SORAnomic Fair Taxation
In this post, we explain our concept of SORAnomic Fair Taxation derived entirely from Book 5, Chapter 2 of Adam Smith's Wealth of Nations.
The taxation of modern Economics suffers from the fact that:
- Taxes are imposed not on where they are meant to be
- Taxes must only be paid in money
The first one creates an obvious economic injustice while the second one creates an indirect injustice by forcing the taxpayer into the role of a merchant as he has to sell his product or service for money (which may not be his primary skill). We correct this by levying taxes directly on the people's revenue and by allowing tax payment in kind, through a system called SORAnomic Shared Direct Taxation
or simply Fair Taxation
that meets all of Smith's taxation maxims
that have been forgotten. This taxation system will then lead the way to a fair, regulated democracy
, as explained in the last part of this post.
What was the problem with the Economic or Commercial system of taxation?
The Commercial system is built on the idea that money is wealth. This is opposite of Smith's system wherein wealth is based on the actual goods and services that are given by people to each other. We can say that the Commercial system and Economics focuses on the effect of economic activity as money, whereas Smith's system focuses on the people as the cause. Basically, taxation in commercial or Economics-systems follows these steps:
- Total revenue is determined
- Deductions are removed to arrive at the taxable revenue
- A tax is computed on the taxable revenue depending on tax laws
- The tax is paid by whoever filed the tax (such as withholding taxes)
- Mistakes in the process result in penalties or tax credits
Because of this, taxation in Economics has two quirks:
- Taxes can only be paid in money. A tax payment in bananas that can only be harvested 1 month before the tax payment day, will be rotten by tax day.
- Taxes are based on the value transacted without caring who ultimately pays for it. A corporate filer might get some tax savings but not give those savings back to its people.
This causes problems:
- A taxpayer must have ready money to pay the tax even if his revenue payment might be delayed. This forces him to get expensive cash credits or loans, adding to his costs
- The tax burden is usually transferred to the people, adding to the burden of society. Workers and customers usually rely on the company to file taxes for their behalf. The company could then cheat and not remit all of the taxes, leading to tax avoidance and evasion.
- Since the taxation system only cares about values, the burden of identifying where those values came from must be furnished by the taxpayer. This manifests as the lengthy filing of Income Tax Returns.
Because of this, taxation becomes unnecessarily burdensome and leaky, causing people to avoid it as much as possible while providing less-than-optimal revenue:
The impossibility of taxing people according to their revenue by any capitation led to the invention of taxes on consumable commodities. The state, not knowing how to directly and proportionally tax the revenue of its subjects, taxes it indirectly by taxing their expence. Their expence is supposed to be proportional to their revenue. Wealth of Nations, Book 5, Chapter 2
In addition, the complexity of taxation leads to tax loopholes and tax havens
All of these then leads to lower tax revenues and higher budget deficits, weaking government and reducing the infrastructure and services available to people. America now has a $22 trillion debt and its government shuts down parts of itself more often
Our Solution: A new double entry system
Our solution is a new process that factors in the nature of the revenue and the people involved in generating that revenue, either as a buyer party or a seller party:
- Put all transactions in a form, with each party listing down their offer
- Categorize the form as a transaction for labor, professional services, raw material, basic goods, finished product, luxuries, etc to arrive at the tax rate
- Tax each party according to tax rate equally
- Parties pay when the payment amount becomes feasible for payment. This means that a tax debt of bananas will be accumulated until harvest time comes.
A commercial receipt only shows info from one party in the transaction A fair taxation system would show both parties and can split or even shift the tax to the proper target Fair taxation can scale to any transaction size. Here, a normal 10% tax on new buildings would be split evenly between the buyer and the makers of the building. The parties have the option to pay their taxes in cash or in kind depending on their output, freeing them from needing so much money in their operations.
The main difference with the old system is that our system focuses right away in getting the correct values and information in the form, whereas the old system focuses on rebuilding the information from receipts and memory. By setting the values from the very beginning, then the following advantages are obtained:
- Each party can pay his share of the tax directly and therefore contribute directly to his society, making him more vigilant about where his contribution goes. This is different from the current setup which makes citizens passive.
- Tax evasion and avoidance become very difficult because the seller has to pay the same tax as the buyer on the gross value of the transaction. In essence, all the buyers' tax payments should match all the sellers' tax payments, with each party checking the other, similar to double entry bookkeeping. It would only create tax evasion if all buyers and sellers jointly connived to defraud the government.
- Barter taxation becomes possible since each transaction has the details of the item being traded and who it is traded with. This relieves any shortage of cash and the need for expensive financing
- The issue of vertical integration and low margins does not really arise because
Tax filing and payment can be automated if the transactions will be done online, and there is no need to arrive at the net taxable revenue. The tax rules can be applied on the data in the form to determine the tax payment due to each party quickly. This will allow the government, via its elected lawmakers, to direct the flow of capital and labor in its economy, like an artist crafting an artwork
- the tax burden is halved by charging half of it directly on consumer
- the tax rate can be fine-tuned to each category or industry -- a low margin industry will have a lower gross tax rate
Commercial or Economic Taxation: Tax paid by consumer
SORAnomic Taxation: Tax paid by both
Inflated SORAnomic Taxation: Selling price raised
How will it be implemented?
As you can see, SORAnomic taxation either reduces or increases the tax burden on consumers depending on how the supplier reacts. The system can be implemented gradually, first in consumer goods with online payment systems to see if the buyers will actually pay their share of the tax.
Buyers will have a choice to pay the normal price of the commercial system on the left and get a commercial receipt, or the lower price of the Fair Tax system at around 5-6% off on the right, to be paid later as long as they can provide their tax number, identity, and consent.
What if the buyers don't pay?
Delinquent taxpayers can be prevented from availing of government services until they pay, such as:
- Exiting the country
- Registering vehicles and property
- Getting licenses such as driver's license, professional license, marriage license, etc.
- Voter's registration. This is the most important feature of the tax system because it is the first step towards a fair, regulated democracy as it will prevent the unproductive and selfish citizens from electing leaders and having a say in the direction of their society. In David Hume's proposed political system, the basic productive value of citizens is one of the key requisites:
Let all the freeholders of £20 a year in the county, and all the householders worth £500 in the town parishes meet annually in the parish church, and vote some freeholder of the county to be the county representative. David Hume, Idea of the Perfect Commonwealth