point of sale. In other cases, that would be based on the buyer's home location. However, trying to base a sales tax on where the buyer lives could get very tricky and would probably be very difficult to enforce, especially if the buyer's state tries to impose a higher sales tax than the seller's state. Therefore, it might be best to always base the sales tax on the seller's state, except maybe in the case of an Internet Sales Tax, which I will talk about next.

If we want to allow a sales tax based on where the buyer lives, then it might get very complicated, but it might work something like this. Each sales tax could consist of two portions. One rate would be for the seller's location and another would be for the buyer's location. Of course, doing this would only make sense if the jurisdiction imposing a sales tax based on where the buyer lived expected their citizens to buy more from other jurisdictions that imposed a sales tax based on where a buyer lived, than people from other jurisdictions that imposed a sales tax based on where a buyer lived buying from their jurisdiction.

In most case, the seller and buyer would probably be located in the same jurisdiction, so that jurisdiction would simply get the whole sales tax amount. If the buyer was from another jurisdiction, that buyer could make that know, and the portion of the sales tax that is based where the buyer lived up to the rate used in the buyer's jurisdiction, would go to the buyer's jurisdiction. If the buyer's jurisdiction did not have a sales tax rate base on where the buyer lived or the rate was less the one in the seller's jurisdiction, then the seller's jurisdiction would keep the excess. Allowing the excess to be kept would prevent people from claiming to be from a jurisdiction that did not have a sales tax rate for where the buyer lived.

However, the best course of action would be to always base the sales tax on where the buyer takes possession of the goods being sold. This keeps things simple and in most cases is the most logical and fairest thing to do. If the buyer takes the goods home to another state, and there is some cost to their home state for the goods, then that state should impose a separate type of tax to handle that case. For instance, if someone buys a car in another state and takes it home, then that persons home state would impose an appropriate registration fee and property tax, but not a sales tax.

Internet Sales Tax

The sales tax problem is even more complicated for internet sales. In this case, companies must determine which states they need to collect a sales tax for and register with that state in order to be authorized to collect those sales taxes. Then, they must determine where buyers are from and apply the correct sales tax rate. Of course, some counties, cities and towns also have their own sales taxes, which can make things even more complicated.

Again, the best thing to do is to apply a federal sales tax rate, and then to apply the same state and local taxes as would be applied to the brick and mortar stores. However, there may be different costs to a community for an internet sale than for a sale at a local store, so there may need to be different sales tax rates.

In addition, sales over the internet would more likely be to people living in other jurisdictions, than the local jurisdiction, so this introduces a new problem. In order to lower the sales taxes on what they sell, internet sellers might want to be based in jurisdiction with little or no sales taxes. Therefore, state and local jurisdictions may want to impose a sales delivery tax. This would of course still be based on the cost of the services that are needed for these internet purchases and their delivery to the person in the local jurisdiction.

Here, the best thing to do is to base the tax on where the goods are being delivered. To simplify things, the Federal government should collect all the internet sales taxes. The Federal government would keep a database of all the sales tax rates based on location. The sellers would get a Federal Sales Tax ID. When they sell something, they would link to the service that would provide them with the correct tax rate for the buyer, and would send the tax amount to the Federal government, where the non-national sales tax amount would be distributed to the appropriate state and local governments.

If a company in another country wanted to sell their goods in the United States via the internet, we have two options. We could have the foreign company register for a Tax ID and then collect and send in the taxes, or collect the taxes from the buyer when the goods reach the United States. Either way, the buyer would be required to include some appropriate additional information on the package. This may be in the form of a bar code.

If the company had collected the taxes, the information would include some confirmation number showing the taxes had been sent in. If the company had not collected the taxes, the information would include the sales price and any other information needed to collect the taxes from the buyer. In order to pay for the extra verification or tax collection step, we should impose an extra tax on these goods in order to cover these additional costs.

Import and Export Sales Taxes

When goods are bought or sold outside of the United States, other than via foreign internet sales, we still have a problem. First off, we do not have any real control over what is taxed in other countries. Second, we cannot make sellers in other countries collect our sales taxes. The only thing we can do is to tax the buyers and sellers in this country appropriately. We could collect the taxes from the buyers when the goods enter the country, and from the sellers when the goods leave the country.

In general, we want people in other countries to buy our exports, so we do not want to make them too expensive. Therefore, we generally want to keep any export sales tax low, but they should be high enough to cover what those sales cost our governments. The exception would be when someone is exporting some valuable resource that would be hard to replace. For instance, we would want to collect extra sales taxes on any national treasure or anything that we would normally import, like oil.

On the other hand, we would prefer people buying goods and services produced in the United States, which would keep our workers employed and more of our wealth here. In this case, we should always collect a sales tax on imported goods. Again, some portion of this sales tax would go to the federal government and the rest to the buyer's local jurisdictions. We also want to impose appropriate import taxes to cover the cost of inspecting the imported goods, and to cover the cost of our money going to other countries.

Resource Use Taxes

Most resources are limited, so we need to use them wisely and not waste them. This is especially important for those resources that we need to survive. The most obvious of these would be air (oxygen) and water. Without oxygen to breath, we would be dead within minutes. Without water, we would be dead within days.

Most of us have experienced water shortages. There are few places where fresh water is not scarce on occasion or all the time. Therefore, we need to manage our water resources so that everyone has an adequate supply. We can do this by storing reserve supplies in case of drought or higher than normal demand, and by limiting the number of people and businesses in an area to what will not strain the supply. We would pay for this via a water use tax that would be proportional to the cost of protecting the water supply in the given region.

We also want to make this water use tax vary based on its usage. Those people and businesses that use more than their fair share should be charged at increasingly higher rates based on how much extra water they use. This will provide an added incentive for people to conserve and not to waste water, and to limit the local population to a level where there is an adequate supply of fresh water for everyone.

We may not consider air to be a limited resource, since it always seems to surround us, but in many places, clean air and clean water are often in short supply. In this case, we need to tax those things that pollute our air and water supplies so that we will have the money needed to cover the higher health costs and the cost of the damage to our environment that will result from this pollution.

Some pollution may be unavoidable no matter what we do, but again we want to limit the pollution from people or businesses to some reasonable amount. Therefore, we should incrementally tax at higher rates for each higher pollution level. This will then really hit the worst polluters the hardest, and really encourage them to reduce their pollution rates.

In some cases, resources are non-renewable. This means that once the resource is gone, it is gone and future generations will not have access to it. The best example of a non-renewable resource is oil. At the current rate, it could be gone in a matter of decades. As supplies are used up, costs will rise, which will encourage people to look for lower cost alternatives. The problem is that if we wait for rising costs to encourage the needed changes, we will go through an extended period of unnecessary turmoil.

The better alternative would be to start increasing the tax rate now so that we will have more incentive and money to invest in alternatives energy sources now and to help pay for the higher health care costs caused by the pollution that comes from burning oil. This will give us more time to do things right and eliminate much of the pain that would have resulted from energy shortages.

Along with the resources above, we need to look at each additional resource and determine what the costs will be to protect it and what the appropriate tax rate will need to be imposed in order to bring in the needed revenue.

Import Non-compliance Fee

Goods made outside of the United States may not have been manufactured in a way that complies with our pollution, safety, labor and other regulatory rules and laws. This can make these foreign goods cheaper to manufacture. This can put local manufactures, who must comply with our laws, at a big and unfair competitive disadvantage. In addition, when we buy goods from foreign manufactures who do not comply with our laws, we could end up encouraging pollution and unsafe working conditions in these other countries.

Although we cannot force foreign manufactures to comply with our laws, we can impose restrictions or fees on goods imported to the United States. Without banning the import of any of these goods, the simplest thing to do would be to impose an appropriate import non-compliance tax on the importer for each law that the foreign manufacturer did not comply with. For instance, if a foreign manufacture did not meet our pollution control standards, we would impose an appropriate fee on each imported item for the excess pollution.

If an importer could not show any proof of compliance, then the maximum fee would be imposed on each imported item. If an importer could show proof that the imported goods where manufactured in compliance with all of our laws, then no fee would be imposed. The best way for an importer to show proof of compliance would be to pay for our government to inspect the foreign manufacturer. Once a foreign manufacturer had been inspected, other importers could use the same proof of compliance report. Of course, periodic inspections would be needed in order to show proof of continued compliance.

Import Inspection Fee

When goods are imported to the United States, there is the possibility that some form of contraband, counterfeit, pirated or dangerous goods or material are being smuggled in. Currently, we are only thoroughly inspecting a small portion of the imports to the United States, since inspecting everything would be a very expensive job.

Therefore, we need to have the people and businesses who are importing the goods to pay for these inspections. Not only would this help to pay for securing our borders, but the higher cost of importing goods could help to shift more production work back to the United States.

People would have a choice as to where they buy their goods. If paying the import inspection fees would cost them too much, then they would usually have the option to buy goods that are produced in the United States. Even if they cannot get the goods here, then they must realize that importing these goods will simply cost more and that they will need to plan accordingly.

Next Section

Income Taxes - Making paying our income taxes simplier and fairer.

Last Updated:
Thursday, December 28, 2017
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