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February 20, 2014

A cool idea to reform the tax system

Filed under: Uncategorized — admin @ 2:11 pm

Over the years, I’ve learned a lot from interacting with people from various ideological backgrounds. And recently I came up with a novel idea — novel for me anyway. I wonder what you think of it…

Since corporations aren’t really people but a legal fiction, why not tax the corporations? Let them deal with all the bureaucratic crap. Here’s how I would propose reform the tax code:

Don’t tax the people themselves. But create sanctions for engaging in business personally without opening a company. Individuals would only be able to earn substantial amounts of money as employees. If you are an employee, your earnings wouldn’t be taxed. You wouldn’t have to go to the accountant, wouldn’t be subject to penalties for failure to pay, etc. True the company employing you would have to file various taxes, and pass the costs on to you, but the company would be able to do the accounting much more efficiently thanks to its economies of scale and greater knowledge of its internal operations.

However if you are self-employed, you’d have to start a corporation. If you take money “under the table” personally and not as a corporation (which has to pay you a salary as an employee) you can be fined, lose those earnings, etc. Naturally, people would be free to give each other gifts and engage in various in-kind transactions. But these would be limited by monetary amount.

That way people who don’t engage in business transactions on a large scale — which is most people — can voluntarily opt into taxation, by choosing explicitly to do business in a certain jurisdiction, and choosing the type of entity, and the jurisdiction.

In addition, if this was online the new business owners can be pointed to the right licenses they need to obtain, and best practices for that area, etc. They can even join other businesses doing similar things, and go to meetups. All because they explicitly formed the corporation. And if they don’t do it, they live FREE of taxes or penalties for not paying them, and no need to go to an accountant.

In other words - no income tax, no pass-through tax entities. Just corporations, for every kind of venture. It matches my motto: “People live lives. Companies do business.”

This recognizes the very real distinction between people and corporations: Corporations can be subject to unlimited market discipline, unlike people who need safety nets and can starve etc. Since corporations are able to hibernate or close without raising thorny moral issues, there wouldn’t be a need for a million exemptions for corporations. Welfare might get simplified, as well.

Thoughts?

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