Nathan’s Wonderful, Oversimplified Tax Solution.

As I was discussing on Twitter the need to reform the U.S. Tax Code (which everyone acknowledges needs to be fixed, and nobody knows how to do it), I had an interesting idea which definitely needs to be explored for feasibility. Let me state at the outset that, yes, I know well the H.L. Mencken quote: “For every complex problem there is an answer that is clear, simple, and wrong.”  However, because in this case the needless complexity is a large part of the problem itself…

At present, every one of us has income taxes collected by at least two entities: the state, and the federal government.

What if we used only one entity?

Imagine this: After setting the budget (which is another whole kettle of worms), the federal government then assigns a proportionate tax assessment based on population to each state, and let the states figure out how to structure its tax laws to collect it.

First-level benefits:

• Tax structures would take into account local business environments, mores, and priorities.
• Taxation laws and proposals would be more responsive to the tax payer.
• With states assessed by population rather than income, aiding and fostering the financial wellbeing and stability of its residents would immediately become each state’s priority.
• Each of the states, in observing how other states operate, would be more nimble in revising their tax code than the leviathan federal government, both to benefit their existing residents and to attract taxpayers (either individuals or employers) from surrounding states.
• As the corollary to that, taxpayers would be able more easily to “vote with their feet” over inequitable or onerous state tax provisions.

Second-level benefits:

• With the states more directly involved in procuring the federal government’s demands, states will begin to push for greater influence in the federal government, including a push to repeal the 17th Amendment so that their Senators are more beholden directly to the state legislature.

The one objection brought up in the conversation was, If assessments are based on population, wouldn’t states be incentivized to downplay their population numbers for each census?

The counter to that is that the House of Representatives is still apportioned by population, so the states would have an incentive not to downplay their population numbers.

Now, there’s still plenty to be worked out.  How are multi-state corporations handled?  Are non-state territories assessed by the same proportional method, without the counter-pressure of Representative apportionment?  How are expatriates handled?

And beyond those issues, there’s only a negligible chance that such a scheme, even if shown to be workable, would ever be put into practice; as I said earlier, everyone agrees that the Tax Code needs an overhaul, but no two people agree as to how.

So maybe, if someone does the actual work to show that this scheme is workable, I’ll just have to add it to my “If I Ever Have A Time Machine” list.