1. Tax System Fundamentals

No Tax On Tax

Taxes should not be charged on taxes within the same transaction. All percentage-based taxes should be based only on the actual pretax cost of the good or service at the point of sale. For example, it would be wrong if a $10 product is charged an excise tax of $2 as well as a sales tax of 10% that is based on a $12 cost of the product. If the 10% sales tax is based on the $10 cost of the product, there would be no violation because the $2 excise tax would not be included in the factoring of the 10% sales tax. The correct cost of the product would be $13. If a purchaser (such as a retailer) who bought this product for $13 and resold it for any other amount, say $20, then $20 would become the new base price.  If a 10% sales tax is applied, the product would then cost a buyer $22.  All previous taxes charged during that product’s history would be irrelevant since this is a new transaction.

Party Receiving Payment Must Pay Tax

The party receiving the money in exchange for a good or service should be responsible for paying the taxes on that transaction. This is normally what occurs when people buy things at a store–the customer pays for the items and all applicable taxes, and the store is responsible for properly distributing those tax dollars. This principle should apply to all tax payments.  Nobody should ever be reimbursed for any extra costs they incur for collecting taxes, unless that entity was unjustly required to go through an extra expense of time, money or other resource.

Payroll Tax

For example, all payroll taxes should be paid by the employee–the person receiving the payment. Employers buy labor from employees, so employees are the people receiving the money and they should be the people responsible for paying the taxes. The employer should not be required to pay any portion of these taxes.  Although the employee can request that the employer pay these taxes from the employee’s pay to make life easier, the employer could refuse to do so, or the employer could charge a fee in order to do so. It is the employee’s responsibility to make sure that the tax is arranged to be paid and is actually paid.

Barter Tax

The market value of bartered items should be taxed at regular sales tax rates. Each party to the barter arrangement would be responsible for paying the tax based on the estimated market value of the bartered items. Receipts for bartering transactions would be created, as they should for all transactions, and they should state the estimated market value as well as the sales taxes due.

Estimated Tax Payments Should Never Be Required

Nobody should ever have to pay an estimated tax. Only known tax bills should be paid. By definition, an estimated tax is one which nobody really knows the amount, because it is too early to have finished all the calculations necessary for a definitive determination. If the people charging the tax can’t wait until a final tax amount is determined, they’ll need to speed up the process used for finding how much tax is owed. The best way this could be done is by dramatically simplifying the tax code so that people could more quickly determine any tax obligations and by charging taxpayers as they earn their income throughout the year.

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