Thursday, July 23, 2009

Using taxes to earn respect

Taxation is the single most tangible aspect of government in most of our lives. Is it any wonder we've got a love-hate relationship with our nation--loving the theory while hating the implementation? It seems insane to me because it appears so needless and harms us so much. We have the know how to reverse that merely by tweaking the geometry of our economy. Today we tax productivity the most, and consumption the least, but why? Because by doing so we are throwing away the most powerful tool we have for evolving a more robust society. And by so recklessly and unfairly levying taxes we are needlessly alienating our own citizens and hindering the growth of our own economy and prosperity.

Taxes are disincentives. They can't help but be discouraging. Given this single fact doesn't it suggest we should tax those things with large positive externalities (like productivity) less at the expense of taxing those things that have large negative externalities (like crime) more? The very success of our society completely depends on our governments ability to define and maintain a suitable marketplace, or foundation, for us to develop commerce. This is an essential part of any serious attempt to do that. I want our leadership to connect the process of paying taxes to a new mechanism designed to protect our privacy and create a new income stream for us. Because it is necessary and because it is fair.

Taxing crime and our underground economy are easy things to accomplish in our modern world. Most of us both receive and spend most of the money we ever control electronically. The system we use today gives the banks and merchants a great deal of information about us that they can and do use to look for ways to motivate us to spend more, at best. The steps our government has taken to protect us from this exploitation are so pathetically inept they do little but add insult to injury.

Defending our privacy and property

But suppose our government allowed us to keep that information to ourselves. Suppose an agency of the government effectively stood between you and every entity you do business with. The seller gets no information from you other than what they actually need (usually just the fact that you paid,) and a code that identifies the transaction for all time. You get all of the information in a form that is completely accurate and verifiably unalterable after the fact. Rather than become a source of income for merchants, that information, or parts of it, can be sold by you in an open market of entities doing market research currently with information they purchase from merchants and banks, or by your doctor to get a sense of your lifestyle, recent travels, or other relevant data. And you also get a credit rating that is calculated by the government to open standards that academia can continuously critique and refine.

Why should our government do this? Because only it can. Because only it is in a position to craft legislation that defines such an organization in a way that convinces us it can't be abused, even by our own government. Only it can declare such a payment scheme as legal tender. And only it has the responsibility to protect our property as citizens in the first place. It currently fails badly at this, if not in a technical sense, at least in spirit. We constantly fall prey to the present accumulation of information about us by private enterprises with nothing but lip service paid to redress it. Creating an artifact to represent us in commerce is a simple, cheap, and very robust way to fix that problem immediately. It does more as well, from protecting us from pricing errors and shoddy merchants, to giving us a lot of insight on whether warranty coverage is worth buying, for example.

Constructive taxation

It's one of the reasons I think taxing the black market is such a good idea, because to do it requires that a number of other protections, like the above, be engineered into the economy all of which promise to leave us with significantly less overhead by adding a lot of negative and positive feedback in logical ways. By taking this approach to taxation we can vastly simplify the overhead necessary to pay for things (for both seller and buyer) while ensuring better information is collected and that no party (buyer, seller, or government) can be as easily defrauded or exploited.

I've mentioned several things in this blog that have this property, like our medical records, that are handled somewhat recklessly today for mostly historical reasons. This is a mechanism similar to the universal health care transactor I proposed to protect and maintain the privacy and integrity of our medical records and reduce the overhead of providing medical care. Throwing in our consumption data benefits everyone significantly. It gives medical researchers more information to look for correlations between lifestyle and health. It makes the information we have to sell more valuable to scientists, market researchers, and most of all us.

You might wonder why I'm so anxious to associate taxation with protecting your privacy. It's because I believe it's the right place to begin reforming the very soul of taxation--how we experience it. I want it to become something we take great pride in and feel wonderful about paying. I think the government should be giving us awards each time we achieve a new milestone in overall taxes paid. Starting with something as simple as a t-shirt proclaiming that a grateful nation thanks you for your first $10,000 contribution, to an annual parade for whomever manages to pay the most taxes concluding with an honorary dinner at The White House. I think there should be an academic industry that studies nothing but the externalities created by the way our taxes are apportioned and how perfectly they are collected, and a department of government independent of all the others for adjusting the tax code to match spending. It is an inherent conflict of interest to allow the people deciding what and how to spend to also decide where to get the funds. That seems unwise because it can only pollute the perspective they need to objectively decide what and how to spend. Only an independent and transparent agency is fit to determine how to most fairly levy the tax burden. It's an ongoing academic issue that can only be refined via careful study.

A bill for services

The deep fix for taxation is to transform it from a vague cloud that funds government into a bundle of connections that link benefits with the party enjoying them in ways we can explore and verify. This gives us so much more than the mere ability to feel better about paying them--it helps us make lifestyle choices and craft enterprises that are more inherently synergistic. It creates a whole new way to address issues like health care, social security, and welfare. It also forces government to come clean about how it uses it's non-tax revenue (which is probably a lot more than you might expect, easily more than $500/person/year today.)

The synergies go on. When all of these things are combined new opportunities are created. For example, with this approach the income from things like leasing the nations airwaves would ultimately become a credit in our tax accounts. For a minor it can do nothing but accumulate while compounding interest. This is an asset the state could use to fund incarceration of that individual should it become necessary, or to recover damages. Or it could fund a zero interest loan for education or to buy a home. It's a better way to incentivize good behavior from citizens; a carrot instead of a stick. It if was never allowed to go higher than what it would cost to purchase an insurance policy that covered your potential future liability to society, then it would become a source of income fastest to those of us who didn't get into trouble. And protect society from the cost of dealing with those that do.

Engendering love with respect

When it is possible to see exactly how our taxes are apportioned, managed, and spent--in great detail--we will be a position to feel better about paying them. When we can see that the apportionment has been carefully crafted to be as fair as we're capable of achieving then I believe people will honestly feel good about paying them. And when we experience taxation via a mechanism that is creating an income stream for us and protecting our privacy, then I think we'll actually look forward to it as a sort of score--or measure of our value to those who don't know us.

I believe a government that defines itself as being of the people, by the people, and for the people would realize that making all taxes voluntary is a relatively easy way to ensure that happens. And such a government would look for a way to make paying most taxes collectively voluntary simply because it realized that any government that isn't loved enough by its own citizens to compel them to pay for it really shouldn't last. This is a step towards unwinding the very need for as much government as we have now because it embeds some of the function of government into the process of just doing business.

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