Taxation from our representation

Apparently we do not have high enough taxes to finance the wealth of social programs that the Congress would like to propose to the nation.  It seems that there has been an unholy appeal to the poor to vote themselves raises on the backs of the ‘rich’ or the corporations who have too much and share too little.  Our nation, once a highlight of individualism and the achievements of rather free capitalism, slips further into socialism as big brother rocks the cradle and the populace drifts to sleep.

Economic crises bodes well for making promises of ‘free’ medical care for all and other ‘free’ or increased entitlement programs to those who feel they are in need.  It’s easy to sell boogieman insurance when people believe there are monsters in the closet. 

It is becoming increasingly clear that regardless of who becomes the next president of the United States, there will be higher taxes, it is merely a matter of the type of taxes levied.  Let us not forget that no matter who the tax is levied against, it is the American people who will pay this tax either directly or indirectly.

National sales tax

I have been contemplating the idea of a national sales tax for some time now.  As an accountant, this would definitely decrease our workload with regard to income tax filings if we were to replace the income tax system with a consumption tax.  However, I can see some real benefits from a national sales tax:

  1. Decreased administrative burden on the taxpayer (just like with state and local sales taxes, the administrative burden would be on the business, not on the consumer).
  2. Increased dollars for consumption in the economy as the cost of tax preparation is decreased (filing additional sales tax reports would likely be much less costly than the enormous number of income tax returns filed now).
  3. Increased efficiency in funding the government (the government is inefficient enough the way it is, they way it collects revenue should not be so inefficient as it is now).
  4. More transparency (a sales tax is rather up front when you purchase goods rather than being buried in how one defines income and deductible expenses in an income tax system).
  5. Reduced favoritism (there may still be favoritism based on what is defined as a taxable sale).
  6. System is still effectively progressive in actual dollars as the wealthy consume more than those with less means.
  7. Encourages citizens to save rather than spend (instead of penalizing earning more).
  8. May help differentiate between luxuries and necessities (American consumers are confused about the difference between what the ‘want’ and what they ‘need’, progressive rates on luxury items could help clarify this to some).

At the end of the day, the purpose of taxation is to fund the government in a way that does not place undue burden on the citizens.  I do not think it matters much to the citizens the way the government is funded.  However, it seems the government likes to be funded in the way that allows it to exert the most control over it’s citizens.

How ethical is corporate taxation?

Nothing said here will bring an end to corporate taxation, but I would like for a minute to pretend that it is negotiable to examine its legitimacy and the effects of the system in place.  Our founding fathers waged war with England for taxation without representation, but when we levy taxation against non-voting entities that is exactly what we get.

The corporation is a legal liability shield and capital raising device used to run many American businesses, however, without real people (employees, shareholders, vendors, customers) this legal entity is just a shell.  Most citizens are persuaded by politicians to look at corporations as merely a shell rather than to look at them for the sum of their real-people parts.  Thus, taxation of no one in particular is better than taxation of a specific person, so corporate taxation is popular.

This does not come without side effects as taxation without representation is not entirely true.  There is not legally sanctioned voting representation, so representation comes through the back door with lobbying, political contributions, and good old-fashioned bribery.  The result of taxing a non-voting entity with much money and power is a lot of unethical behavior brought about by the structure of the system.  The answer is not to police the unethical/illegal activity further, but to examine the system that produces it.

An excellent tenant of good government is transparency.  This is another problem with corporate taxation – the taxation of no one in particular.  Who really pays corporate tax (the corporation of course)?  The real people involved with the corporation must pay the tax in some way shape or form, because the shell in and of itself has no income or wages to tax.  The shareholders pay with decreased stock appreciation and lesser dividends.  The employees pay with lower wages and lesser benefits.  The vendors pay with lower profit margins themselves.  The consumers pay with higher prices used to subsidise the tax.

The lack of transparency imposed by corporate taxation may be the worst of all as the government is able to raise revenues with little to no legal accountability.  The group paying the tax is ambiguous, so it is hard to unite an ambiguous group to oppose tax increases or to help in drafting better tax policy (except for the opposition from the corporations themselves).  The opposition comes in the form of lobbying and bribery, which ends up being rather effective, but further muddies the ethical considerations and transparency of government.