This page provides more explanation of the reasoning behind the Tax and Redistribution plan.
Do we need taxes? This question can be answered in two parts: do we need government, and how to fund government. We need government because throughout recorded history governments arise spontaneously in areas with no government, and those who do not quickly establish a government of the people soon find themselves governed by criminal gangs or warlords. Throughout history, governments that have not charged taxes have generally funded themselves through licensing fees or similar arrangements that resulted in higher prices, reduced productivity, and less freedom of choice for the people. If the government controls the money supply, it can simply create money to fund itself without charging taxes, but this reduces the wealth and productivity of the population, as does a tax. So, unfortunately, we need a government and taxes are probably the least-bad way to fund it.
The need for redistribution? We don’t need redistribution, and many successful civilizations have gotten along quite well without it. However, the American people want redistribution, and what the American people want, they generally get. The well-off like being relieved of their social obligation to assist the poor. The poor like receiving assistance without having to beg. The young like not being financially responsible for elderly relatives and the old like having a guaranteed retirement income. Additionally, wide disparities in wealth are associated with perceived unfairness and social unrest. A complication here is that many workers have been led to falsely believe that the taxes they have paid to support the elderly in retirement have instead been invested for their own retirement.
Simplicity and efficiency. Simplicity and efficiency go hand-in-hand for taxation and redistribution. People who do not understand the tax system cannot figure out how much they owe, leading to overcollection or undercollection, especially from those who cannot afford experts to calculate their taxes. Complicated tax laws lead to resources wasted in calculating, paying, collecting and auditing, leading to inefficiency. The efficiency of a tax system can be determined by comparing the costs associated with paying and collecting the tax with the amount of tax collected. Lower cost is better.
Fiscal responsibility. Limiting the amount redistributed to the amount of personal income tax collected two years before means that the plan cannot operate at a continuing deficit.
Transparency. Requiring that 100% of the personal income tax be redistributed will make it more difficult for the politically-connected to siphon off part of the money for other purposes.
Avoid economic distortions. People are most productive when they are providing goods and services that other people most want. You can tell what people most want by seeing what they are voluntarily willing to pay for. An economy that wastes a lot of resources on things people do not want cannot be very productive. In trying to avoid taxes people often divert resources from more-productive uses to less-productive ones. To reduce this distortion a tax should be broadly applied with few or no exceptions.
If a redistribution system has criteria for qualification, some people will arrange their lives in order to meet those criteria. This can lead to people who feel trapped by the system and cannot make positive efforts to help themselves and their families without risk of losing their benefits. A uniform redistribution amount avoids this problem.
Incentive to work. If we want people to work hard, innovate, and take the risks inherent in entrepreneurship, then we need to allow people a fair chance to be rewarded for their hard-work, innovation, and risk-taking. Taxes should be structured so as not to punish these socially-beneficial behaviors.
Taxes have a single purpose. The purpose of the tax system is to fund government activities. Use of taxes to attempt to control behavior generally has unintended consequences worse than the behavior they are intended to control.
Tariffs. Taxes on imports are called tariffs. The plan does not include tariffs, although a low, uniform tariff on imported goods and services would probably not be economically damaging. High tariffs used to protect a domestic industry harm the other domestic business that depend on that industry, while increasing costs and reducing choice for the people. If security necessitates restricting trade in certain a good with a certain foreign entity, it will likely work better to simply ban the trade rather than to apply a tariff. If a low, uniform tariff were implemented, import of raw materials used to make export goods should be exempted.
Constitution. All United States government activities must conform to the United States Constitution. This is no problem for the tax portion of the proposed plans. Article 1, Section 8, authorizes Congress to lay and collect taxes, and the sixteenth amendment authorizes income taxes. However, the constitution does not specifically authorize Congress to redistribute wealth.
As most taxpayers will pay more in taxes than they receive in redistribution payments, their redistribution payments could be considered a partial refund of taxes. Section 8 allows Congress to borrow money, and the refund could be considered a loan repayment.
Elderly individuals tend to have lower incomes than working individuals and receive larger distributions under the proposed redistribution plan. and therefore may receive more in redistribution than they pay in taxes. But their lifetime taxes paid most likely will have exceeded their redistribution payments. If the distribution exceeds lifetime tax payments, the excess could be thought of as interest on their earlier taxes collected.
This leaves those relatively few recipients who have not paid taxes or have not paid significant amounts of taxes—likely the ones who need the redistribution most. One way to address this would be to consider the distribution a loan against future tax collections, and then forgive the loan if not repaid within the individual’s lifetime. But the constitution does not authorize Congress to make loans. It seems the only way to justify these distributions would be to consider them payments for service rendered, but even then, it would need to be a service authorized by the Constitution.
The plan requires citizens to file tax returns to obtain redistribution payments. Those returns also serve the purpose of letting the government know how much tax, if any, each person owes. The redistribution payments could be considered payment for the service of submitting a tax return, thus assisting with the collection of taxes. This justification applies to all redistribution recipients.
Posted January 20, 2021
Revised January 26, 2021 added comments on constitution.