Frustratingly, the fiscal cliff crisis is focused on the wrong problem. The question is not how much to tax the 1 percent versus the 47 percent. The sustainable solution our country desperately needs is a system that taxes problems while not taxing solutions that can restore our jobs, economy and health. The sustainable solution to the fiscal cliff is to tax problems, not people.
Let’s tax problems, not people
We need a tax system that is designed to solve problems. For example, our economy needs more jobs. But we tax jobs with federal payroll taxes. This makes using American workers more expensive compared to the global labor market. If we want more jobs, then a “tax to solve problems” solution would be to permanently eliminate employment taxes. This would make hiring an American worker more price-competitive and encourage job “on-shoring.”
Why are we taxing income? The book by Adam Smith, credited with being the foundation of economics, is called “The Wealth Of Nations.” The issue then and now is how to encourage the wealth and welfare of people. For example, why not cut income taxes to encourage economic growth and recover the lost tax revenues by taxing pollution that is harmful to the health of humans and our economy?
Another “let’s tax the problem rather than people” path is to recognize we all eat way too much sugar and fats. We also do not eat enough fruits and vegetables. Why not tax sugar, fats, preservatives and everything else tied to our national food crisis that is driving up our health insurance costs? Why not make fruits and vegetables cheaper by eliminating all taxes tied to their production and sale? This would raise money to fund the government, encourage us to eat healthy food and, if we begin to eat healthier, this will become a sustainable solution to our ever-escalating health insurance costs.
Tax as a sustainable economic price signal
This tax design is grounded upon the fact that how we tax ourselves is one of our economy’s strongest economic signals. Our economy is horribly distorted by our current tax policy where everything is taxed and subsidized. The result is that the average consumer cannot really determine the true cost of what they are buying. This is robbing us of the ability to make prudent and informed decisions. It is a dagger stuck in the very heart of our free market system that depends upon undistorted prices at the pump, meter and cash register to allocate resources.
Examples of this distortion abound. There is an obvious link between the size of our military expenditures and protecting someone else’s oil fields. Yet, this cost is not reflected at the pump. It is paid for by taxing income.
Another example is the challenge facing every consumer considering rooftop solar. Utilities and the solar industry point fingers at each other over tax subsidies that distort the true cost for both utilities and solar generation. Further distorting analysis is how health care costs tied to pollution are paid for through our taxes and ever-increasing health insurance premiums, rather than at the meter.
A sustainable tax policy
We all suffer from a tax policy based on “kicking the can down the road.” We are maxed out on debt, taxes, deductions, economic stagnation and health problems. The can cannot be kicked any further. The solution is a tax system that makes problems more expensive and solutions less expensive. Examples on how to design such a system will be the focus of the second article in this series.
Bill Roth is an economist and the Founder of Earth 2017 He coaches business owners and leaders on proven best practices in pricing, marketing and operations that make money and create a positive difference. His book, The Secret Green Sauce, profiles business case studies of pioneering best practices that are proven to win customers and grow product revenues.