Whom to Tax vs What to Tax

Mary and I watched the Romney Obama debate. It was somewhat amusing to me how Romney was intent on portraying himself as someone who has no intention to tax the middle class, and Obama was intent on portraying himself as someone who had no intention of going after the wealthy class.

I have long been of the opinion that taxes should have [at least] two purposes. The obvious  of course, to raise revenue for government; but the other also very important: to encourage desirable behavior and discourage undesirable behavior (I was involved in a scheme in Ethiopia that could have resulted in a differential tax on farming, depending on the practices the farmer followed -- but that's another story). Unfortunately few tax schemes in the modern world examine the incentives the taxes create. The whole discussion which dominates today about whom to tax (and this was so present in the Presidential debate) detracts so much from the more important discussion as to what to tax.

The question needs to be asked: Why is the discussion so centered on who should be taxed rather than what should be taxed? I don't know, but I have my theory. The political [and business] elite have recognized that a honest discussion of what is best for the country or the planet would be devastating for them. So they have contrived a deliberate agenda of diverting attention from the really significant to the marginally significant, and today's middle class "conservatives" who are not really conservatives, have bought into this. Hence we have this notion that conservatism = cutting government and cutting taxes for the rich. Today's conservatives have taken a good word "entitlement" [we are all entitled to basic human rights, and a fair share of the national income] and turned it into a pejoratively bad word. Lincoln, Roosevelt and Eisenhower must be turning over in their graves. But that's just my theory.

Fundamentally a tax should encourage entrepreneurism and the conservation of non-renewable resources. Consider just a few taxes:

• Income tax, both personal and corporate: in my perception this tax, which is so dominant today, only creates one incentive -- to hide income. What good is that?
• Payroll tax: why should there be a tax at all on labour? I don't get it! To create jobs is a good thing.
• Property tax (as opposed to a land tax): Why should a person pay more tax if he chooses to improve his property than if he chooses not to. This question applies whether it refers to me finishing my basement, or to some developer erecting a skyscraper in downtown New York.

The above taxes should be phased out. The taxes below should be used more.

• Capital gains tax: As a minimum capital gains should be taxed on a par with income, although on the whole it represents less entrepreneurial than income.
• Land Tax (as opposed to property tax): There is a limited amount of land in any community. The person who "owns" it, by virtue of his ownership makes this land unavailable to others to use, so it is only right that he should pay a tax for the exclusive right to that piece of land. Furthermore, the value of that piece of land depends more on what occurs within the community than what the land owner does. Without this tax, a person can own a piece of land and watch others build a community and infrastructure around this piece of land. As a result of this development the price of his land goes up big time, not as a result of his entrepreneurial activity, nevertheless, he reaps the benefit.
• Carbon tax: I think we have already agreed this would be a good tax. It creates an incentive to find and adopt practices that most economize on the use of fossil energy.
• Resource extraction tax: These resources will not be available to our children.
• Sales tax: Probably differentiated by product. However, if the other taxes in this section are implemented, this tax would be redundant.
• Inheritance and gift tax: In an ideal world these would be maxed out. There is no merit in passing wealth to children regardless of merit. Allowing free wealth trasnfer between gnerations is the ultimate in discouraging entrepreneurism. I agree that an entrepreneur needs a certain amount of money in order to be entrepreneurial  but there is no reason to believe that this money in the hands of the wealthy would result in more entrepreneurial activity than if it were in the hands of the middle class. The middle class has traditionally opposed this tax, but that is only because the wealthy have deluded them into thinking that their children would have less under a high inheritance tax schema. In fact the children of the middle class would get more if there were a high inheritance/gift tax.

These taxes would encourage entrepreneurism, create a level playing field for all and award merit.