Sometimes it is nice to dream about how things could be:
Let’s imagine what a simple tax code would look like. The Feds would derive revenue 3 (and only 3) ways:
1) Import tarrifs and travel fees (passports, international airplane landing fees, rail crossing fees, etc.). I know this may seem horrible, but lets consider that keeping international gateways open is an important function of the Federal government. Let’s consider that it might be fair for import tarrifs to be sufficient to secure our peacetime borders. These would not be sufficient to protect borders in times of war, but would fund things like INS, Coast Guard, border patrol, Airport security, passport agencies, etc. All funding would be directed to the Department of Borders (which would include Homeland Security, Coast Guard, and Port Authority). Basically the idea is that the cost of moving people and goods in and out of the country securely is borne by moving goods and people in and out of the country.
2) Sales/Leases of Federal property (possibly some licensing fees from bodies like nuclear regulatory agencies). This would include leasing land to mining, forestry, fisheries, drilling, etc. Purchases into SPR and sales of the SPR (along with other potential strategic reserves like metals, Natural Gas, etc). Again the revenue for this would be tied to the Department of the Interior (which would include Department of Agriculture, Education, and other peacetime “interior” departments). In this case the cost of maintaining the interior is borne by the use of the interior.
3) Levy issued to states in proportion to their enumeration (like the Constitution originally said). The Federal government would look at the rest of its bill (military, debt service, department of Justice, Commerce, Highway funding, and wealth transfer payments), divide the bill among the states and issue it. Basically the services that directly serve the states like the Interstate Highway system (along with wealth transfer payments) are borne by the states.
There would be no income tax, no capital gains tax, no inheritance tax, no Obamacare tax/penalty, no IRS, no deductions. Simple. Maybe Justice should be in Interior, maybe Department of State should be Levy funded or joint between Levy and Borders , and others could be argued where they go – but those are arguing details. The bigger picture is “simple.”
How would I suggest states raise revenue for the huge burden (Medicaid and Social Security) just shifted to them? A uniform (uniform within each state, not uniform between states) corporate sales tax. The tax would be levied on the sales of corporations to non-corporate entities (i.e. people). Why corporations? Well, if you tax all sales that technically makes the child selling lemonade (or the 22 yo mowing lawns, or independent tutors etc) in violation of tax law and so would inhibit start-ups. When any business grows to a certain size they will incorporate in order to protect the owner’s personal assets from lawsuits. Basically let anybody start a business without having to worry about tax law at all, but taxes apply once they want the state to protect their personal assets from liability claims. Possibly include all work done that requires a state issued license (medical, accounting, etc). Local revenue could still largely be raised by property taxes, but I would suggest states use a corporate sales tax. If a corporation has routine losses (like if a family claimed to be a corporation in order to eliminate taxes on purchases but that family didn’t actually sell anything) that would trigger audits. All sales at physical locations within the state (i.e. storefronts) would be taxed by the state housing the sale. For tax purposes all cross state purchases (i.e. Amazon) would be considered as having taken place in the state where the corporation is headquartered. So you live in Texas and buy something online from a company headquartered in Maine – you pay the Maine sales tax even if the thing you bought was in Nebraska at the time of sale. International purchases would still need to be cleared up, but really how much of what you buy comes from an oversees business with no US locations? Not much.
All charitable giving is now entirely tax-exempt (since you don’t “sell” to a charity, and they don’t “sell” to their cases). Investments are also tax-exempt. Nobody (except import/export businesses) could ever run afoul of Federal tax law since it wouldn’t apply. State governments have a reason to push for the smallest Federal Government possible since the states must collect the revenue. Yes this would mess up means testing of Federal programs (Medi-xx, welfare, etc) but I don’t care since those should be run by states anyway. The biggest issue would be Social Security “contributions.” But maybe during the transition period that continues as is (until something better is worked out).
Simple. Encourages investment. Gets rid of the IRS. Churches don’t have to bother with proving tax-exempt status (they don’t sell anything). Waitresses don’t get audited for not claiming the right amount of tips. Thomas Crown’s diary couldn’t happen. Wouldn’t it be nice.