It’s time to take a fresh look at how we tax people here in the United States. While the IRS is a necessary entity that serves a legitimate purpose, we as a country need to shift our approach toward a system that is less cumbersome and complicated. Here is a proposed alternate solution to our existing tax system.
A Flawed System
There are certain questions that I know many of us taxpayers ponder: Why can one deduct mortgage interest, but not credit card interest? What constitutes a charitable donation? Why are passive losses deductible to some and delayed to others? Who landed on the arbitrary 7.5% limitation of medical expense deduction? Who gets Earned Income Credit? (EIC). All of these queries can be traced back to a harsh reality: taxation serves other purposes beyond raising revenue. Since 1913, the government has used the tax code to affect, influence or otherwise nudge the American public in a direction it deems appropriate. Remember Al Capone!
Like the Sheriff said in “Cool Hand Luke,” “What we’ve got here is a failure to Communicate.” For example, the Internal Revenue Code has some 77,000 pages of code. It’s messy, confusing and oftentimes contradictory. As a result, we need professional organizations, Congressional aides, attorneys, CPAs and committees to interpret the tax laws enacted by Congress and approved by the President. The IRS then writes the actual regulations that eventually work their way down to our overly-complicated tax returns. Sounds a bit like a game of Telephone, right?
A Helpful Image
Consider the process of taxation as a triangle. At the bottom of the triangle, you have lower rates because you have more people/things to tax. As you move up the triangle, the number of people or entities to tax lessens, and rates increase in order to collect the same amount of revenue. Think of sales tax: You have millions of transactions to tax, so the rate should be small.
A 1% Solution To Ponder
I propose that we institute, as a replacement for the current system, a system whereby we have a 1% tax on every deposit. When someone makes a deposit, the bank or brokerage house withholds 1% of the total deposit. At the end of the day, they transmit to the government. You might say, “Well, then I will work only in cash.” Even if that was possible, would you really risk your money for 1%? If you make a $10,000 deposit, it costs you $100. No reporting requirements, no forms and above all no government oversight.
Picture it: April 15th will be just another forgettable day of the year.