Tuesday, November 01, 2005

Flat Tax -Not-

A 'flat tax" is: government expenditure (expenses plus obligations) divided by population. That would be about $5000 per person at the Federal level and in my case $3400 for California and $1600 locally or $50,000 for my nuclear family of 5. What you normally hear being called a flat tax is actually a "flat tax RATE" an entirely differnt animal. More important is rate of "what?" Income? What is income? Dollar denominated equivalent transactions? Is your paycheck one of those transactions? Is a corporate division a seperate entity so that shipping parts to the assembly plant becomes a transaction? What about having your trash hauled away? What about recycling then? Think about it. Is recovering some previous expense another transaction or is it a completed transaction? With the latter, if you refuse to recycle is the transaction completed or are you trying to transfer wealth to somebody else who eventually recycles your "waste."

What we really need is the first baby step. Consistent taxation of things, actions and efforts. Other countries call the things part of this a VAT. If VAT lived up to its' name it might work but consider an auto purchased for $20,000 taxed a 5% and sold to a second private party two years later for $15,000 . Is there a 25% VAT rebate? Or is there another VAT on the $15,000. Or is there a complex deterimination that the buyer cleared $1000 over value and owes another $50? Or the buyer underpaid? You get the idea.

Don't get me wrong, I'm all for blowing up the tax laws and starting over. No doubt the eventual outcme will be rational and more fair after a period of irrationality and intense unfairness but that's a different matter.

While we are at it what is this crap about property taxation based on book value? And which services should be funded through the property tax mechanism? The SCOTUS says not education. Sales taxes in Kalifornia increasingly support public safety. What about Community Colleges? Then there is the 500lb gorilla, Prop 13.

Prop 13 correctly protects people and businesses against arbitrary government distortions of the market. That's one point of government regulation in the first place isn't it?

I have no truck with the market aspects nor even the speculative portion of home buying decisions. I just think Prop 13 does a good job of capitating some of the non market risks with no external costs. I'm sure others feel otherwise and I'm only expressing an opinion among many. Perhaps we can go about this in reverse. I've got a 4 bed 2.5 bath SFR California ranch. How much should I be paying in taxes? California has 36.6 million people and spends/incurs $116 billion. That's a whopping $3400 per person. How much of that should come from property taxes? It isn't easy to answer in part
because of for instance what happens to the property tax that is sent off to Sacramento so that from there lots of money can be transferred from the high performing school districts to the worst school districts. You see in 1978 the same year as Prop 13 it was deemed illegal to spend different amounts locally as previously when California was 4th in the nation for school
performance. So now we spend different amounts locally as directed by the State as commanded by the Supremes and are now lowered to the 4th worst in terms of results.

Sorry, I got distracted. Were we talking about investments and government meddling?

1 comment:

Seb said...