Monday, October 12, 2015

Taxation and Economic Structure

Taxation is an integral part of the monetary system. The monetary system provides a structure for the economy.

The tax reform debate should include a discussion about the way we want our economy and society to appear.

I believe that the best way to understand the effect of taxation on society is to look at the flow of money in the economy.

In both the current tax system and the FAIR Tax, tax dollars flow from companies to the government. In both systems, the Federal Government returns some of tax collected to individuals to make the system appear fair.

Pundits tell us that if we want to know how a system works, FOLLOW THE MONEY!

Although we call our system an "income tax," the bulk of funds collected flow from corporations to the government. Because the money flows from corporations to the government, our economy and government tends to align with the desires of corporations.

I believe that we could improve things by changing the flow of money so that our tax dollars flow directly for individuals.

I want to replace the current withholding system with direct taxation.

The downside of direct taxation is that direct taxation opens an opportunity for the government to use the tax code to manipulate individual behavior.

To reduce the potential for abuse, I want to create an independent entity that sits between the taxpayer and government.

The Object Tax is named after Object Oriented Programming. The design principle of OOPS was used to create the Internet, Smartphones, Apple computers and other wonders of the information age.

The Object Tax says that we will use the technology used to create the Internet to reform our tax code.

The reform starts by creating an open source program to design and implement an alternative to the current tax withholding system.

The computer program would be run by independent Application Service Providers (I will come back to the of the ASPs).

Open source programming tends to attract independently minded individuals. Open Source Programmers tend to be highly skeptical of "corporatism."

The Object Tax is essentially opening up the tax code and letting the most independently minded people in our nation have a crack at the code.

If implemented; the process of creating the Object Tax would be a wonder in and of itself. The people who write this program will be highly critical of any favoritism given by the government to politically connected individuals and businesses.

The goal of the Open Source Project is to create a computer program called "A Tax Aware Account."

A Tax Aware Account works as follows: Workers will receive their paychecks into a tax aware account. The account holds all the information necessary to calculate the individual's taxes. The worker will pay the tax on withdrawing the money.

So, lets imagine that a worker receives a thousand dollar check. The account includes all the information to calculate a tax rate. For arguments sake, imagine the rate is 20%. When the worker withdraws funds, the account would pay a $200 tax and give the worker $800.

The code for the Tax Aware Accounts is based on the current income tax. The big change is that individuals and employers will have the option of continuing with the current system or adopting the new system.

The big change is that tax dollars now flow directly from individuals to the government rather than as withholdings from employers.

Economists might note that this reform changes our tax code from a tax on production to a tax on consumption. Ahem, <b>The Object Tax transform our tax code from a production tax to a consumption tax without the disruption of the FAIRTAX!</b>

I believe that the big change will have a huge positive impact on our economy and society at large.

By changing the flow of money so that it goes through individual accounts to the government, the economy is likely to come into greater alignment to individuals needs.

Don't you see? The way money flows through our economy affects our lives. When the money in our society simply flows from big corporations to big government, corporations get big while the people diminish. Changing the flow of money enhances the lives of the people.

Now, I want to get back to the Application Service Providers.

The downside of direct taxation is that direct taxation allows the government to directly manipulate the people. To make this system work, we need a buffer between the government and people.

The Object Tax works as follows. It starts with an Open Source effort to write a computer program for the Tax Aware Accounts.

There is a lot of money to be made in handing money.

Business, banks, non-profits, computer firms, financial advisers and others will rush to implement this code. These Application Service Providers will compete on their ability to protect their clients from government excess.

If the Object Tax is implemented, people would experience the following. Individuals and businesses would be given the choice of continuing with the current withholding system or switching to the funky new object tax.

People who switch to the Object Tax would run out and find an Application Service Provider to host their account.

On switching to a Tax Aware Account, your employer would start paying you your full paycheck. The Tax Aware Account would start collecting your taxes when you withdraw money for consumption.

Because the Tax Aware Account includes all of the information needed to calculate our current progressive income tax. The program would eliminate the need for filing an annual return.

(Now, I should note, lets say there is a change in your tax status. Imagine that you get have a kid, get married, lose a leg, go blind, etc.; You can update your Tax Aware Account. The account will create an adjustment.)

The Tax Aware Accounts will give people greater control of their individual finances.

I must emphasize that there is a great deal of money to be made in handling money. Banks tend to have the nicest buildings in town because they handle money.

The ASPs hosting the Tax Aware Accounts will bowl over backwards to attract clients. Providers will not just stop with the tax code created by the Open Source Project. They will seek to enhance their offerings with other financial management tools.

The Object Tax Reform will give working class Americans a robust suite of financial management tools. The reform will give workers the same financial tools currently available only to the wealthy.

The Object Tax is not simply about the mechanics of tax collection. The aim of the reform is to improve the financial condition of the people living in this nation.

It is my strong belief that the best way to address the growing gap between rich and poor is to improve the financial condition of the poor.

To recap: Taxation is an integral part of the monetary system. The way tax money flows through the tax system affects the way the system behaves.

The Object Tax creates an open source program to replace the withholding system with tax aware accounts. This changes the flow of tax dollars so that the money flows from individuals to the state. This change should create an economy that is more responsive to the needs of individuals.

The program creates a layer of Application Service Providers that will provide financial services for working class Americans while providing a buffer between individuals and the state.

Tuesday, August 11, 2015

Ben Carson and Tithes

During and interview, presidential candidate Ben Carson was asked about tax reform. Carson's reply was that if a tithes were good enough for the church, then tithes are good enough for government.

Searching for the answers for modern problems in an ancient text is typical of conservative thought. The problem with this approach is that it often leads to misapplied solutions.

As you see, the government is not a church and the logic that applies to a church does not necessarily apply to government.

Interestingly, the New Testament has a few comments on taxation. In Matthew 22:21, Jesus is asked about paying taxes to Caesar. Jesus looks at a coin and notes that it bears Caesar's image. Jesus stated something akin to ""Render unto Caesar the things that are Caesar's, and unto God the things that are God's" ((Wikipedia).

This Biblical reference touches on an important point: Taxation is part of the money supply. Taxation and money were the creation of man. They are not the creation of God.

As money and taxes are things created by man, it is up to us to figure out how to use these financial tools.

Our money supply is controlled by a quasi-government entity called "The Federal Reserve." The Federal Reserve creates money by lending a fiat currency to member banks.

The Federal Reserve is an inherently regressive mechanism for creating money. Since taxes are part of the money supply, I see nothing inherently wrong with trying to compensate for the regressive nature of the Federal Reserve with a progressive tax.

As for what I am doing: My tax reform proposal is to create a computer program to work as an alternative to the current tax withholding system.

Computers are not in The Bible. If we start with the premise that tax reform proposals must be in the Bible; then we necessarily eliminate any tax reform proposal built on information technology.

For that matter, the science of economics did not exist, per se, in Biblical times. If we are to take Ben Carson's suggestion to base taxation on Biblical principles, then we must necessarily ignore any insights gleened from the science of economics.

Anyway, Ben Carson was my favorite GOP candidate up to the moment that he declared an intention to replace the income tax with a tithe.

Thursday, April 23, 2015

A Way to Improve the Fair Tax

The FAIR Tax replaces the income tax with a national sales tax. In order to make the tax progressive, the government sends monthly checks to Americans in the form of a "prebate."

In the current proposal, the annual prebate for a single person is about $2500 a year. The annual prebate for a family with six children is about $8000.

The problem with the prebate is that the money for the prebate comes from tax dollars in the form of a monthly government check. The prebates appear like a massive new government entitlement. Estimates say the prebates would cost the government about $489 billion a year.

I believe that one could improve the Flat Tax proposal by replacing the "prebate" with a tax coupon.

The tax coupon would be a card with a unique ID that allowed tax free purchases up to a given limit. The coupon would be similar to all of the other coupons that we encounter in commerce.

Merchants would be happy to accept the coupons because the coupons directly reduce the size of the check they must submit to the government.

It is likely that many merchants would be happy to buy the coupons from customers at or near the cash value of the tax coupons.

The government should encourage the direct purchase of coupons.

In this scenario a citizen might receive a monthly tax coupon with a face value of $500. To avoid the hassles of using it as a coupon, he would sell the coupon to the store. Since the store would apply the coupon value to their tax bill, the store is likely to buy the coupon at or near cash value.

In this scenario, the tax coupon is working like the tax prebate except for the fact that the money flows from the merchant to the consumer rather than from the government. Issuing the monthly prebate in the form of a coupon makes the prebate look a bit more like an in store gimmick than like a new government entitlement.

Monday, April 20, 2015

A Massively Distributed Database

The current income tax works as follows: Each payroll cycle employers file detailed records with payroll information to the government. Once a year workers file tax returns with detailed personal information.

The IRS uses a massive internal database to match the detailed payroll records with the detailed personal records to make sure your taxes are in order.

The Object Tax creates a computer program called A Tax Aware Account.

Workers will set up Tax Aware Accounts through a third party of the workers' choosing.

Employees who opted to us Tax Aware Accounts would receive their entire paycheck into their account and report this fact to the IRS along with the rest of the payroll.

Unlike the current system where each taxpayer has a single id, the Tax Aware Accounts can have numerous ids.

The Tax Aware Accounts have all of the information needed to calculate a progressive income tax. Workers will pay their tax when they withdraw the funds.

While this system does not completely eliminate the need for an internal database at the IRS, the system establishes the Tax Aware Accounts as the primary taxpayer database.

From a database perspective: the Object Tax is replacing a massive internal database owned by the government with a massively distributed database with the data actually owned by the taxpayer.

From the end user perspective, the system works as follows. First of all you are given a choice of sticking with the current income tax system.

If you choose to switch to The Object Tax you will set up an account with a third party provider of your choice. You will enter all of the information needed to calculate your tax.

You will be able to generate multiple IDs for a given account. You will generate an account number and give the number to your employer.

Your employer will verify the account then start sending your full paycheck to the Tax Aware Account.

NOTE: You will actually pay taxes when you withdraw money from the account.

The Object Tax will build portability into the base of the system. If you are upset with your third party provider, you can switch providers.

These providers, of course, will compete for your business. They will add interesting web based and mobile interfaces to the accounts. I anticipate that many providers would add budgeting software and other features to the account.

The system is designed to make the Tax Aware Accounts the primary data store for taxation. The IRS and state tax authorities will occasionally need to access your accounts.

The accounts will include event tracking features; so, if an IRS agent or state auditor looks at your account; your account would record the event and what part of the account they visited.

I realize that what I am doing with the object tax is very geeky.

I work as a database programming. The proposal is to replace a massive government owned database with a massively distributed privately owned database.

The reform has a geeky name "The Object Tax." The book I am writing is filled with geeky concepts like "massively distributed databases."

On a rare occasion, geeky thought processes sometimes create extremely cool things.

I am basically proposing to use the same design methodology used to create the smartphone to upgrade our tax collection process. I don't hang out with the cool kids, but when I stare across the lunch room to the cool kids table, I notice that they all seem to have smart phones.

Anyway, I am running a kickstarter campaign to self-publish a book about this approach to reform. So far I have received no feedback.

That's probably because the reform proposal is blatantly geeky.

But, think about it, which would you rather see, the tax collection system designed by politicians (the cook kids) or one designed by the geeks?

HINT The current tax code is what happens when the cool kids design society. Geeks tend to make cool gadgets like smartphones and the internet.

Sunday, April 19, 2015

Who Will Host the Tax Aware Accounts?

I believe that the best way to address the growing gap between the rich and poor isn't to attack the rich, but to find ways to make the poor richer.

For the last several decades I've been driven by the question: How can we, as a free society, create free market structures which give the lower and middle class a leg up?

So, I've been looking for ways to improve the financial condition of lower and middle class workers.

I believe that we can do this with tax reform. I believe that if we changed the way that our society collects taxes that we can create a structure that improves the financial well being of the average American.

I gave my approach to reform the strange name: "The Object Tax." I am running a kickstarter project to write a book about the reform.

The Object Tax, named after Object Oriented Programming, uses an Open Source Project to create a computer program called "A Tax Aware Account." These accounts create an alternative mechanism for collecting taxes.

In the current system, the government withholds taxes from payrolls. Workers file an annnual return to get some money back.

The Object Tax creates a the Tax Aware Account as an alternative path for collecting taxes. (NOTE, it is alternative that can coexist with the current system).

People who choose to follow this path will receive their entire paycheck into the Tax Aware Account and pay taxes when they withdraw their money for spending.

The reform creates the Tax Aware Account with an open source project.

The exciting part of the reform occurs when one asks the basic question: "Who will host the accounts?"

The program was developed by an Open Source Project which dramatically lowers the cost of entry. This means that the program can be run by financial advisers, accountants and other small businesses.

Now, there is a great deal of money involved in tax collection. Businesses will compete to gain market share by extending the Tax Aware Accounts with additional budgeting software and financial advisers.

The Object Tax doesn't just create an alternative means for collecting taxes. The reform creates a market which directly provides workers with budgeting software and financial advisers.

Now, the reason that I want to publish a book about the reform is that one needs to see the reform as a whole to understand just why the reform would result in bringing valuable financial services to the lower wage workers that lower wage workers currently miss.

I can't simply blog about the reform because each blog post must be self contained. For example, I had to waste the first third of this blog post rehashing the development of the program to introduce the idea that the accounts will be hosted by private financial service providers.

In the book, the next chapter will talk about how the financial service providers provide a buffer between the IRS and the public. A blog post that introduces this point has to rehash through the creation of the accounts and that they will be hosted by financial services companies and that these companies will offer services to help protect people from the IRS.

I believe that if I am able to present the arguments for The Object Tax in book form that readers would get a better picture of the reform and understand why it is a mechanism that would help improve the financial condition of the average American.

A week into the Kickstarter Campaign, I've received some form letters offering to sell me services but no feedback on the idea itself.

Friday, April 17, 2015

A Modest Reform with a Powerful Impact

The Object Tax is a modest reform. The reform creates a computer program called A Tax Aware Account as an alternative to payroll witholdings.

The reform named after Object Oriented Programming. The Tax Aware Account is a computer object that wraps around a bank account. The account includes the information needed to calculate a progressive tax.

Workers who choose this option would receive their entire paycheck into the Tax Aware Account. The account will calculate the tax rate and pay taxes when the user withdraws money.

The accounts include all of the information needed to calculate taxes in real time; so the reform eliminates the need for an annual tax return.

The Object Tax calculates the same tax as the income tax.

The big difference is that the money flows from the worker and not from the employer.

The reason that I developed this reform was because I believe people would have a better understanding of governance if they saw the money for governance flowing from their account.

My reasoning is based on the observation that self-employed workers who have to send money to the government have different opinions than workers who have taxes withheld from their paycheck.

The reform also changes the focus of the tax debate from jobs and employers to the financial well being of individuals.

Personally, I do not think the United States has a tax crisis. We have a spending crisis. Tax reform will not change the spending habits of Congress. Changing the view people have about taxes might help encourage long term change in Congress.

I consider myself to be a classical liberal (a close kin to Libertarianism). I think changing the flow of tax dollars so that the money goes through individual accounts is a positive move.

More importantly, I think the reform could gain bipartisan support. I think this for several reasons:
  • The reform would streamline the tax collection process by eliminating payroll withholdings and the need for an annual return.
  • The Reform is not disruptive. The reform is presented as an alternative that calculates the same progressive tax rate as the  existing tax.
  • The reform adds transparency to the tax code by creating an open source project to write the software for the Tax Aware Accounts.
  • The reform also has a cool factor. The reform uses the design methodology used to create smartphones to create a tax collecting computer program.
  • From an economic perspective, the reform transitions the current income tax from a production tax to a consumption tax.
Personally, I think that cutting government spending. Government spending and excessive regulation have the effect of taxing our economy.

While I do not think we can solve the problems of excessive government spending with tax reform, I encourage people to engage in debate about tax reform because such debates highlight the fact that our state and federal governments have exceeded their spending capacity. No matter how we configure tax reform, America simply cannot afford to continue the wasteful spending that we see in Washington DC.

I am running a Kickstarter Project so that I can self-publish a book. I am disappointed that the campaign hasn't received any feedback yet as I feel that this approach to reform is the best that we can do in 2016.

The campaign is young and I may receive some feedback before the campaign is through.

Thursday, April 16, 2015

The American People are Smart

I've encountered many progressives who seem to hold that the American people are stupid and that we need a larger overbearing government that lies to and manipulates the people for their own good. The video shows an exchange with PPACA (ObamaCare) architect Johnathan Gruber in what I find to be a typical conversation:

I happen to believe the opposite. I think the American people are extremely intelligent and that it is not only possible to create a reform program in a transparent manner. I believe that a program developed in a transparent manner will be superior to one developed by power players behind closed doors.

The only feedback I've received on "The Object Tax" is that people find the name is a bit pretentious.

The reform is named after Object Oriented Programming. My guess is that the vast majority of Americans between 15 and 50 have had a programming class and know what an object is. An object is a programming construct that groups together data and procedures.

I suspect that more Americans have attended programming classes than classes on Constitutional Law.

The Object Tax replaces the burdensome system of payroll withholdings and the annual return with a thing called a Tax Aware Account.

The Tax Aware Account is an object. This object includes the information needed to calculate a progressive tax along with information about individual financial transactions. The object has procedures for calculating and paying taxes.

Most computer savvy Americans know Object Design process was used to create the graphical user interfaces used on the MacIntosh Computer, Windows, the World Wide Web and Smartphones.

The reform proposal says: Let's use the design techniques behind the World Wide Web and Smartphones to streamline the tax collection process.

I believe the American people are smart enough to understand this concept. In fact, I am willing to take things one step further.

I believe that we could use an Open Source process to create a Tax Aware Account that executes the current tax code.

Open Source programming is simply a technique to allow a large group of people to participate in a project and share in the rewards of the creation.

Perhaps the best example of Open Source development in action is Wikipedia. Wikipedia invites the public to help create the world's largest encyclopedia.

To finalize my faith in the American people, I believe that if The Object Tax were approached correctly, we could create a program that empowers the American people to take charge of their personal finances.

Now, personally I dislike the subject of tax reform. The reason that I am trying to kickstart this book on tax reform is because I believe in the American People.

In my opinion, the current convoluted tax code demonstrates that our political system has systematically failed the American people. The Object Tax would provide a chance for the American people to stand up and show that there is a better way. The Object Tax suggests that we use the wonderful ideas that came from Silicon Valley to reform the hideous tax system that came out of Washington DC.

I believe the American people are smart enough to understand the approach that I am suggesting.

The problem I face is not with the lack of intelligence among the American people. The challenge I face is in breaking through the fog that the political system has draped around the process of governance.

Quite frankly, I think more people are put off by the subject tax reform than are put off about by the subject of computer programming and system engineering.

My hope with this kickstarter campaign and book suggestion is that it might start a conversation that leads America in a better direction than the one that the partisan political process follows. With luck a few people will get it. If I am able to carry through with this project it might have a positive impact by influencing the tax reform debate that will invariably take place during the 2016 election.