As I See It: How do we create a fair tax?

Being a millionaire used to be something really special. It meant you owned something important, like a railroad or a newspaper. Nowadays it might mean your house is almost paid off or your IRA is funded. It is unlikely that a person barely in that circumstance could retire comfortably, unless they lived in a Mississippi backwater or Third World.

Presumably it was billionaire JP Morgan who said “A man with only three or four million can live almost as well as if he were really rich.” Today, $3 million or $4 million dollars is about what it takes to have a comfortable retirement. The book “The Millionaire Next Door” is very enlightening. If you have the time to read this it might be you.

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The question becomes how do we define rich today? More importantly how do we define paying their fair share. Some use a new definition of millionaire: having an income of a million a year. You are not rich if you have to work for your money. You are rich of your money works for you and you don’t have to. Bernie Sanders sold a book, and met that definition for one year, but if that is the only year, he is not really rich. The salary of a U.S. Senator is less than $200,000. That sounds like a lot, but a Senator has an expensive lifestyle. Not a big deal if the home state is Delaware, but what about Oregon or Hawaii? That often means having two homes, one in home state and one in D.C. Many other Senators are multi-millionaires and even decamillionaires. Some are even losing money as they serve.

How do we create a fair tax?

The popular obvious solution is a flat tax, meaning everyone pays 15%, but 15% of what: gross income, net, federally adjusted gross, earned, dividend, interest, capital gains, take home, inheritance or disposable? What about those who have no income, just a vast amount of money? There is probably no formula that can be fair to everyone.

The other possibility is wealth tax, based on the ancient idea that: money is like manure, not good unless spread. We still have the problem of a fair base. The family farm might be worth millions on paper, but be barely solvent in bad years. How do you tax a billionaires multi-million-dollar yacht, built in Hong Kong, outfitted in Milan, registered in Panama and currently between Barbados and Papeete, or his Boeing 757 in Pyongyang?

Some favor a value-added tax; its main virtue is that it is mostly hidden to the consumer taxpayer. It has the two drawbacks. One, it is regressive, working people are impacted more than the wealthy. They buy bread and milk instead of oil futures (untaxed). Two, like all consumption taxes complexity because it has to be calculated for every single transaction; paperwork consumes much of the collection. We wind up with a hodgepodge of annoying taxes that somehow always manage to be regressive. Dockage fees (a tax) in Hawaii for example are based on length alone ignoring the fact that a boat twice as long is at least four times as big. Small boats subsidize large boats. People with old heavy cars subsidize those who can afford new more efficient ones. Those with the highest tax exposure have lawyers, guns and money to influence and avoid taxation, legally or illegally.

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A carbon tax might be best in that it taxes most those who consume or waste the most and can be simple if applied at the source. Mines and wells are hard to hide. It’s easier to measure carloads of coal, than molecules of smoke. Unfortunately, it can impact those who have high energy needs that they may not control such as long commutes, or high heating bills. It would encourage hiring people to conserve. Bonus, carbon tax would make plastics less competitive.

Ken Obenski is a forensic engineer, now safety and freedom advocate in South Kona. He writes a biweekly column for West Hawaii Today. Send feedback to obenskik@gmail.com