Taxation is a necessary component of government. It is both a primary source of revenue to provide for the government services and investment we all rely upon and a tool for managing and correcting the market. It has other uses as well, many policymakers and voters like to imagine it as a weapon of punishment or righteousness. Now, I’m all for using government policy as a means for personal revenge but we’ll stick to necessary revenue and market efficiency; business before pleasure afterall.
Taxes are not ideological. Turning taxation into a partisan issue with one party being assiduously anti-tax (with no plan for balancing budgets aside from cutting government functions to nothing) and one party being pro-tax though usually limiting its ambitions to only the high earners and corporations (which simply do not offer a large enough tax base to cover even the more modest of their grand designs) is a recipe for a disastrous system of taxation.
It is the position of this campaign that any system of taxation should be broad based, consistent in its application, and simple in its design. It should prize efficiency and balancing revenue with expenditures. After these considerations have been met, it can also be used in a limited capacity for a more equitable and socially desirable flow of capital.
“Equitable and socially desirable flow of capital” sounds absolutely terrifying to alarmists, I’m sure. Sorry, I’m trying to be precise in my language and doing that does start to sound like the bureaucratic double-speak of communists and fascists. I mean nothing insidious, it’s what we’re doing with our tax system all the time when we provide deductions for mortgages, for example, or try to favor small businesses or allow companies to deduct losses from previous years from future profits, or have a tax system that taxes higher ends of income at a different rate than the lower ends of income. I’m saying it’s still acceptable to do those things that voters and politicians love the sound of. But it must be done a bit more sparingly so as not to complicate the tax code and to prevent special interests from securing themselves improper or undesirable benefits.
Below are the simple proposals for the reform of Ohio’s tax system to better meet the conditions for an optimal tax system outlined above. These speak nothing of target revenue. Tax rates should adjust to meet the obligations of the state.
Eliminate the Ohio Commercial Activity Tax
The Commercial Activity Tax is basically the more confusing, less efficient form of the corporate income tax. It’s an unnecessary filing burden for doing business in Ohio and it really doesn’t bring in much revenue, all things considered. It should be eliminated.
While adopting a corporate income tax would be more efficient than a commercial activity tax, it doesn’t seem worth the hassle. One less burden to businesses operating in Ohio will benefit our economy and our broader plans for expanding Ohio’s role in the global market. The financial advantages of operating in Ohio will be more efficiently captured in our Valued Added Tax anyway.
Sales Tax to Value Added Tax
Ohio’s government is primarily funded by a sales tax. A sales tax is a tax on consumption. A value added tax also acts as a tax on consumption and is more or less the same as a sales tax, particularly where it matters, the total amount paid by the consumer. The primary difference is in bookkeeping where a value added tax may perform slightly better in ensuring compliance and thorough reporting.
Given the similarities between a Value Added Tax and a Sales Tax and the difficulty in adopting a new system of recording keep which will itself be burdensome (though only momentarily) for the state and business, it’s probably not worth making the change. Why bring it up then? Just something to consider.
Property Tax to Land Value Tax
Our localities and schools receive much of their funding through property taxes. Why? Impossible to say. Our schools and communities would benefit greatly from being more centrally and equitably funded by the state rather than local school district revenue from property taxes. But that’s a topic for the Education section.
A property tax is a tax on the value of land and the value of the structures built on that land. Taxing the land and the structures versus only taxing the land doesn’t seem like a huge difference, it probably even makes some sense that both would be taxed. But not so.
Land is a truly finite resource, at least until we get the Atlantis Project fully underway or start terraforming Mars. We want to owners of land to use it well and for both their benefit and the benefit of others. By taxing the structures built on land we discourage that building. By taxing only the land and taxing it at a higher rate than land has been taxed as part of an overall property tax, we are encouraging the productive use of that land to supplement the owner’s income to pay the tax. Land should not sit idle.
In this way a Land Value Tax encourages the construction of housing and commerce. It’ll make housing cheaper, is the main thing. Some consideration has to be given for the benefits of maintain unspoilt land and the ecosystem because don’t want to encourage deforestation or anything like that, but otherwise, a land value tax is more efficient, more productive, and more fair than a property tax, and every locality is encouraged to make the change.
Return Of the Inheritance Tax
Inheritance Taxes are an incredibly efficient, totally non-market distorting tax. It is, after all, a tax purely on unearned income that is easy to identify and execute. Inheritance Taxes have earned a terrible reputation as a “death tax” that somehow is unfair to farmers in the strange minds of lobbyists and lawyers tasked with shepherding the wealth of the rich from one generation to the next.
Now, an inheritance can cause trouble for people particularly when inheriting illiquid assets (not cash). It can be tough to pay the tax on the value of a family business (or farm ya genius lobbyists playing on American sympathies for family businesses and farmers) without having to sell off part or all of the family business. There are simple solutions to this.
First, Ohio’s inheritance tax will be kept small, something like 5%, no more than 8%. Not high enough to encourage tax dodging (the rich can afford good lawyers and good accountants, after all). Second, the tax will apply only to inheritances over $1 million (I’m willing to negotiate up or down, see where we land). And third, the tax does not have to be collected in a lump sum. It can be spread across several years.
No, it’s not an aggressive stand against the aristocracy. It’s just a reasonable and efficient tax on unearned income so we can provide government services and reduce Ohio’s sales taxes and income taxes just a little more. We don’t expect much pushback on this very sensible policy and should there be it will result in severe mockery from us.
Increase taxes on incomes above $150,000 individual a year
This is pretty straightforward. As a balance to the regressive nature of a consumption tax which leads to lower income individuals paying a higher percentage of their income in taxes than higher income individuals, we should make our personal income tax a little more progressive. Those with the ability to pay a modestly higher income tax should do so.
Let’s restore that 6th tax bracket Ohio removed last year. Put it at incomes earned above $150,000.00 and make it a nice round 4.5% or so. Because personal income taxes at more or less modest rates never seemed particularly distortionary. Maybe they are, the human mind remains an enigma to the Dark Horse. Either way, this isn’t a perpetual measure and it might be advisable to wait four years before implementing it seeing as we just rid ourselves of the 6th tax bracket last year. Remember, consistency is the hallmark of a good tax regime.
The Independent Commission on Taxation
The minutiae of taxation is… well let’s just say it’s best not left to the legislators. Not to cast aspersions on anyone, but conflicts of interest do crop up and even the appearance of a conflict of interest should be avoided, whether or not it is acted upon. Taxation is one of those needlessly complicated areas of the law (honestly, what part of the Ohio Revised Code isn’t needlessly complicated?) where it’s easy enough to jam in carve outs and deductions that are less than efficient.
Legislators will always have some incentive to serve special interests to serve themselves. That’s not bad, it’s not a reflection on their character, that’s the system of government we’ve designed. And it works fabulously! But it could be improved. In this case, with an independent commission on taxation.
The Independent Commission on Taxation would be tasked with managing the tax code, keeping it orderly and efficient. The commission will act alongside the legislature, taking the legislatures revenue targets and the general distribution of the burden of the tax, and then devising the simplest tax system to achieve the legislature provided targets. The democratically elected legislature is still in control, there’s just an independent commission of professionals keeping them honest and organized. It’s at most .3% less democracy.
Taxation in Ohio should be simple and consistent. The Commercial Activity Tax should be eliminated as it causes undue burden on businesses. Property taxes would preferably be land taxes to secure the same revenue but placing more pressure on unproductive land, encouraging construction and reducing the cost of housing. Ohio should adopt an inheritance tax because it is efficient and non-distorting, a tax on objectively unearned income. And the personal income tax could be a little more progressive. The tax code in general should be kept efficient and consistent by an independent commission on taxation. All in all, without a significant increase or decrease in tax revenues, this would make for a better tax system for Ohio.
No More Taxes
The ideal tax system would consist solely of efficient, non-distorting taxes. These would be Land Value Taxes, taxes on negative externalities like pollution and carbon, and taxes on unearned income like an inheritance tax. Within the current revenue requirements, these taxes are not sufficient to provide for all government expenditures. At least not yet.
One of the primary objectives of the Dark Horse campaign is, through innovation and economic development, to lower the real cost of everything. As things like healthcare, education, energy, and transportation become cheaper, Ohio’s budget requirements will decline. In this way, it is also the goal of the Dark Horse campaign to sufficiently reduce government expenditure, through prosperity and not heartless abandonment of people in need, to allow for this most efficient of all tax systems.
As such, the Dark Horse can be said to have the only plan to eliminate both sales and income taxes by 2055. We can also promise to eliminate the gas tax by 2055, 2050 even, but that’s as a result of the death of the internal combustion engine, we can’t take credit for that. Actually… yes, we’ll also take credit for that. No gas tax by 2050, thank you Dark Horse!