This is once again the differing definitions of fair. This, in my opinion, is the opposite of fair.
Well, what's unfair about it?
What exactly is economically unsound about the fair tax?
It doesn't account for
negative externalities. If a company can choose between, say, spending $1 million and making their oil rig safe, or not making it safe and leaving a 1% chance that the oil rig will cost the rest of society
$40 billion, we have two problems.
Problem one is that corporations provide limited liability to their owners. This means that if a company causes a huge amount of damage, or engages in massive amounts of fraud or something else, the owners of the company will only lose their investment in the company itself, they won't be asked to pay anything more than they put into the company. This means that if it's profitable enough, then a company would accept massive risks to society that would make it go bankrupt if they get some bad luck.
If we take the financial crisis for example, we can see that big companies accepted huge risks that would have made them bankrupt, likely resulting in another depression. The government had to bail them out because the risk they took on was too big. Why did they accept a risk of going bankrupt? Because short-term profit is all that matters. Corporations are not fully liable for the damage they cause. You can just take the money and run. This is a kind of negative externality.
Problem two is that even if the shareholders are held fully responsible, CEOs are the ones making the decisions. Again, to point to the financial crisis as an example, CEOs had a huge incentive to create risk in exchange for profit. This was because their income was linked to the profitability of their company, but only in the short-term. If the risk didn't manifest itself while they were in charge, then they could pass the risk on to someone else. So, the CEOs made decisions that were very expensive to their companies and society as a whole because it got them more money.
Negative externalities are a wart in free market economics. When you are able to pass some of your costs to society, you can earn more money, but it's not good for society as a whole. Costs to society should be paid back, and they should be paid back in the short-term as much as possible. Taking on massive risks that are quite profitable for a little while should never be an economically smart decision. Unfortunately, because of the way the rules worked, those CEOs made smart decisions - immoral, but smart. We need to make sure that costs can't be passed on to society (or to your company) so that we don't see economic growth stifled by parasites.
It does the exact economic things you mentioned, giving more money to people to choose what to buy or invest or move around.
Neither of our tax proposals give more money on average, they just shuffle the costs around. Giving people more money would involve cutting spending, and, in particular, cutting spending on things that people wouldn't buy if they had more money. If you cut spending on health care, for example, people will need to spend more money on health care, assuming they can get the money. Otherwise they die. But, assuming they can get the money, all that changes is who pays, not what services are provided or the cost of those services. On the other hand, if you cut spending on the military, or stop paying to keep potheads in jail, people would use that money to get something more useful to them than tanks and jets and stuff. That's a very important change.
it's so simple that literally EVERYONE can understand it, completely removing the issue of taxes when you want to start a business or invest in this or that.
Not exactly. I'm assuming that you think that there should be no sales tax on the sales of investments. If you buy a yacht with the intent of renting it commercially, and just happen to occasionally use the yacht yourself, is it an investment or a product that should be taxed? What if you rented it for a few years first, and then started to use it yourself? If you allow people to avoid sales taxes on investments, but not on other purchases, you'd have to very clearly define how to decide which kind of purchase people are making. Naturally, most people who don't have a lot of money won't be able to afford the advice of people who understand that definition.
You're plan isn't well defined, is subject to arbitrary (and by definition less than perfect) laws designed to control society. It would have to be confusing and complicated, and would be subject to extensive control by those that understand it, IE rich people with well-paid advisors.
You've just described the entire legal system. It would be impossible to make laws that are not somewhat arbitrary unless you also make them incompatible with justice and fairness. There's a lot of nuance to the ideas of justice and fairness, and not everyone can agree - but to take the nuance out of it is a guarantee that you will have a system that most people think is unfair. If you read
The Myth of the Rule of Law, I think you'll see the point.
The way to deal with the problem you've stated is actually fairly simple. You only need to have one legal principle - harm to society should be taxed, and should be taxed promptly. Allow companies and people to settle out of court, and encourage it. Let anyone take a company or person to court for causing harm to them or society at large, and have the government hire investigators to watch out for those situations where the harm is difficult to spot and potentially huge. Have a big jury, maybe 300-500 people to make sure you have a fairly representative sample of the population. Allow the jury to vote on whether someone or some company is causing harm to society and not adequately compensating for it in taxes, philanthropy, community service or whatever. If so, allow the prosecutor to propose one fine (or other form of compensation), and allow the defendant to make a counter-offer. Let the jury vote on which offer they prefer.
In this way, the prosecutor and the defendant will have to come to a compromise. If the prosecutor is unreasonable, the jury won't agree so easily, unless the defendant is even more unreasonable. They will both have to come as close as they can to an acceptable form of compensation for the defendant to repay society.
The defendant should have to pay the court fees according to the percentage of the jury that voted against him. If 90% of the jury say he's guilty, then he pays 90% of the court fees (not including any fees for lawyers). Likewise, the prosecutor pays court fees according to how much of the court thinks the defendant is innocent, so, in the above example, the prosecutor would pay 10% of the court fees. This encourages both parties to keep the trial short, and to settle out of court, or go to a third-party court if they can.
You could also add on a limit where defendants or prosecutors don't need to pay. For example, if 25% or less of the jury say the defendant is guilty, the prosecutor pays for everything. If 75% or more say the defendant is guilty, then the defendant pays for everything.
Besides, who are we to decide what is a good purchase and what isn't? It could be that a recycyling plant is a waste of money that does little to help the environment (which is true depending on how they operate and what/how they recycle), or that resource extraction would absolutely destroy an area of land beyond repair. Promoting those specifically is not only micromanagement, it's potentially dangerous.
It's true, some recycling plants would just be a waste of money. Let the courts decide if investors and communities can't agree with each other on the matter. It doesn't need to be written into law - technology changes too quickly for the law to keep up, and if the law did change quickly enough to keep up, we would have a serious problem because no one would know what the law is.
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Topic: Political theory (Read 16541 times)