New proposals and innovations presented in “Rethinking Taxation”

The title of my book makes a bold claim; that I present new thinking about taxation. I should therefore say something about the innovations that the book contains. Some people may only be interested in one or two of the proposals, but a lot of them complement one another very well.

The main innovation is the one mentioned in the subtitle; hourly averaging. This is the new form of tax calculation that is explained and developed in part I of the book. I will no doubt explain this proposal at various different lengths in future blogs. However, the basic idea is that the amount of time people spend working should affect the amount of tax that they pay. Combining together income and time spent in my proposed averaging calculation is a superior basis for taxation than income alone.

The second major proposal that I make is for a tax base that would work very effectively with lifetime hourly averaging. My proposal is for a hybrid between comprehensive income and consumption taxation. I refer to this as the Comprehensive Acquired Income tax base as it aims to capture all the forms of valuable gain that people receive. This will include financial gain such as payment in money, but should also include the value of the goods and services that people receive (of course with a few exceptions, such as small gifts up to a certain value). Including all forms of income ensures that people will be taxed in accordance with their economic fortune—it does not matter what form of fortune people have as all will be included. A further advantage of this is that people who have multiple forms of good or bad economic fortune can be distinguished more effectively.

The third main innovation I present in Rethinking Taxation is a component of my Acquired Income tax proposals. This holds that people should be able to invest their own (after-tax) resources in certain kinds of investment and that these should remain untaxed until the gains are realised. It can be referred to as the realised gains approach to capital gain and investment income. The idea is that as long as money is invested in a particular kind of asset (financial being the obvious ones but a primary residence would be another possibility) then no tax is due. Returns on these investments would only be taxed when the return to the owner exceeds the amount of their own money that they put in. The idea is that all gains should be taxed, but that this tax can be deferred for some kinds of investment. This allows people a degree of flexibility in their investments and means that in some cases people will not pay tax until they die (in which case they are unaffected by the tax).

Another proposal I present in the book is one that I have also written about elsewhere. This is my proposal for a method of taxinginternational citizens on their global income. The proposal specifies how to calculate a global tax-rate based upon the rates within the states with which the individual has a historical relationship. I argue that states who would have taxed the individual more should be provided with more of the revenue from the taxpayer as a counter-incentive to the tendency for states to compete tax-rates down in a global “race-to-the-bottom.”

The proposals above all become possible by using Information Technology but I also present other ideas to make more use of IT. One proposal is that if you move to a comprehensive acquired income tax base it might be advisable to switch to real-time tax withholding by financial institutions. When someone receives any money from an account other than their own this could be taxed at the appropriate rate. This means all financial accounts would have to be designated with their owner, which should have the additional advantage that all ownership and all financial should in principle be traceable back to real persons.

Further information could be recorded in the form of asset registers. These would record the owners of certain kinds of item, as is already done for land and automobiles. These registers could be extended to other items such as artwork and jewellery, and also integrated with the tax system so that capital gains would be automatically recorded. This would have the advantage of making ownership disputes much simpler to resolve. Finally, I propose that taxpayers should have a means of interacting with the tax authority in order to provide information about taxable items that they buy, sell, and gift. Taxpayers could also use this to run scenarios when they are considering different options such as a new job.

Finally, there are many innovations that are internal to lifetime hourly averaging. The first is the proposal to provide a lot of benefits through the tax system using hour credits (and negative hourly tax-rates where this applies). This means that financial compensation can be provided for the disabled, students, and carers using the hour credit system. Hour credit fines could also be used as a form of punishment, since these would be cheaper simpler to administer fairer than the alternatives. I believe it would be fairer as well as the fine would relate to the economic position of the person being fined.

Lifetime taxation also provides opportunities to change the tax system for children and cohabiting couples. I propose a way of taxing children using their lifetime tax account where they receive a lot more resources than their peers. I also propose that people should be able to merge their lifetime accounts, and demerge them later on if necessary.

The above descriptions give some idea of the sort of ideas that I present in the book, some of which I would like to blog about separately, and in some cases develop further. I hope these will be of interest to people interested in economic justice and politics, as well as those interested in taxation policy.