Wednesday, May 19, 2010

Tax Law and the American Tax Flaw

No taxation with out representation. This is a wonderful and essential principle of the United States tax system. This principle is at the core of tax law, as well as its relation to government representation, and part of the foundation of the current governing system. Despite this founding principle deeply woven into the structure of America, there is a flaw.

The flaw is not in the no taxation with out representation the flaw comes in the form of a missing component to that same principle.

What is the American Flaw of Tax Law?

Equal representation with no consideration to taxation is what I claim to be The Great American Financial Flaw of Tax Law.

This principle is a silent, unspoken, and unconsidered principle of the US tax system. Ironically enough the principle was recognized as a flaw in our governing system and was fixed by the legislative branch by having both a House of Representatives and a Senate. We will come back to this point soon.

Providing representation with out any consideration to taxation is a problem because it leaves the majorities and minorities vulnerable and unprotected.

This, as mentioned before, was addressed and fixed in a like situation involving the legislative branch. The protection of both the majority, as well as the minority, of state representation replace "taxation".

The problem was that states with large populations wanted to have more say then states with lower populations. States with low populations wanted equal and fixed representation. Both sides had a valid point.

  • Larger states were vulnerable to unbalanced representation from smaller states in the senate representation system. This is because the there are only two senators elected per state with no consideration to the size of the state population.
  • Smaller states were vulnerable to a system purely based on population for the inverse principle of the senate system

The solution was simple and elegant; just create both.

The same considerations need to be given to taxation.

My argument is simple. If the government came up with tax laws that are fair and sustainable, but then a large like majority group of tax payers object and demand to pay less they can and will. See how below.

Those tax payers can vote in representation that agree to make the minority over pay to allow for a tax break to the majority. This imbalance can be sustained in our representation system because no matter who pays the taxes everyone is given representation.

Our founding fathers were so fixated on their problem with the British (collecting taxes but not giving political representation in return) that they overlooked the possibility of abuse coming from the other end of the spectrum.

Can this problem be fixed?

Related Articles

Should Government Reform the Financial Industry

How to Make Sure Your Tax Guy Knows Taxes