This news letter from Simon Black is a good short review on competing taxation regimes from around the globe and shows us again that the Laffer curve is continuing to perform.
Date: April 12, 2011
Did you ever see Minority Report? It's one of Steven Spielberg's often forgotten about movies based on the short story by Philip K. Dick. In the movie, pre-couch Tom Cruise plays a police officer in the year 2054 who works for the highly specialized 'pre-crime' division.
Using a bizarre array of technology and metaphysics, the pre-crime division sees into the future and stops criminals in their tracks, arresting them before they commit a crime... sometimes before they even think about committing a crime.
This very elaborate and morally ambiguous law enforcement system is predicated on the government determining what your actions and intentions will be, often before you do. It's not all science fiction.
A number of politicians and bureaucrats in
In remarks to the National Press Club last week, an IRS spokesman unveiled the agency's vision for the "look forward" model in which most of the pertinent reporting information for the average taxpayer (W2, 1099, mortgage interest etc.) would be submitted to the IRS well in advance of the individual deadline.
After a massive upgrade in technology, the IRS would be able to pre-calculate what it expects to receive in taxes and instantly reject any return that doesn't comply with its determination.
This may work fine and well for some wage earners... but start throwing in a few investment accounts, small business income, private partnerships, etc. and things can quickly diverge from the IRS estimates.
Imagine you start a new business on the side of your usual employment this year and take an initial loss due to ancillary startup costs. This wouldn't factor into the machine's pre-calculations of your tax liability, so you would be immediately rejected and flagged for additional scrutiny.
Makes you want to run out and start a business, or invest your capital in someone else's, right? Not exactly.
Deep down, I think these people simply want to try and make things more efficient. Pre-crime is not the way to go. There are a number of countries that have incredibly successful tax codes, and there are common themes in all of them:
1) Keep it short. The Baltic countries are a great example of this-- the entire Estonian tax code is about 70 pages, roughly 1/1000th the size of the
2) Keep it simple. When you have a tax code that's so complex it has given rise to a multi-billion dollar preparation industry, you have a problem. There are dozens of different forms at the IRS, and over 20 versions for the 1099 alone! This is a system that is prone to massive flaws and a great deal of contradiction.
3) Keep it low. When you make it easy and painless for people to pay taxes, it removes most of the incentives for them to cheat. In
Under these circumstances, why cheat? By keeping rates low, the government is removing any incentive to engage in complicated (and costly) tax avoidance techniques. From a cost/benefit perspective, it's much easier to comply when rates are low.
4) Keep it friendly. Creating an adversarial relationship with taxpayers doesn't do anyone any favors. One of the key themes of the world's most successful tax regimes is that they do not operate like a police agency that's out to get people. This is a massive hurdle for the IRS to overcome.
Perhaps the polar opposite of this is
Rather than making things easier, less painful, friendlier, and simpler, the
I suspect this path will have the opposite effect-- instead of raising more money for a bankrupt government, it will continue to chase out productive people. More on that in a future letter.
Senior Editor, SovereignMan.com
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