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A Market Based Tax System

Several years ago I was introduced to the idea of a market based tax system that allows taxpayers to choose where their money will be spent. I began my career as a tax accountant and am actively pursuing the CPA, should be complete soon. I hold a bachelors and masters in Accounting.

Given my background in tax, I cannot imagine working in this system without trying to improve it. That is why I want to get a group together to discuss, trade, write, and begin a process that completely overhauls the US tax system.

I firmly believe the fundamental issue with our tax system is not the percentage that we pay, or the method we us. Instead, the fundamental issue is taxation without representation. Give me a flat tax, marginal, progressive tax system, it does not matter. When the tax payer gets to the line on a 1040 that says "tax" I would want them to fill out one additional page. Yes I know... more forms.

The additional page will allow the taxpayer to select funds (like a stock), or a pool of funds (like a mutual fund) for where their tax dollars will be spent. ALL government agencies and Federally Assisted groups will need to register with an oversight board that will place the entity in an " index." The entities will submit a budget, and hope the taxpayers help fund the budget. Those entities that receive tax dollars, will do so because taxpayers believe in the entities public service. Those that do not receive funding will scale down, or diminish all together. Once an entity meets its budgeted amount, the remaining money selected by a taxpayer will go towards the taxpayers second, third, fourth choice.

This is the only type of system that can bring transparency to the tax code, and give people fair representation in tax matters. Nay Sayers say this overhaul cannot be done... I say they have no vision or background in tax. If we can create an efficient stock market, we can do the same with the tax code. It is important to have an efficient tax market.


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  • Jul 18 2012: Joseph, I agree that there needs to be more transparency in government spending. However, being a middle class family in California, I pay over 60% of my income in taxes. Plus, there's federal income tax, sales tax, FICA, Social Security, property tax, cell phone taxes, restaurant taxes even when ordering take out (I believe this is a violation of tax code but you'll see it at every fast food restaurant you place a To Go order), state income tax, etc... oh yeah! And this new health care tax!

    If we start with a flat tax, then we can entertain other transparency issues. You may have a good point, but a flat tax evens out the playing field for all people. The "rich" will no longer be able to hide their money through tax codes that law makers arbitrarily create to push their own agenda. The "poor" would also be able to pay taxes. A percentage of your income is fair to all citizens. I say shrink government and encourage individuality, personal freedoms, civil liberties. Less government = more personal freedoms, less taxes.
    • Aug 6 2012: Trish, I understand the level of taxation you are hit with in California. I spent 2011 and part of 2012 working with a Financial Services and Wealth Management firm in San Diego. Not only did I feel the tax burden on the personal side, I witnessed it through my experience in tax planning for roughly 100 clients. The taxes you mention are uncertainly hefty, however they are not a violation of the tax code.

      Like I said, you can give me a consumption tax, flat tax, marginal tax etc., but without transparency in govt funding and expenditures, a problem will continue to exist. I do not think we can say for certain a flat tax is the method we should use. I have recently relocated to Hong Kong where I am now on a flat 15% tax rate, with no capital gains. Even the HK flat tax incorporates certain exemptions. For example you can receive a HKD $120,000 (USD $15,000) exemption. Effectively you "enter" the 15% flat tax system once your income is greater than HKD 120,000. (These numbers are all round to nearest 1,000).

      I do not think overhauling the tax code to match Hong Kong, for example will be effective. I believe that certain tax exemptions, deductions, credits, and tax free or tax deferred investments should exist. Trish, as a resident of California, you will also relate to the fact that around 48% of all residents pay no state or federal income tax. They may pay sales tax, but lets face it, that is pennies on the dollar to the income tax burden.

      The current tax code does not allow the rich to hide their money, in fact the tax code takes great measures to stop tax evasion altogether. Rich people may create financial plans that place the individual in lower income tax brackets, but I assure you that their money and assets have a tax time bomb which come in the form of Required Minimum Distributions (RMD) and DEATH! Those over 70 years old can relate. I will take the current tax code to determine my tax liability, so long as I have a choice where my tax is spent.

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