17 Feb 2012

More arguments for the Tran$action tax idea

The people who set up the Tran$action Tax website have got some neat arguments.

They argue that in the US the cost of implementing conventional taxes is huge. Take into account the costs of maintaining tax records, filing taxes, hiring layers, accountants and tax deferral experts, and they reckon that costs $430 billion a year - money that could used to do something useful if the tax system was reformed.

More specifically, they claim that "American individuals and businesses spend 6.1 billion hours a year complying with the code. That’s the equivalent of more than 3 million workers toiling away full time, all year. By way of comparison, the Federal government employs the equivalent of 2.1 million   full-time civilian workers."

When you read that, you sort of understand why the Tea-Party finds it so easy to wind  people up. But the solution doesn't have to be to cut back on government spending. Reforming the tax system could have exactly the same effect.

OK, I know the US tax system is particularly complex, and I know many people in the US who literally have to employ an accountant to fill in their tax returns. But I presume that the equivalent numbers for countries like France and the UK are probably similarly eye-watering. I must try and do the sums.

Imagine what it would be like if everyone knew that they were all making their contribution to public services - everyone would be contributing in exactly the same way. And it would be totally painless. You wouldn't even know you were paying any taxes at all unless you looked at the details on your bank statement.

I recently talked with a social psychologist called Chris Olivola who has done research showing that people are so averse to paying taxes that they often prefer to pay even more to avoid being taxed. He has a paper that came out in the Journal of Marketing Research in 2011 with Abigail Sussman called "Axe the Tax; Taxes are disliked more than equivalent costs". And the paper got a write up in the Washington Post!

Clearly, scrapping conventional taxes and replacing them with a flat rate FTT would be a cure for this totally irrational behaviour.

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