Another screwy tax proposal

Well, I don't know about you, but when it comes to taxes, I think I'm bothered as much by the complexity of our current system as I am by paying the actual taxes. The recent disgrace of Tom Daschle et al. hasn't made me change this idea. I mean, take the money but don't make it so difficult and stressful.

One perennial idea to simplify taxes is the consumption tax, basically a national sales tax. When you buy something, you pay taxes, and you don't pay any other taxes. This is definitely simpler, and no one has denied that it could be used to raise all necessary revenues. The problem is that in all forms of it I have heard of, it is horribly regressive, in that poorer people would end up paying a much greater portion of their income in taxes than wealthier people.

So, the screwy idea I came up with this morning is that by default, a national sales tax rate -- possibly with per-locality or per transaction-type adjustments -- is set to a universal amount. For the moment, let's say 15%, just to pick a number. 15% of all normal transactions would go to the tax collector. Yes, the rate could be modified to get some state taxes in there, and also there could be lower rates on things like carrots and bread and higher rates on things like television sets and cigarettes. But the nominal rate would be a standard 15%. However, people could apply for something called a "tax discount card", which would contain ID information and electronically coded information that could reduce the tax rate applied to a certain transaction. This would be the means to implement progressivity in the sales tax.

From the retailer's point of view, the tax discount card would simply be swiped just like a credit card, and the tax rate of the transaction would be adjusted accordingly. It would really be no extra work for them. All of the necessary information to document the tax would be supplied automatically.

What about privacy? Well, use of the tax discount card would be optional. If you didn't want to use your card (or if you don't qualify for any discounts), you can do an undocumented transaction and be taxed at the full nominal rate for the transaction type and locality. Basically, if you want to pay less taxes and if you have low income, lots of kids, or some other reason why your taxes should be reduced, you can apply for and use a card.

In terms of simplicity, the process of applying for and renewing the discount card could be complex, no question about it. But what this plan does is to separate out the complexity from the taxation itself. And, except for people whose circumstances change rapidly, once the first card is acquired, renewal cards would be less complex.

Families could get "family rate" cards instead of having each individual apply for their own.

One interesting twist is that tourists and other transients would pay the full rate, and people from out of state would not pay the local state supplementary tax.

Well, that's the idea.