Our tax systems (income, property, sales) share a common problem. They are applied in a discriminatory manner that harms some to the benefit of others. Rather than discrimination based on race or gender it is discrimination based on behavior or actions. Those that behave in a government desired manner pay less. Those that are good at hiding income or gaming the system pay less. Everyone else pays more. These systems are easily bypassed both purposefully and accidentally thus driving up tax rates in order to compensate for such losses. Lastly, they can transform the average citizen into an unwitting criminal if they happen to take a wrong step in the minefield of tax rules. In short they are an imperfect and unfair mess.

A fair tax system would have a universal/non-discriminatory target: those that benefit from core government services (defense, courts, contracts) by virtue of their residency: all permanent residents. It would have an inescapable calculation method: one’s tax bill would be based on a single universal metric and would not be a function of an individual’s behavior. What is this perfect tax system? I call it the “Equal Tax” which is otherwise known as a capitation or head tax. Each and every person would owe the same amount of tax.

What problems does the Equal Tax solve?

1) Fairness: The foundation of “fairness” is universality. Rules in a game are “fair” and  “uniform” because they apply to all players and they have an equal result. But sometimes a rule can be uniform yet still be unfair and it is this that we wish to avoid. For example if taxes were based on weight (i.e. pay $x/lb) this would be a uniform rule as it would apply to everyone but the result of such a rule would be obviously unfair. In the same way one might claim that an income tax or property tax is “uniform” because it is methodologically applied in the same way to each person, however the outcome is clearly unfair since some end up paying more following this “uniform” rule. The Equal Tax solves this issue because both the method and the result are uniform. It applies to every man, woman and child residing in the US (obviously parents would pay for their minor child’s obligation). The measure (i.e. amount) of this tax will be driven to the lowest level possible by altering the incentive structure that currently governs our tax system. Rather than attracting votes by promising local pork-barrel projects (i.e. leading to higher taxes) elected officials will attract votes by promising to decrease the tax burden. This inherent incentive of cost reduction will necessarily drive the genie of big government back in the bottle until government is reduced to its core essential functions.

2) Fraud: It is inescapable. There is no point in hiding income, no point in understating your home’s value, no point buying over the internet solely to avoid sales tax…your tax bill is the same as your neighbors and it isn’t going to change based on anything you do or don’t do. Payments won’t be 100% every year, but at least we’ll know exactly how much revenue is short rather than pie in the sky guesses.

3) Impossible to inadvertently violate tax laws. There are no complex rules to follow. You owe $x each year. Period. If you don’t pay it, you know you’re not paying it, so it can’t be accidental.

4) Engagement of all citizens in the political process keeps government in check. Congress will hear from every citizen “Why are we funding that program? It’s costly and I’m PAYING for it, get rid of it.” This would force government to provide only the essential functions that everyone agrees on. Our current system minimizes incentives for citizens to be involved in the political process because the vast majority don’t care because they pay little to no taxes. In short, the involvement of citizens would force government to remain affordable to even those with the lowest income thereby imposing real restraint on the growth of government.

How much would it cost? Assuming all Federal, State and Local governments adopted such a method and only core functions of government are funded it would cost roughly $2400/year/person (based on US Budget figure for 2010 (publicly available at Wikipedia) and public figures for local county and state budgets). I’m sure the idea of the Equal Tax has raised a lot of questions, some of them good and valid and some of them unthinking knee-jerk reactions. I answer those concerns here…