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.