Taxation idea... still valid?

While going through some old stuff, I found this 1990 letter to my Congressman. Although it was written 25 years ago is it still a valid idea?

    April 13, 1990

Congressman Owen Pickett
Washington, DC

Dear Congressman Pickett, 

       I would like to propose an alternate form of taxation. As an independent business owner, I am acutely aware of the twisted and grossly unfair way that we are taxed. Let me tell you right off that I do not mind paying taxes… my fair share, that is. I feel very strongly that all people should pay taxes. Our system of government 'persuasion' by non-taxation has everyone constantly worried about the tax consequences of every business decision. The first question is not whether something is good for business, rather we worry about how it will affect our taxes. We as a people give billions of dollars per year to banks just so we do not have to give it to the government. Is this logical? I think not. 

       Most of the tax reform proposals I have heard about recently revolve around either a flat rate income tax or some sort of value added tax. My proposal differs somewhat on both and I feel it is a more equitable form of taxation. 

       I would institute a 'consumption' tax. The tax rate would be variable, dependent upon the amount of money we need to run the government. This is completely different from the way it is now. We as a people have come to expect enormous things from the federal government, but we expect the other guy to foot the bill. We are aghast at the deficit, but we are unwilling to give up any of our own sacred cows. Let's turn it around and say "Decide what we want to spend, then let us come up with the money.” Why play the game? If we as taxpayers do not like how much is being spent, we should tell you, our representatives. Meanwhile, we should pay as we go. 

       The details of my consumption tax are relatively simple. Most all ‘end use’ spending would be taxed at a flat rate, set by a budget commission. No one would escape this burden. The reason for our current sorry state of affairs is that there are so many exceptions for so many reasons. The rich always find a way to avoid payment. Business show losses, even though they are only on paper. We are being taxed on the wrong side of the money curve. 

       If a man has $1 Million and never spends a cent of it, is he any better off than the street bum who has no job? Of course not! But you and I know that virtually no one who has $1 Million can resist spending it. That is where you place the tax. Do not tax the accumulation, tax the distribution. That goes for business as well as personal. If a business like McDonalds spends $500 Million per year in advertising, why should I as a taxpayer subsidize it? Tax any 'end use' spending. Purchase a machine for production… tax it. New furniture… tax it. Telephone bill… tax it. The few exceptions would be wages, products that go into production of an ultimately taxable product (this would have to be worded carefully) and charitable contributions. I do not feel that housing, clothing or food need be excluded. Everyone needs housing, clothing and food, but it is a matter of degrees as to how much is spent. Everyone in this country has an obligation to support the government. Spend a little, get taxed a little. Spend a lot, get taxed a lot. 

       The tax needs to be so prevalent that no attention is paid to it. Any business or individual that sells anything should collect the tax. If the tax is exempt, the person or business should request a refund from the government on a monthly or quarterly basis. The biggest loophole that I can see in this plan is international spending. I am sure that we can come up with a way to track spending outside the borders of the U.S. 

       The key to making this plan work is NO LOOPHOLES, NO EXCEPTIONS. Take the budget for the federal government, divide it by the gross national spending figure and you have federal consumption tax rate. You can adjust the amount as needed to fit government spending and/or end use spending. Tax everything, real estate, cars, medical care, suits, air travel, water, accountant fees, books, rentals, leases, admission fees, investments. If someone has money and spends it, tax it. If they make money, great. If they lose money, sorry. But if they spend it, tax it.

Thank you for listening,

One thing that I have always thought about a consumption tax based upon actual spending is that folks would put up with only so much taxation before they push back. What is that number? I don't know, but if everyone and every entity paid accordingly, we would probably have a LOT more tax receipts to spend on useful things. If the politicians waste the money, then they should be removed from office.

One other thing to consider is the working poor. There could be some sort of rebate for non-vice purchases (excluding cigarettes, liquor, entertainment, etc.) for these folks or some sort of earned income credit. Welfare payments would factor in the tax, since it will be coming right back to the government, so that would be a wash.

Let's try it and let the system work.

Comments?