When multiple governments compete for revenue, it creates a complex problem, with
several mathematical principles involved. The simplest model will be used here, even though it
can be shown to not be entirely correct. It assumes the effect of taxation on the economy is
linear, and that there are no exemptions or standard deductions. The only differences in the
results are in the percentages where the effect takes place, not whether the effect happens
First, a look at a simple system with one government:
Ask yourself two questions:
How much revenue is collected if the tax rate is 0%?
Obviously, the answer is "none".
How much revenue is collected if the tax rate is 100%?
This answer depends on the type of tax:
None. Why? People would not work if they had to pay all of their income in taxes.
A small value. 100% in sales tax effectively doubles the price of each product.
A very very small value. 100% in property tax means that the person has to repurchase the
property every tax period.
Obviously, people will avoid the taxed activity.
Thus, there must be a point in between them that produces the highest tax
revenue. This leads to my first tax conjecture:
TAX CONJECTURE #1:
There is a tax rate that gives the maximum possible revenue. Above that rate, revenue falls as
the tax rate is increased.
The simplest income tax formulas (which have faults, but are useful for demonstration)
v = 1 / (1 + t)
r = (t)(1 - t)(1 - t)
p = r v
t = the total tax rate (personal + business)
v = product value as a portion of the price
r = revenue as a percentage of no-tax income
p = government purchasing power
Values r and p are percentages of economic activity in a taxless economy.
Note that the increase in the cost of the product effectively adds
the business tax to the taxes paid by the worker. It also increases the
cost to government for goods and services. This reduces the ability of
government to purchase.
It is easy for a single government to analyze the revenue changes
corresponding to tax rate changes, and adjust tax rates to suit.
Now a look at an economy with two governments: Each has the
power to set its own tax rates. Assume both governments start by operating at half of the
maximum-revenue tax rate, so that individuals pay the maximum-revenue rate. Now suppose
one of the governments raises its tax rate. The total revenue falls, but the government
that raised its rate gets a larger share of the total tax, and sees a revenue increase.
The other government sees a revenue drop larger than the raising government's increase. It
too can raise its tax rate, causing the same effects.
This goes on until both governments reach a point where either sees a revenue drop if
it raises its tax rate. This rate is much larger than the maximum-revenue rate, but the
revenue collected is much less than it would be under the maximum-revenue rate. Greed
for more revenue costs them, and the people. This leads to my second tax conjecture:
TAX CONJECTURE #2:
When governments compete for revenue by alternately raising taxes, they reach a higher
tax rate than the maximum-revenue rate. This new tax rate also has a maximum-plateau,
above which revenue falls as the tax rate rises. The net results of taxing at the
maximum-plateau rate are: less revenue for all governments involved, less income for
individuals to use, and a smaller economy with fewer jobs.
Also, many government officials don't see that they are getting less revenue, and raise
Adding more governments further complicates the rate-setting effects, and raises the
maximum-plateau rate even more. It also lowers individual government revenue
and makes the economy even smaller. Add to this a mishmash of different types of taxation,
and everything gets even worse. When one government has a large jurisdiction over several
smaller governments, it can take most of the tax revenue because the smaller governments do
not all raise taxes at once. These facts lead to my third tax conjecture:
TAX CONJECTURE #3: A tax system that collects a single tax
and distributes the revenue to all governments will produce a stronger economy and more
government revenue than a multiplicity of individual taxes can possibly produce.
Obviously, without governments competing, the tax revenue is optimized.
TAX CONJECTURE #4: All business taxes are paid by
The business must get the money to pay the taxes somewhere. Since the only source of
income the business has is sales revenue, the taxes must be paid out of sales revenue. And
since all business must pay the same taxes, the businesses can raise prices to cover the
taxes without losing sales to competition.
TAX CONJECTURE #5: High taxes cause business failures and destroy jobs.
Any money that is spent for government purposes is not available for the general economy. The money spent in the
general economy is the money that causes employment. Money spent for government purposes causes less employment,
because it doesn't create products for sale on the open market.
Government does not have the power to create wealth. Only work done producing a salable product can do that.
So only work done to produce a salable product can help the economy and create more jobs.
TAX CONJECTURE #6: Government doesn't need all the tax revenue
it says it needs.
Any government spending money on any of the following nonessentials wants more money than it needs:
- Anything having to do with the arts
- Anything having to do with sports, including stadiums and arenas
- Anything having to do with entertainment, including auditoriums and other venues
- Anything having to do with recreation
- Anything having to do with culture
- Archaeology and paleontology
- Monuments, memorials, statues, and other honors to politicians
- Beautification, gardens, decorative fountains, etc
- Fancy or ornate architecture
- Parks, swimming pools, ice rinks, and bicycle paths
- Landscaping for purposes other than erosion control
- Advertising, other than that required by law
- Land use controls and zoning
- Land or buildings used for anything in this list
People who want government to fund these nonessentials are greedy. They want these things for themselves, without
expecting to pay for them.
The following is the most fair tax system available:
- A 10 % sales tax on all new retail products. Exceptions:
- No tax on unprepared food for humans.
- No tax on functional clothing.
- No tax on land, buildings, or rental of either.
- No tax on vehicles.
- No tax on labor or services.
- No tax on necessary medicine.
- No tax on used or homemade items
- No other taxes.
- The tax revenue must be distributed fairly:
- The tax is collected by at the point of sale.
- The tax is collected by the retail merchant.
- Taxes shall be collected weekly, not yearly.
- Local government collects the taxes from merchants.
- Local government distributes the revenue as follows:
- 1/4 to federal relief
- 1/4 to state government
- 1/4 the federal government
- 1/4 to local government.
- Each postal address is under only ONE local government.
- The tax revenue must be spent properly.
- Federal Relief is distributed as follows:
- 3/4 is divided equally to all Retirement Accounts.
- 1/4 is for emergency poor or disaster relief.
- Tax money must not be spent on nonessential programs.
- All tax appropriations must be approved by referendum.
- Each spending item must be voted on independently.
- The Independent Voting System must be used.
- No government may borrow money, except for the following cases:
- An enemy invades.
- There is a national catastrophe.
- There is a recession causing job losses.
- Several public works projects listed below.
- Governments may not spend more money than they have.
- Governments may save up to pay for a major program.
- Courts may not force governments to spend money.
- Courts may not overrule referendum votes.
- When a government project ends:
- Unspent money returns to that government's revenue.
- Other projects may have any leftover materials.
- Remaining leftover materials are sold at auction.
- No materials may be destroyed.
- Retirement Accounts belong to the owners, not government.
- Government may not borrow or use retirement money.
- Government may not tax retirement money.
- Banks shall make sure retirement withdrawals are legal.
- Retirement money can be used for emergencies.
- Government must not use numbers or codes to identify people.
- The tax system must not identify taxpayers.
- Other taxes and revenue sources permitted:
- Government may ask for donations for nonessential uses.
- Donations must be voluntary.
- Donations must not be used for essential services.
- Voluntary donations must be anonymous.
- Excess donations can go to other nonessential uses.
- Extra sales tax is allowed on the following:
- Revenue from these must go to a health care subsidy:
- Alcoholic beverages
- Tobacco products
- Revenue from these must go to the same transportation system:
- Motor fuel tax (user fee) system.
- Individual use tax must not fund mass transit.
- Extra sales tax may not exceed 15%.
- Toll roads are permitted if:
- Toll revenues are spent on that road, not other roads.
- Construction debt is amortized by the tolls.
- Tolls must not be collected after the debt is paid off.
- The debt must not be increased to fund other projects.
- There are other less-convenient ways to make the same trip without paying the toll.
- Government may charge fees for services, except:
- Government may not charge fees for:
- Essential services
- Services which are required by law to be used
- Use of emergency services (police, fire, EMT)
- Requirements for licensing:
- License acts posing hazards to the life, limb, or property of others.
- Government may not charge for a license unless the license was violated.
- Owning a business must not be licensed.
- Using property for business must not be licensed.
- Nothing else may be licensed.
- Only the following acts may be fined:
- Acts threatening the life, limb, liberty, or property of others
- Violating license terms
- Failure to appear for court
- Disobeying court orders
- Minor criminal acts
- Nothing else may be fined.
- All fine revenue goes to funds reimbursing crime victims.
- No fine revenue goes to law enforcement.
- No fine revenue goes to courts.
- No fine revenue goes to the government general fund.
- Government may raise revenue by selling its property.
- Eminent Domain is restricted as follows:
- Eminent domain may be used for ONLY these purposes:
- Transportation pathways (requires long narrow straight strips of property)
- Reservoir lakes (requires an entire valley).
- Eminent domain may NOT be used for the following:
- Getting land to build a building.
- Getting land for parking.
- Getting land for other uses.
- Buying out businesses competing with government.
- Buying out land uses government officials do not like.
- An eminent domain taking must offer the choice of:
- Purchase of the land at the market price.
- Substituting land of equal utility to the owner.
- None of the following may be taxed or require fees:
- bank accounts
- crossing borders
- imports and exports
- lottery or gambling winnings
- court judgments
- property ownership
- telecommunication services
- use of recording media
- use of law enforcement
- use of fire protection
- use of emergency medical aid
- use of the justice system
- parking a vehicle (also no time limits)
- value deposited as bail (except failure to appear)
- Property may not be confiscated, unless:
- All owners used it for crime.
- It is stolen, and must be returned to the rightful owner.
- It is temporarily needed as evidence (must compensate owner).
- It is temporarily needed for an emergency.
- Government may not keep, sell, or use private property.
- Government may not destroy property.
- Government must pay rent on:
- All property rights which are removed by law
- All property confiscated as evidence
- This rent must be paid for the duration of the event.
- Government must not:
- Own property for nonessential uses.
- Have any other sources of revenue.
- Take enough revenue to cause the economy to shrink.