Wednesday, July 15, 2009

Who we should tax first

Whomever said macroscopic things can't be entangled hasn't looked at our tax code. It is so ludicrously complex that it actually achieved independent conscious self awareness some years ago and the best we can do now is actually just fight with it. It wins every time too.

Yet despite all that, and the best intentions of our wisest leadership under advisement from our finest minds over a period of many decades and we haven't even begun to tax that which is arguably the most important thing to tax. (I want to say you're kidding me but I'm the one writing this.) I want to scream it in their ears: THE BLACK MARKET. Tax that for a change.

The Economist calculates that the world underground economy is worth $9 trillion, which is about 20% of the total. In 2000, the National Center for Policy Analysis (NCPA) estimated roughly one per dozen Americans earned a substantial part of their income underground. And that means we're each taxed about 9% more than we would be if those deadbeats just paid up.

Well, I'd like to find a way to make crime pay. At least its taxes. And I think tax avoiders should be taxed at an even higher rate than voluntary taxpayers (seeing as they're criminals and we should probably try to discourage them.) Now you might think that if we do find a clever way to tax them they'll just start using a different currency or some commodity or other means of exchanging value to avoid the tax, after all, they're criminals. But that has fairly high costs and additional risks. As long as our constructive tax is somewhat less than that, they'll accept it as the cost of doing business and we'll have created an environment less favorable to underground economic activity without needing anything fancier than a little economic geometry.

We have the technology and infrastructure already to support what is effectively an unreported income tax. Your assets are linked to your identity where the IRS maintains on oversimplified bank account for you. When you report enough income to leave you with three dollars, after the government takes their cut, it adds one dollar to your tax account. That account is used solely to pay the new unreported income tax which is a 33% tax on purchases. This all happens automatically for credit or debit card users. But even if you forget your wallet, and have to pay cash, the receipt would enable you to recover that money at a web site, even if you had to earn more income legitimately first before you could do so.

The intent isn't to punish, merely to impose a fairly high tax on the underground economy which should lead to a lot less of it, and we won't have to be doubly injured by it, since it's at least paying something significant.

Tourists, and anyone else not subject to US tax code would actually benefit as well because a more formal mechanism would be created to recover all their sales taxes as well as the new unreported income tax from their purchases. For those here illegally however life gets a whole lot more expensive.

Now why is our government even thinking about taxing its honest citizens more when it hasn't even begun to tax the dishonest ones? Is this really such a radical idea? Stuff like this makes me wonder if I really might be just plain crazy because it all seems to doable, reasonable, and wholly constructive to me. What stops stuff like this from happening?

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