Conflating Taxes with Spending

Many of the people I have talked to after reading my idea on the CUT Tax (Currency use Tax), comment that it is an interesting idea, but it don’t stop government spending. Thus, it is a failure.

I understand their concerns. However, I do not agree with them. Most of these people are strong believers in the Fair Tax, and for a time I was a true believer in the Fair Tax. I accepted the hidden mantra that if you make a tax that is oppressive at the onset, the middle class would rise up and demand a reduction in spending.

That is where the conflation problem occurs. Governments in general do not equate spending to revenue. Unless they are required to balance the budget through their applicable constitution. In the politicians mind, they are not linked. Most of them view spending as investing. The concept that if you throw money at specific problems, you will be repaid in the future by growth, ending the problem, or some other societal return. The only reason most people would accept a 23% tax on all retail sales is the concept that it would punish the sleepers and wake them up. These newly awoken sleepers would then lash out against the governmental spending.

The problem with spending is that if the person doing the spending is not personally accountable for the spending, they can always justify their proposed spending. It is too easy to justify spending if you can just come up with a valid rationale for doing it. An example, would be. “If I don’t secure this money for my district, someone else will use this money on their frivolous plan in their district.”

The ACA has woken me up to the true reality of politics. In my opinion, the ACA was a plan to conflate problems with health insurance to health care in general. And for the initial argument, they were successful. Many people accepted the fact that since we had a health insurance problem, we had a heath care problem.

Also, in my opinion, the fix was designed to collapse the health insurance industry, and then blame all of the problems for the failure on rich doctors, insurance providers, and your employer. Then they could ride the anger of the voters into a new era of a single payer healthcare system.  

     

The problem with creating failures is that you never know how people will react when faced with the new realities your plan has implemented.

     Since 1970 the Federal Government has only had 4 years in which revenues to the treasury exceeded spending. These where not planned, they were accidental and products of accounting gimmicks, or the sudden growth in tax revenue that temporarily exceeded spending. So don’t tell me that if you restrict revenue at a high tax rate you are going to create a tsunami against federal spending. There is no empirical data to support this.  We already have high tax rates that do not generate enough revenue to support spending, yet every dime that is removed from spending is accompanied with the banshee wail of doom and gloom from this reduction. Need I point out the fiscal cliff, and the government shut down as examples? They were billed as the four horses of the apocalypse. Yet we are still waiting for the end, and it may come eventually through hyper-inflation if the deficits do not resolve into a sustainable level.

                

      Most people project how the government would operate, by how they would operate in the real world. If you are running deficits, you would concentrate on two strategies.  The first would be to see how to increase your income, and the second would be to see where you could cut expenses. You may use both strategies in your plan to accomplish your goals. And in the real world you would be held accountable for your success or failure. In government, you have millions of people who do not view priorities the same way, and you may not be judged on the success or failure of your plan, only your intentions. And intentions can be faked. You only have to act sincere.

                

     That is the problem I see with the Fair Tax. Even if most people see taxes on corporations as just a pass through cost. They still don’t want to completely exclude them from the tax equation. Most are intelligent enough to know that you can pass through personal expenses onto business if you are in a position to do this. And they see this as an unfair advantage to business. I just can’t see most of the middle class going along with giving big anything a 0% tax liability, unless they personally benefit. And it is not just big business that can do this. So therefore, they will demand at least that all businesses are audited to ensure they are not taking advantage of the tax laws, for personal benefits. This will not shrink the need for a compliance agency as the IRS, only confine them to Non-profits, and businesses. Then this governmental agency, and politicians will have even more power over these organizations.

                That is why I think The CUT Tax has a real chance at success. Taxes then become a fixed cost for everyone. And yes I agree, that businesses and the poor will suffer more if rates adjust up, compared to the middle class. However, that is the advantage of this tax. It will align everyone on the same page, lower taxes benefit everyone, and everyone pays more for higher taxes.  Then maybe we can concentrate on the battle over spending, without the grand illusion that we can just tax the rich to fix all our problems.