8/28/2006

08-28-06 - 3

I've mentioned this before, but the more you think about it, the whole idea of taxing transactions is a horrible idea. Sales tax, income tax, estate tax, gift tax, etc. are all taxes on transactions. There are 4 primary reasons this is bad :

1. It's difficult to enforce fairly. There are so many ways to do transactions, and thinks like favors and gifts can be forms of payment with huge monetary value that are hard to tax. Then we decide that certain transactions shouldn't be taxed which opens loop-holes and leads to huge problems.

2. It's expensive to enforce and expensive for individuals to comply. There's simply so many transactions that it is a huge enforcement problem.

3. It discourages transactions, which reduces economic liquidity. A more liquid economy functions better.

4. It's not in proportion to ability to pay. It penalizes those who are more active in the economy vs. those who hold wealth, which really is the opposite of what's in the best interest of the public.

It's really just ridiculous if you think about. If you and I stand next to eachother and hand a briefcase of $100,000 back and forth, we are supposed to pay tax on each exchange. Back and forth we pass the money and it goes away with each pass. Goofy!

There are various alternatives which mights be better. One is very appealingly simple which I mentioned before, which is simply a tax proportional to total assets. There are a few problems with that, one is counting someone's assets, though that's roughly the same problem as income tax - you require them to report it and you investigate if it seems fishy. The bigger problem is that there are many ways of hiding or getting rid of assets to avoid taxation, then pulling from those hiding places and spending as needed.

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old rants