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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 17 2012: I would settle for a consumption tax instead of an income tax.
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      Jul 19 2012: I'm ignorant of how a consumption tax would work. Wouldn't we run the risk of discouraging spending and lowering product demand? Would it slow down the economy? I guess we would be more encouraged to save.
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        Jul 19 2012: Basically the idea is to encourage people to produce, which means no tax on production, rather on consumption. This is a workable idea.

        I will add that anytime that you have an individual who discourages production you need to look at him with a jaundice eye as he is evil. That individual is Woodrow Wilson who Glenn Beck calls the worst president in the history of the U.S. He gave us income tax, the federal reserve, and took away the states rights to appoint a senator which was a save guard against the tyranny of democracy, and who the communist countries said they learned everything they know about propaganda. Nice eh?
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          Jul 19 2012: Thanks Pat. Would you levy a sales tax to implement this, or some other method? I agree about Woodrow Wilson. I've read that he regretted his decision on the federal reserve, but I still resent him for his perfidy to the constitution.
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        Jul 19 2012: savings would be greatly encouraged, which in fact speeds up the economy through increased accumulation of capital.
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        Jul 20 2012: Eric

        Yes a sales tax. The problem is that the whores in DC would add the tax call it a VAT and not get rid of any other tax. So it ain't gunna happen unless we can get enough people to small the coffee but that is a real ditch digger unless we can get someone like Paul Ryan to bring in a backhoe.
        • Aug 6 2012: Less than 5 minutes ago: Pat, as I mentioned it does not matter what tax system we use to discover our "tax liability" Marginal, flat, consumption etc. A consumption tax has its own set of issues. What is consumption? If your wife buys a $20 purse that is perfectly fine is that consumption or an investment? That purse will last 5 years, it will hold her money, it is a necessity. I can argue this is an investment. Now imagine your wife buys a $1,000 Louis Vuitton purse. Both purses serve the exact same purpose. I would argue $980 (1,000 minus 20) is consumption, and 20, is an investment. Consumption tax like most tax systems are going to require many stones to turn over.

          A consumption tax has been played with in theory, but I do not think we are prepared for a consumption based tax system. However, the fundamental issue still remains of taxation without representation. I cannot stress to everyone enough that it does not matter what method we use to discover our "tax liability" it matters where that liability is being spent!
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    Jul 17 2012: the only problem with this system is that the government absolutely does not want anything like that. what's good about power if you don't get to decide what money is spent on? you will not find a single politician supporting such an idea. ever. it is like offering the chance to a bank robber to rob a bank, but don't keep the swag. what's the point then?
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      Jul 22 2012: Just so you know, this is a voluntary society, as I meant it. I only started using the term after hearing Adam Kokesh talk about it with Ron Paul on Adam vs the man.
    • Aug 6 2012: Kristzia, I understand that many politicians won't like this. But to say you cannot find a single politician to support it is false. We can get support of a market based tax system if the people of the United States are informed of the system and vote for those politicians who accept it. Don't ever forget about the power that does lie with the people of the United States. That power is the ability to vote their constituents into congress.

      As far as the comment "it is like offering the chance to a bank robber to rob a bank, but don't keep the swag. what's the point then?"

      I actually see no similarity between implementing a market based tax system and offering a chance to a bank robber to rob a bank, but not "keep the swag." Unless of course you are referring to the American tax payers as bank robbers? Kirstzian, you are on the "nay - sayers" I mentioned in my original post lol. We have to see outside of the box.
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    Jul 22 2012: This is exactly the type of system I was talking about when I wrote my recent debate "When libertarians and hippies realize they are the exact same group of people with the exact same goals the world will change for the better".

    This is exactly what almost every human being on earth wants, especially libertarians and hippies.
    • Aug 6 2012: I am not sure exactly how accurate you are that "every human being on Earth wants, espcially libertarians and hippies," but I am a libertarian and this is what I want lol.

      I hope you are right though, because if everyone wants it, then we can get it by electing future politicians that are willing to take on a long term strategy to fix the current tax system and financial flaws.
  • Jul 20 2012: Fair Tax
  • 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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    Jul 17 2012: Joseph, In order for your system to have a chance I would recommend that step one would be to reduce government to a managable level. Once we are back to a Constitutional government level we can set administrative and operational costs then optional items can be funded in the manner that you propose.

    Kids would never fund Social Security or Heralth Care as that is not the priority of the young so I would see the military being a problem in funding as the liberals would oppose that expenduture. Thus the problem.

    So what if we went back to a Constitutional government and reduced the NEED for taxes returning the power to the states. This would take care of career politicians and all of the pork and perks. So far I have talked myself into this idea. Congress would have domain over the four areas the Constitution allow for. Yea!!!!!

    All the best. Bob.
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      Jul 19 2012: Maybe it would be a good thing if we could basically have a referendum on government spending by choosing based on our values. Roughly half of the people are conservative, so I think the military would still get enough funding. One drawback that I would see is that it may cause unpredictability in funding from year to year, causing a set of fluctuating programs that can't plan ahead.
      • Aug 6 2012: Eric, I think you are correct about military spending. I believe a market based tax system will force many American's to evaluate their priorities in determining where their tax dollars were spent. We want our children to learn, we want our women and men the opportunity to find work, and we want to provide security for old age. I can imagine a market based tax system will reward programs that successfully offer us these luxuries.
    • Aug 6 2012: Robert, the thought that popped into my head when reading your first paragraph was the "chicken or the egg" argument. I completely agree that government needs to be reduced to a manageable level, undoubtedly! I am just not sure that the govt. will be reduced to a manageable level, without an overhaul of the tax system that brings more transparency to federal programs that receive tax dollars first.

      As far as kids funding programs like social security, I would not hold back on our youth too much. I am in my early twenties, and there is no way I am holding my mom and dad out to dry ha! Besides, if administered properly, even social security sounds good to younger people such as myself.

      In reality though, we would not implement this system overnight. It would be a many years process. For example in year one we would mandate 25% of all federal expenditures to go towards agencies listed on the index. Leaving congress with 75% to continue their current spending habits (funding social security/medicair). Throughout the next 7 to 10 years, my idea would be to have the system fully implemented and at maximum require 90% of all federal expenditures to be provided to agencies listed on the index, leaving congress with 10% for misc. govt. actions. As a taxpayer I have trouble even leaving the 10%, but I realize we will need to make some compromise to get any legislative action in an overhaul like this!

      Robert, before I can fully agree with your third paragraph I would have rephrase where you said "Taxes returning the power to the states." I will rephrase your words to include "taxes returning the power to the PEOPLE."

      Best Regards, Joseph