h a l f b a k e r yInexact change.
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Instead of taxing a quarter billion individuals' income at the federal level, tax the 50 states. The states would be taxed on their state income (which comes from state taxes and income from state assets). Obviously, state taxes would grow to consume approximately the same amount of one's income as
the federal and state taxes combined used to.
Here are some of the reasons I think it is a win:
The states already require their residents to file taxes, so there should be a net decrease in the labor needed to process all the forms. The states will have more work to do, but the IRS will have less.
The states are large enough to do battle with the IRS whereas individuals usually aren't. I've heard stories of the IRS essentially steamrollering individuals by seizing everything and then trying to sort out the details.
It allows much more experimentation with tax policy. With the existing system, even if a state were to try a very novel tax policy, it's effects are diluted by the uniformity of the federal tax structure.
It would inhibit the national government from trying to shift social trends by enacting targeted tax cuts and benefits.
States, of course, would now be more likely to try to effect such changes. All in all, I think they are in a better position to do so. Also, it is much easier to get elected to one of the several thousand state assemby positions than it is to get elected to the few hundred house or senate seats.
It decouples national politics from state tax strategies. More rural states could enact tax laws that favor their economy while more urban states could shift their laws to accomodate their economy.
It allows one to vote with one's feet. If you don't like the MA approach to capital gains, move someplace more to your liking. Instead of affecting 5% of your tax burden, such a move now could affect 100% of it.
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Problems with this are that not all states have a state income tax. Florida doesn't. And if the fed gov't was to tax the states rather than the people, it'd have to do it fairly, so every state pays about the same proportion, or people would just move out of the states that charged more. Aside from that, not a horrendous idea, getting rid of the IRS.. |
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Moving from one state to another to avoid state
income tax is already a popular sport with wealthy
people -- as it is in Canada with each province
charging more or less tax. Here in BC, my provincial
tax is approximately 50% of my federal tax -- approximately
15% of my gross income. |
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For the average person, moving from one province
or state to another to reduce tax burden is not really
a viable option. The moving and house sale / purchase costs and loss of income from switching careers can quickly eat up any sort of benefit -- let alone the emotional burden (Show me a wife who enjoys moving, and I'll show you a sick woman!) |
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For corporations or wealthy people, provincial / state tax is a huge draw to or repulsion from certain provinces / states. |
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Partially baked: the EU and the UN
derive their revenues this way, as
did the US government under the
Articles of Confederation. I'm
not sure how the member states'
"dues" are set, but making them
proportional to central government
revenue or even GNP seem like
reasonable options. |
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However, these central
"governments" are quite weak
compared to the US federal
government; applying this form of
taxation to a highly centralized
system would be interesting. |
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Note that to keep the current
revenue balance between the
federal government and the states,
you'd have to set the tax rate at
97% or something. If you set it
at 50% the states would suddenly
have a lot more money (is this
good or bad?). |
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Finally, some quibbles: Tax county
and city revenue as well, to avoid
simply shifting revenues away from
states; possibly tax "poor" states
less (what's a "poor" state?); and
make sure the government can raise
emergency money (in case of war or
whatever) if necessary. (It might
be harder to sell bonds for a
government whose revenue depends
on the whim of the states.) |
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While I left it up to each state to determine how it raised the money for its share of the federal tax, I can't really imagine that states with no personal income tax (like Florida) could remain so. Financing the entire tax burden with a sales tax would drive the economy at the state's periphery across the border. I imagine property taxes could be raised quite a bit to compensate, but folks on a fixed income who paid for their land decades ago might be in a world of hurt. |
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Also, still unbaked is exactly how the federal government would determine how much each state owed to federal govt. I imagined that it would be a function of the state's income which would include things like income tax, property tax, auto registration fees, liscences and permits, sales tax, etc. I favor that because it is a real number, not some estimated value like GDP. As to whether the states were taxed at a flat rate or a progressive rate would be up to the house and senate to decide. Also up to the federal govt would be the issues of deductions, credits, refunds, etc. Again, the states are big enough to afford the potential army of accountants. |
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As for leaving more money with the states, I think that would be a good thing. It makes no sense to me for hundreds of millions of dollars to flow from individuals to the federal government only to be transferred back to the state and local govt in the form of highway funds, school funds, etc. I think the bulk of things like that should generally stay within the state. Only enough necessary to cover the redistribution of wealth from rich states to poor states should go through the federal govt. |
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As to the federal govt being subject to 'the whim of the states', well, I kind of like that idea. Under this plan, the federal govt has 50 powerful taxpayers. Bullying tactics would be very difficult to pull off. States could voice their displeasure by either witholding payment or, more likely, by deliberately cooling the state govt portion of the economy (slowing big works projects, privatizing services). All in all, I think these battles, when they happened, would be a good thing. |
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I'm basically sympathetic, but there are some advantages to a strong central government. Economies of scale are not inconsequential; a single central authority can potentially do a much better job than the average state government. (Of course, nothing stops states from pooling their resources, except that they're stubborn. When was the last time you saw two nations enter into a joint health care plan, for example?) |
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Larger governments also tend to be more moderate. The result is a nationwide "greywash" which may avoid brilliance but also mostly avoids disaster. |
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I also like some of the things this idea does, but to flesh out one of egnor's concerns, wouldn't this make secession and wars between states both more likely and easier to achieve? |
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//Partially baked: the EU and the UN derive their revenues this way, as did the US government under the Articles of Confederation.// |
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Prior to the passage of the Sixteenth Amendment, that's precisely how the U.S. government got its revenue. That, combined with having the Senate represent the state governments, helped keep in check the feral government that has since become a behemouth. |
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Another interesting note is that since the levels of both representation (in the House) and taxation were both set proportional to population, this meant they were proportional to each other. One of the problems as this republic drifts toward a democracy (rule by the demos, i.e. mob rule) is that the people voting to spend more money on social programs are not the people who earned it. Having representation and taxation proportional to each other helps to mitigate this problem. |
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Well, at least supercat has read the US Constitution.
Here's what the US Constituiton says about Federal Gov't revenue...
Article 1 Section 9 part 4 "No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken." (What this means is that the people and the Constitution give the Fed Gov't the right to tax states based solely on population. This and inter-state commerce taxes are the only rights to tax given the the Fed Gov't.) See also the 10th. Amendment... "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."
The 16th Amendment... "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration." This amendment did not repeal or an any way make nul or void Article 1 Section 9 part 4. Proof that this was necessary is apparent if one reads the 18th Amendment and the 21st Amendment pertaining to Alcohol prohibition. |
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This would be a horrible disaster of beaurocracy fighting with itself with no end in sight of the complaints from one side or the other that their states were being taxed too heavily, create disincentives to accurately count population, and make my overall tax burden share a complete mystery. The state does a horrendous job of accounting for my tax money in general. The paperwork alone for an accurate state census would be a nightmare, duplicated 50 times. Heck, states can't even administer proper votes without all sorts of wrangling. |
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Take the idea further. Have municipalities collect all
taxes from citizens. They would then contract with,
and pay, county governments for the provision of
county-level services. Ditto counties and states,
and then ditto states and the Federal government. |
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