Wednesday, April 15, 2015

From the Point of View of the Producer, the FairTax is a Production Tax

When designing tax reform, it is extremely important to look at the problem from multiple points of view.

The FairTax approaches taxation from a single point of view. Neal Boortz believes a sales tax is a consumption tax because, from his perspective, the tax is collected when he consumes things.

But, Neal Boortz is not the only person on the planet. There are at least two people involved in every financial transaction.

The FairTax places a huge sales tax on the sale of goods and services.

From the point of view of the producer, the FairTax is collected when the producer realizes a return from the item produced.

A proper analysis of tax reform should look at the flow of money through the system from multiple perspectives. Because the money from the FairTax would flow from producers at the moment they receive the reward for production, it is still a production tax.

Don't you see? The point of sale is the moment when companies realize their reward for production. From a production standpoint, this is the absolute worst place to collect taxes. I've worked for companies that did not have sales (usually due to the incompetence of upper management). Every single one of them ended up closing because of the lack of sales.

For a reform to be a true consumption tax, the money needs to flow from the consumer.

This blog is about a reform called "The Object Tax" named after Object Oriented Programming. The reform creates a new computerized interface for the current income tax. What happens is that workers receive their entire paycheck into a tax aware account. They pay taxes when they prepare to spend money.

This approach to tax reform creates a true consumption tax because the tax dollars flow from the consumer when the consumer prepares for spending.

The flow of money determines the nature of the tax. A sales tax is a tax on production because the money flows from the producer. The Object Tax creates a true consumption tax because the money flows from the consumer as the consumer prepares for consumption.

A tax placed on a producer is a production tax. A tax placed on a consumer is a consumption tax. The flow of money determines the nature of the tax.

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