Yt_knight asked me to respond to his 18 points that a new tax system should meet. Unfortunately, when he did so I was suffering from some pain in my hands, so I could not reply. Now I find myself feeling better, but my whole family has come down with some sort of flu. So, I am not at my best. However, as I promised to reply, I will evaluate his 18 points. I will put off my counter proposal for later, when I am feeling better, but I figure the least I can do is to examine his 18 points and respond.

So, without any more preamble, here are his points and my response.

1. simplicity - I have to disagree with this. Simplicity in and of itself is not important. A simple tax system can be horrendously unfair, and a truly fair and efficient tax system can be complex. For example "give all your money to the state" is simple, but unfair. And a tax system which was assessed only through import duties could be horrendously complex, but as long as it is consistent, it is fair and efficient. However, from yt_knight's comments, I think he is confusing simple and consistent. Consistency is to be desired, simplicity is not an essential trait.

2. current level of funding - I could not disagree more strongly. As I think the government is overspending horribly, I think maintaining the current level of income is a recipe for disaster. If we are reforming taxation, it is also time to reform spending. However, I don't think he is serious here, he just added this one to make the FairTax the clear winner, as it claims to be "revenue neutral". If he is serious, then I strongly disagree. I would say that "maintaining current levels of revenue" not only is not an essential feature of a tax system, but is actually to be avoided.

3. Promote economic growth - Again, I disagree. Taxes cannot promote growth at all. They can, at best, channel funds from one area to another, but they do that only by making the other area less desirable. Any taxation plan by its very nature retards growth. So, we cannot "promote growth" by taxation, the goal should be to minimize the harm, that is the best we can do.

4. promote US competitiveness internationally - Again, unless we put massive duties on imports, we cannot do this. At best, we can tax our industries less heavily than foreign nations, but to do so would require a reduction of revenue, breaking rule #2. I am in favor of minimizing taxation, but since yt_knight proposed rule #2, he made that impossible. (By the way, I know the FairTax people say that #4 applies to them, but if they are serious about adding FairTax to imports, they will probably run afoul of the WTO, so this goal will not be met.)

5.  invite capital investment - This is possible, but I don't know if it is an essential trait of a tax system. It would be nice if we created an environment that encouraged capital investment, but I think to call it an essential trait of taxation is to go too far. On the other hand, this is the first item which is actually within the ability of a tax system to accomplish, so I will agree conditionally.

6. accelerate capital formation - Again, as with #3, taxes cannot accelerate capital formation. Of necessity taxes reduce the supply of capital, taking it from private citizens for government purposes. The goal of tax systems should be to keep harm to a minimum. On the other hand, I think he inserted this so the FairTax looks good, as it makes spending so unattractive that it makes people invest. But the question is, if no one is buying, then what are those industries producing? We can't so strongly discourage purchases beyond bare necessities without hurting the economy.

7. increase productivity - Again, taxation cannot increase productivity. As a drain on privately held wealth, at best it can do as little harm as possible. Of course productivity is dependent on capital investment, so this is redundant. In fact 5, 6, and 7 could all be one item, as capital formation, capital investment and increased productivity are all interrelated. And, as far as they are all concerned, the best a tax system can do is to take as little wealth as possible and not punitively tax profits or investments. But that is not hard to achieve, our current system with lower brackets and no capital gains tax would do that, so I don't see it as important enough to merit mention as an essential part of a tax system, but tailoring it to capital and productivity is not.

8. Respect privacy and civil rights - This is just absurd. Privacy is not a governmental concern, and only in modern times have we developed this fascination with privacy. But assuming we accept privacy as a concern, how is a running tally of every purchase ever made "respecting privacy"? If we truly want to respect privacy, then a poll tax or capitation tax is the way to go. All we need to know is you exist or you are voting. However, as I don't think privacy has any relevance to taxes, I am not agreeing here. As far as other civil rights are concerned, that seems obvious, but I don't see where the current system is stomping on civil rights, other than in seizures. And if some business owner doesn't remit their FairTax, I bet seizures will occur there too, so don't see how that is an advantage for the FairTax. Well, civil rights, yes the government must always respect those. Privacy, I just don't see it as a right.

9. make the true cost of government transparent - This is impossible for a tax system, any tax system. Tax systems collect money, how the government spends it is not part of the tax system. In addition, deficit spending makes the "true cost" outside of the scope of taxation. I think he intends this to mean that by putting 100% of the cost of taxes into the price of goods the FairTax makes the "cost of government" visible. I would argue that the FairTax hides the costs by embedding the tax in the final price. Adding 30% at the register would make the price more obvious. The FairTax fails this test in the same way our current withholding system does. However, as I said, making government's true costs visible is outside the scope of a tax system, so long as the government engage sin deficit financing and monetary inflation to fund itself, so it really doesn't matter.

10. accelerate upward social mobility - This is yet another mistake of the same nature as those that came before. Unless we are going to distribute those tax monies to select individuals to better their lot in life, taxes take money, they don't give it. So taxes always slow social mobility. Our goal, again, should be to take as little as possible. However, social mobility, in and of itself, is of no concern in designing a tax system. In fact, it really should not be a concern of government at all.

11. Lower the cost of employment - Impossible. Taxes cannot do anything but increase prices. Taxes always either add to costs or do nothing. They cannot lower the cost of anything. And, to be honest, I think all this micromanagement of various facets of the economy is a bad idea. That is how we ended up with our present mess, trying to "encourage" home ownership, or "encourage" energy savings. When we try to use the tax system to "encourage" anything, it creates distortions. I don't think the tax system should focus on capital formation, or employment, or productivity. It should just focus on the lowest cost of operation and the least harm to all concerned. Preferring one segment of the economy, or one type of economic activity means the resulting system will of necessity distort the economy and probably result in less satisfaction all around.

12. create jobs - Well, the current system does this well, just look at the size of the IRS and the number of CPAs. However, that is also the only way the tax system can create jobs, by creating tax collectors, bureaucrats and advisers. Other than that, taxes always reduce jobs, never create them. See my previous comments for an explanation.

13. treat everyone equitably - Finally! One I can accept! And one that goes against all that came before. With all his targeted goals, the earlier descriptions describe a somewhat inequitable system. I would prefer an equitable system, and that means taking no notice of how money is being used, by whom, or with what end goal. Taxes should be completely blind. Sad that this came as #13, should have been #1 or #2 (if "keep harm to a minimum" were #1).

14. encourage capital formation and entrepreneurship - This is the same as the previous capital ones, and the same arguments apply.

15.  level the playing field between small business and large business - This sounds dangerously like populist demagoguery. Assuming it is sincere, I would say that the relative size of a business should be a matter of no concern to the tax system. I know the intent is to focus on how disincentives to capital formation favor large business, but I don't think anything involving business size is an essential part of any tax system. To correct an unintended error of our current system should not be an essential part of a proposed tax system.

16. remove tax planning as a burden - As long as there are taxes, people will try to find ways to minimize them. And no scheme is completely free of that. The FairTax allows one to "game" whether a purchase is wholesale or retail to minimize tax burden, at least it appears to do so. The flat tax still introduces the question of what is income. Every system outside of  a simple capitation tax will allow one to avoid taxes through careful planning, and that will make people willing to pay advisers. So tax planning will always be with us unless we adopt a "per head" tax. In addition, I really don't think this is an essential trait. I could think of a very sound system, where the tax planning burden of citizens was so strongly offset by tax savings that it would be better than a system requiring no planning. So, no, I don't think this is essential either.

17.  easy to administer - Again, this is not essential. There could be a system very complex to administer, but so efficient that the enhanced revenues would more than offset the administrative burden. Simplicity or reduced bureaucracy seem like good goals, but they are not absolute. If more bureaucracy or more complexity would result in offsetting savings, then they make sense. So, simplicity is not essential. On the other hand, I think, as with #1, yt_knight is confusing simplicity with consistency. Consistency is a necessary goal, simplicity is not necessary.

18. address medicare and social security - This would be a good idea, but at the moment those programs are not part of the tax system. In addition, I personally think neither is the proper function of government. In any case, again, including two very specific programs in discussion of a general nature seems out of place. A good tax plan is a good tax plan, even if they never address these two programs. Fixing these programs is more of a legislative task than a tax task. A good tax plan can help by providing needed revenue, but failure to address these two issues does not make a tax plan bad.

And, though I said I would be putting off my description of an ideal tax plan, I will give a brief set of points, which I will describe in detail later.

1. Minimizes the individual harm done
2. Treats all individuals and all types of income and wealth similarly
3. Does not target specific acts or assets for favorable or punitive treatment
4. Has the lowest total administrative cost per dollar of revenue
5. Taxes only enough to cover needs, not more
6. Produces consistent results

I think that covers everything. As I said, most of the points yt_knight raised are those with which I disagree. I will come back to this shortly and elaborate on my points, maybe adding or changing them slightly once I think about them more. But, for the moment, those are my thoughts.

NOTE: I would also ask that we eliminate deficit financing as a regular practice and that we reduce the overall size of government, but as neither is within the scope of a tax scheme, I will leave them out of my list.