Posted on 01/15/2025 2:52:57 PM PST by tarpit
Position Paper: A Fundamentally Reformed Tax System: Shifting Federal Revenue Generation to State-Collected Business Taxes
Executive Summary:
This paper proposes a fundamental reform of the United States tax system, shifting the responsibility for generating federal revenue entirely to businesses through taxes collected at the state level. Under this system, the federal government would determine each state's total business revenue and levy a flat percentage tax on that amount. States would then have complete autonomy in designing their own business tax systems to collect these funds, eliminating the need for federal corporate or individual income taxes. This proposal aims to simplify the tax code, enhance state sovereignty, and potentially stimulate economic growth. However, it also presents significant challenges related to equity, revenue stability, and interstate competition. This paper analyzes the potential benefits and drawbacks of this proposed system and outlines key considerations for its implementation.
I. Introduction:
The current U.S. tax system is widely criticized for its complexity, inefficiency, and perceived unfairness. The federal tax code, in particular, is riddled with deductions, credits, and loopholes that create administrative burdens, distort economic decision-making, and enable tax avoidance. Moreover, the balance of power between the federal government and the states has been a subject of ongoing debate, with concerns about federal overreach into areas traditionally under state jurisdiction. This paper proposes a radical reform that addresses these issues by shifting the responsibility for federal revenue generation entirely to state-collected business taxes.
II. Proposed System:
The proposed system operates as follows:
1. Federal Revenue Target: The federal government determines its annual revenue needs. 2. State Business Revenue Calculation: The federal government, likely through the IRS, calculates each state's total annual business revenue, excluding sole-owner LLCs with less than $250,000 in annual revenue. 3. Federal Levy on States: The federal government levies a flat percentage tax (e.g., 15%) on each state's total business revenue. This is the state's federal tax obligation. 4. State-Level Collection: Each state is responsible for collecting its federal tax obligation solely from businesses within its borders. States have complete autonomy in designing their business tax systems (e.g., flat tax on revenue, profits tax, industry-specific taxes). 5. Elimination of Federal Taxes: The federal corporate income tax, individual income tax, and estate tax are eliminated. The payroll tax will need to be adjusted to account for the current business contribution to these programs.
III. Potential Advantages:
* Simplification: The tax system would be drastically simplified, particularly for individuals who would no longer file federal income taxes. Businesses would deal only with state tax systems, eliminating the complexity of federal corporate income tax compliance. * Enhanced State Sovereignty: States would gain significant control over taxation within their borders, allowing them to tailor their tax systems to their specific economic needs and priorities. * Increased Economic Efficiency: By eliminating the federal corporate income tax, the system could potentially stimulate business investment and economic growth. The elimination of federal individual income taxes could boost disposable income and consumer spending, though this might be offset by increased prices. * Positive Interstate Competition: Competition among states to attract businesses through favorable tax policies could lead to more efficient and business-friendly tax systems. * Reduced Federal Bureaucracy: The IRS could be significantly downsized, as its role would be limited to calculating state business revenue and collecting the federal levy.
IV. Potential Disadvantages:
* Equity Concerns: Shifting the entire federal tax burden to businesses could be regressive, as businesses may pass on the tax burden to consumers through higher prices, disproportionately impacting lower-income households. * Revenue Volatility: State revenues could become more volatile, as they would be directly tied to business cycles. This could make state budgeting more challenging. * Interstate Tax Competition: While potentially beneficial, competition among states could also lead to a "race to the bottom," with states undercutting each other on tax rates, potentially leading to underfunded state services or shifts of the tax burden to less mobile tax bases (e.g., property taxes). It could also lead to a race to the top. * Complexity for Multi-State Businesses: Although federal tax filing would be eliminated, businesses operating in multiple states would still face a complex patchwork of state tax regimes. * Administrative Challenges: States would face significant administrative challenges in designing and implementing new business tax systems, particularly in accurately measuring business revenue and preventing tax avoidance. * Burden on Low-Margin Businesses: Businesses with low profit margins but high revenue could be disproportionately burdened, especially under a gross revenue tax system.
V. Mitigation Strategies:
To address the potential drawbacks of the proposed system, several mitigation strategies could be considered:
* Targeted Relief for Low-Income Individuals: States could implement refundable tax credits, rebates, or other forms of assistance to offset the potential increase in the cost of living for vulnerable populations. * Relief for Low-Margin Businesses: States could provide targeted tax relief for businesses with low profit margins, such as reduced tax rates or exemptions for essential industries like supermarkets. * Interstate Coordination: Some degree of interstate coordination or agreement on basic principles might be necessary to prevent a race to the bottom and ensure a reasonably level playing field. * Gradual Transition: A phased implementation would allow businesses and states to adapt to the new system and minimize disruptions.
VI. Key Considerations for Implementation:
* Definition of Business Revenue: A clear and consistent definition of "business revenue" across all states is crucial to prevent ambiguity and tax avoidance. * Treatment of Pass-Through Entities: The tax treatment of partnerships, S-corporations, and other pass-through entities needs careful consideration to ensure fairness and prevent loopholes. * Enforcement Mechanisms: The federal government would need mechanisms to ensure that states accurately report business revenue and remit the correct amount of taxes. * Transition Rules: A well-defined transition period and clear rules for businesses operating under the old and new systems would be essential. * Constitutional Challenges: Legal challenges based on interpretations of the Constitution's taxing and spending powers are possible.
VII. Conclusion:
The proposed shift to a system where businesses, through state-collected taxes, bear the entire burden of funding the federal government represents a radical departure from the current U.S. tax system. It offers potential benefits in terms of simplification, enhanced state sovereignty, and economic efficiency.
The success of this system would hinge on the ability of states to design and implement equitable and efficient business tax systems that adequately fund the federal government without unduly burdening businesses or consumers. Careful consideration of mitigation strategies, a robust framework for interstate coordination, and a thorough analysis of potential economic and fiscal consequences are essential. This proposal warrants serious consideration and extensive public debate to fully explore its merits and drawbacks before any steps toward implementation are taken. It is a major change that could reshape the landscape of American taxation and federalism.
All that would happen is Congress would dump tax burden on whatever state is less favored at the time.
How about a flat import tax.
A flat income tax with no exceptions
A flat sales tax except food
The rates adjust automatically each year to balance the budget.
That will make it more difficult to do business in California.
Good.
Consumption tax is the only way EVERYONE has skin in the game, the rich buy BIGGER more expensive things the poor buy less but everyone pays something!!
1. Congress can only tax the states directly proportionate to population, not anything else.
2. Much simpler federal tax reform: A universal one rate flat income tax, one rate for companies and one for individuals, with no deductions, no exlusions, no credits and no exempltions. 99.99% of the tax code gets wiped out. Everyone pays at the same rate. All business and personal finance desicions get made on natural financial considerations, not which way the tax wind blows. The economy booms, Washington D.C. shrinks.
You are precisely correct. The IRS would then be reduced to an office of accountants checking the numbers that each state says it collected. The system already exists in each states sales tax department. They would just increase the sales taxes to appropriate amount and send it in. The budget of the IRS is 14.1 billion dollars. It would then become just a few million dollars.
Regarless of whatever methodoloy is taken, the Constitution Amenment that allowed for taxing us in the first place needs to be comopletely repealed in its entirety..
IF that doesn’t happen, all these crooked basstids will do, it add on the new methodlogy to what now exists. I wouldn’t trust these vile pukes as far as I could toss em...spit.
Or we can just go back to what the Founders originally envisioned in the Constitution:
If tariffs and excise taxes still produced a shortfall in the needed revenue, then “direct tax” would be assessed against the states, in proportion to census population.
So California, for example, would be told “You have x% of the population, you are responsible for x% of the amount, raise it however you want, and send it in”.
The beauty of this approach, when coupled with the original setup of state legislators appointing Senators, would have resulted in the Senate vetoing any unnecessary spending.
They targeted Senate elections specifically to wound Federalism. Sold as Democratically giving the people a voice, the masses bought it hook, line and sinker. The practical effect is that big urban areas get to speak for rural folks simply by having more dupes vote.
Thank you for your opinion. As I small business owner in the state of Washington, I will just say no thank you.
I have made several posts about this over the years. The federal government should only be able to tax the States directly and should not be able to touch or persecute the individual citizen for taxes. Under the constitution we are citizens of the States, not the federal government. The federal government is only supposed to regulate interstate commerce, fight wars and conduct diplomacy. That’s it. It is long past time to hobble Leviathan and, if it resists, kill it.
The Constitution, as amended, disagrees with you:
“ The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
There you go making my argument. Under the Founders the federal government was never supposed to have this power. The federal income tax is one of the nails in federalism's coffin. We need to repeal the 16th Amendment.
Whatever gets taxed, there will be less of it. Shifting most taxes to consumption would probably make misers out of everyone and kill the economy, which is exactly what leftists want to do.
All economic activity requires energy consumption, so in that vein, you could simply tax all energy sources up the wazoo, which would put the focus on extreme energy efficiency, reducing pollution automatically. But that only works if the most expensive and energy inefficient sector of the economy, big government, goes extinct. Too many people want "free" tax-the-other-guy big giverment.
Elon Musk style slashing of massive government spending is probably the better focus. Make government so tiny and inconsequential, nobody cares. Now that would be conservative nirvana.
Good luck with that.
If Congress passes it for ratification the States would ratify it. I think it will be repealed one day.
The feds should only be able to tax imports and state BUDGETS.
Make high tax and spend states pay more of the federal burden.
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