I have this tendency to claim I have all the answers (ask my wife). No one has all the answers. Why? Because, as I love to say, it’s complicated. (See what I did there, I gave you an answer. And there is more where that came from). It’s much easier to criticize and point out the mistakes people make or the flaws in some system than it is to actually get things done. Probably 99% of the crap being batted about (including much of this right here) falls into that category. So let’s take a break from swamp and have a little siesta in the land of What-If.
Before this park opens, you need to understand: everything I am going to show you is hypothetical, but all of it is completely possible. Yes, we would have to make changes in our current system of government to get there, but nothing I am going to talk about is pure fantasy. Think of this as a teaser of what we might be able to be accomplished if we got fed up enough that we decided to pull together (sigh…world peace…).
We have this big machine that is our American society. Taken as a whole, it remains the best comprehensive system to date, warts and all. But could we make it better? At present, we continue to try to make small adjustments to different aspects – taxes, education, social programs, commerce, etc. – in hopes that these changes will have some sort of butterfly effect on the rest and we will all wake up in a new, perfect world. And that’s just not going to happen. Because everything is interconnected, and those connections tend to dampen the results of those changes, both positive and negative. A tax change here, a new social program there, revision of a particular law; the frenzied arguments in the media tend to outweigh the actual impact. And when the hubbub dies down, we realize not much has changed.
But what if we started from scratch and looked at the things we have that are working and the things that are necessary and the things that aren’t doing jack sprat, and tried to build a better mousetrap? The trick here is to try to re-weave the system where each thread can leverage the strengths of other threads. Like a piece of cloth, instead of a ball of yarn.
Taxes. The government has to have money to function. Yes, we have heated debates about who should pay for what and how much and blah blah blah, at the end of the day the government needs some damn money. But where should it come from? Can we structure that system better? Changes always seem to result in one side that is happy and one side that is pissed. But there are a few things in our tax system that we should maximize because they benefit everyone: 1. Efficiency. The less money that is wasted collecting and policing the tax system, the more money that is there to get shit done. 2. Simplicity. This ties in a bit with efficiency, because time is money. And both individuals and businesses should spend as little time as possible dealing with taxes. 3. Flexibility. Taxes need to be adjustable for changes in our culture and society and businesses and economy. But we need to be able to do these things without increasing efficiency and simplicity.
Poverty. Listen up, people: poverty is going to be our downfall if we don’t figure it out. It’s killing our healthcare, our education, our crime rates, our culture. Like everything else, it’s complicated. We need a way to provide assistance in a more efficient, more flexible, and more focused manner. But more than that, our approach needs to promote community integration. If we maintain an “us vs. them” attitude, we will continue to build barriers that only sustain the problem. Our Achilles heel is actually the fact that we care (well, most of us do). There are societies that don’t seem too bothered by it, and that makes life a lot easier (unless you are poor). India has one of the fastest growing economies on the planet. It also has just about as many people living in poverty as our entire population. And I have a feeling being poor in America looks a wee bit different than being poor in India. We have to be sure we are extending a hand to everyone here that wants an opportunity for a better life, but we also want to be sure we aren’t flushing our hard-earned money down the drain. And we have to recognize that all of this is interwoven into our culture. Our society is based upon our collective views of our values, our education system, our work, our play. If we want to collectively improve, we have to stimulate growth in the areas that are meaningful to us, as Americans. Do we value education? Do we value work ethic? Do we value recreation and community? And yes, it’s perfectly OK to see value in goofing off; life is a gift to enjoy!
If we started from scratch and said, “We need us some taxes, yo!” we would probably arrive at a much different system than the one we have now. Efficiency, simplicity, and flexibility. We need money, but even as we get started let’s remember that poverty thing. It makes no sense to take money from people that don’t have enough money and then turn around and give it back. That’s neither efficient nor simple. We want to be sure that all of the basics of life – water, food, shelter – they come first. We also have a huge problem related to poverty and work: the transition from being unemployed and getting benefits, to being employed and losing those benefits. We have a significant disincentive in place that has to be fixed. A system that provides a better life to someone sitting on their butt is idiotic.
Whatever we do, it does need to be progressive: no matter where you are, there is a basic “cost of living.” Taxes should only apply above that line. And it absolutely makes sense that the further above that line, the more you pay (and that’s as far as I am going to go with that particularly prickly porcupine).
Income tax allows us to tax people at progressive levels, but implementation is a royal pain in the ass. It is neither efficient nor simple. And though it gives us the opportunity to be flexible, any creative changes designed to provide incentives or disincentives are exponentially more complicated. Look at the Obamacare tax penalty for not having health insurance: the purpose was to try to change a component of our culture, to create a disincentive for not having healthcare. But the effects were completely muted by other issues in the system (like ridiculously high insurance costs), and now only serve to penalize and complicate the lives of the very people the program was designed to help.
Just for a moment think on a completely different approach: a national sales or consumption tax. Now before you spit your drink on your screen and start screaming about VAT taxes and whatnot, let me be absolutely clear: having two primary methods of taxation – income tax and sales tax – is just stupid. It automatically jettisons our ideas of efficiency and simplicity. Pick one and size it where it needs to be to get the revenue you need.
As a citizen, which do you find easier to deal with? I already pay sales tax, and it’s just not a big mental burden. Yes, it would be a shock if I went into a store and the sales tax on the latest gadget was something like 25%. But it sure would be nice to get a paystub that just had one number on it, eh? You know, the bigger one, before all of those damn withholds? And anyone that has run any business can tell you that sales tax is crap tons easier to deal with than employee payroll/income tax.
But wait, it would by completely non-progressive, and crush the poor! Not so fast… here is where we get to be flexible.
Basic needs, they are pretty easy to identify. Housing. Power. Water. No taxes here. What about clothing? What about food? Well, there’s food and then there’s food.
America is all about freedom, but we are increasingly seeing problems where our cultural choices are starting to hit us hard in our bank accounts, and food is a perfect example. Let’s be honest with ourselves, we are not setting the global example of healthy eating. On the contrary: as other nations adapt our fast-food lifestyle, they are acquiring all of the health problems that go along with it. How do we incentivize people to eat better, and in particular, make those choices more available to the ones that are for a variety of reasons most affected: under-resourced? Simple: don’t tax unprocessed food. Meats, vegetables, breads, baking needs, sauces… no tax. Oreos? Have at them, but you pay tax. You want to eat out? Again, no problem, but you have to pay tax on that too. Fast food has its place, because it’s fast, and we should be free to eat all the Big Macs we want (or should we…), but they are a luxury, not a necessity. Not only do we have a method of incentivizing good choices, we can create disincentives for bad choices.
But wait! We can get even more creative. We have lots of gadgets, almost all of which are “luxuries.” But these days, things like computers and cell phones are becoming less and less frivolous, and more and more important. With a consumption tax, we can be much more flexible than with an income tax. A cell phone is necessary, but the latest smart phone 11.0 is not. “Basic” models of any sort of good could be considered for exemptions, including things like appliances, even hot water heaters or AC units. And that benefit is seen at the counter of the store, not after filling out forms and applying for an exemption.
There are other benefits to a consumption tax besides simplicity and efficiency and flexibility: it’s unavoidable. We continue to have discussions about income inequality and who pays their fair share and the rich dodging taxes and on and on. Moving to a national sales tax means that we can stop arguing about inheritance taxes and trust funds and capital gains taxes. Because you get taxed on what you spend. Lamborghini? $100,000 party? 10 million dollar boat? Have at it! The family that lives simply will pay very little taxes, those that wish to be extravagant will be taxed appropriately. Not a citizen? Sorry, looks like you don’t have to have a social security number for us to collect.
Is this perfect? Oh hell no. But how perfect is our current system? Not very. And this would be much more efficient (we would still need an IRS, but no tax returns or audits of individuals). And way more simple: April 15th becomes just another day of the year.
So what are the real downsides? Well, for one, politicians use tax laws as currency. You know, give a break here, get some campaign money there (it’s bribery, but we don’t like to call it that). That ability would go away, and so it would be met with all sorts of illogical arguments because they never like losing power.
Anything else? Bueller? Bueller?
So how might swapping our tax system to a consumption tax address cultural issues dovetail into poverty and social programs like welfare?
I recently heard a story where a local guy pulled up to the light next to a gut with a sign that said “hungry, will work for food.” The man rolled down his window and said, “meet me across the street at McDonalds.” And the down-on-his luck sign-holder did just that. After very brief introductions, our good Samaritan asked what the gentleman wanted from the menu, but was a bit irritated at the reply: “how about you just give me the money?”
“I thought you were hungry?”
“I’d rather have the money.”
One of the biggest criticisms of programs like welfare is that they aren’t effective, that we are just teaching the dolphins to come to the boat. Or to buy drugs. If we hand out a check, we have little say in what someone does with whatever money they get from whatever program. So why do we continue this way?
Why not issue a card? Instead of mailing checks or direct depositing into accounts, we should provide cards that work essentially as credit cards as far as merchants are concerned. With today’s technology, this would provide significantly better oversight of where the money goes. Categorizing goods in order to stratify them for a national consumption tax would pave the way to allow the purchase of certain items vs. just providing unregulated funding. Look, I don’t want people, especially children, going hungry. Or being without power or water. But I also don’t want someone taking the money intended for basic necessities and blowing it on the next fix. I’d also like to encourage them to shop at a grocery store, and I am willing to cover a basic stove and transportation costs to avoid having kids grow up under the reign of Burger King. A completely electronic system would allow us to provide continued and graduated benefits, from full coverage of certain goods to partial coverage, allowance for items necessary for a particular job, even short term loans for establishing credit. A graduated step-down helps to eliminate the disincentive that our current system has in regards to benefits, such that people would actually see the positive effects of working vs. dealing with the hassles of a job and losing income at the same time.
The same ideas could be applied to transportation and healthcare. And of paramount importance: connected to education.
I don’t care who you are or what you think about our public school system, we as a nation must strive to increase the value we place on education. There is tremendous discussion about opportunities in school, but little is said about personal responsibility. Mostly because it’s political suicide to even hint at what we all know to be true: involvement in school is the key to success, and is essential to escaping the cycle of poverty. We as Americans have an obligation to try work towards at least a basic education. And that extends to parents, who should be held accountable for their efforts (or lack thereof) in motivating their kids. If Jack (or Jill) doesn’t show up to school, that should result in some manner of feedback in regards to the parents benefits.
With careful regulation of the way benefits are utilized combined with integration of real-time information from institutions like the workplace, schools, and law enforcement, the potential for positive (or negative) reinforcement of behaviors is tremendously increased. And that means better results for the same investment.
We never get things right the first time out of the blocks. These types of systems are virtually instantly modifiable. Want to changes tax rates with today’s system? You’ll be waiting until next year. Want to change benefits for parents with kids in school that are having some specific social issue? Uh, say that again?
But here, changes are just a click away. And we need that flexibility to try new ideas and plans and see how they shake out, to measure the results, to evaluate for unintended consequences. If we move towards this type of global approach, as opposed to working in silos and talking just about taxes or just about education or just about food or just about transportation, we can unwind the ball of yarn and build a cohesive, more effective system designed to maximize the results of whatever we put into life.
Wouldn’t that be better than picking some line item and fighting about it?