(Updates at end of article. Latest update 6/4/2014)
Structural overhaul of the economic system goes hand in hand with the overhaul of government structure, including the power to tax and spend.
Taxes can be assessed so as to minimize the reallocation of wealth, as explained in the welcome screen for this blog. This favors the net worth tax (perhaps at a rate of 1% per year), which is the only type of tax that does not reallocate wealth. Net worth taxes are easy to assess on items of wealth that are already subject to registration, such as real estate, publicly listed stocks and bonds, motor vehicles, and electronic cash. Another tax which is easy to assess is the transaction tax (perhaps at a rate of 10%, automatically deducted out of the seller's account). Generally, items would be subject to either the the net worth tax or the transaction tax, but not both.
Government social policy should be expressed through government spending, not through variations in taxation. We want only simple, scaleable taxes since we don't want wealth reallocation issues to delay the inflation removal that taxation represents. These taxes would automatically be raised and lowered to allow for a balanced budget each year, maintaining the 1 to 10 ratio between the two taxes. Taxpayers would generally be subject to only this single tax structure, with the governments being responsible for allocating the taxes collected between the federal and local governments.
Local County Government
As the smallest unit of government, local counties should assume the largest percentage of government power, including the power to negotiate alliances with other counties. These alliances between counties could take the place of what are now states, which would allow flexible and efficient operation of regional power. For example, a county might partner with three counties for a transit system, and partner with two entirely different counties that it shares a river with, for a riverfront project. These regional alliances could change, meaning that the only two permanent levels of government would be the federal government, and the local counties.
With a single tax structure, there would no longer be issues of whether sales over the internet are taxed. The programming for the Bitcoin-like currency would cause the transaction tax to be automatically deducted from transfers of money between accounts, no matter where people live.
During the transition to the new economic system, existing state agencies would continue as they are now. The only difference would be that some agencies would come under federal control, and others would be under the joint control of the counties that had been part of the state. Eventually, the federal government would consolidate or eliminate those under its control, making those functions of government more efficient. Many laws which should have been made uniform long ago, will
now be federal. How about one motor vehicle administration for the whole
country, instead of fifty? And what about the vast savings for
businesses not having to learn different laws which will now be uniform
for many issues? The counties would adjust their partnerships with the other counties, to add or drop control of various agencies. For local governments, this would create many more degrees of freedom, adding to efficiency.
As with the federal government, counties would not own money, but would be able to create electronic currency out of thin air, as they spend it. The amounts of spending that the counties would be allowed, would be determined by population size, the values of registered property, and by business activity. But unlike the federal government, counties would not collect taxes. Of course, the amount of federal taxation must be sufficient to retire the amount of money created and spent into the economy by both the counties and the federal government.
In order to address the special spending needs of different localities, the net worth tax rate in some counties could be slightly higher than the baseline rate. For example, only some localities require snow removal, and others have a higher cost of living. For real estate, the surcharge would be at the rate, if any, imposed by the county where the real estate is located. For all other registered property, a blend of the surcharge rates of various counties (considering the taxpayer's estimated presence in various counties, using "in store" purchasing data in conjunction with real estate ownership and rental records) would be automatically determined . These surcharges would help with the extra burden that some counties have in just meeting basic services (as determined using national standards), but could not be imposed beyond that need.
There would no longer be municipal bonds. Currently, a large project like a new road, is paid for over its useful life. For example, a road lasting twenty years is funded by issuing a twenty year municipal bond. Instead, that county or alliance of counties would be allowed to pay for a such project in full in the year of construction. This wouldn't be unfair to other counties that were spending much less that year. Some counties would spend more some years, while others would spend more in other years. The totals spent for these types of projects, as a whole for the entire country, would average out to about the same each year, and so would the corresponding federal tax burden.
All major projects, and contracts with county employees, would need to pass a reasonable test, based on national
standards, to prevent runaway growth in county budgets and to prevent
any later need for federal bailouts and/or federally imposed austerity. Any "excessive" projects would have to come from the private sector
based on free market supply and demand. Any net worth tax surcharge rates imposed by counties (as well as fees, sin taxes and fines) would also need to meet federal reasonableness guidelines, so they wouldn't become a form of back-door taxation. In fact, county budgets would not be allowed to expand from imposing sin taxes or fines. When that money is "collected" (actually, retired), it would only be available for expanding federal "spending" (actually, printing). In this way, counties would have no financial incentive to impose excessive sin taxes or fines.
A single legislative body, a national congress, would replace the current House and Senate. The power of the federal government would be much more restrained, once congressmen realize that they could no longer borrow money.
Members of Congress would be selected by and represent their counties, instead of using congressional districts. Each county would have one representative. The weight of the vote of each representative would be based upon the population of his county. For example, the vote of a representative from a large county might have a weight of 1.3, while the vote of a representative from a smaller county might have a weight of 0.7. Changing the weighting of votes is much better than the controversial practice of congressional redistricting. Members of Congress would not move to Washington; they would operate out of their home counties, transacting business and voting using the internet. Each Congressional member would be considered an employee of his county, which would also set his rate of pay. Since there would be many more members of Congress than before (for example, there are more counties than there were congressional districts), there would be less congressional business for each member, so a member of Congress might also hold another position in his county government at the same time.
Direct vote and efficient government structure could help reduce corruption and waste. Modern technology makes direct voting practical. Government spending and taxation should be looked at as one process, so that whenever spending occurs, taxation in the same amount would automatically and promptly occur. The automatic and scalable net worth and transaction taxes in the amount of the year's spending, would serve as a feedback mechanism controlling that spending. Taxpayers would quickly learn that pork barrel spending would result in immediate tax hikes. The result would be taxpayers eager to exercise strict control over government spending (and taxes) using their direct vote.
Citizens would be able to use the power of direct vote to introduce their own new legislation, and to have veto power over Congress. On the first day of each quarter, the public would vote (using the internet) for which matters should be put on the ballot. One month later, the top ten such matters would appear on the ballot, and be subject to internet voting where two-thirds majority is needed for a matter to be approved. As an example, the vote of the people might withdraw funding for an unpopular war or federal agency. People who are unwilling or unable to participate in so much voting, would be able to issue proxies to others to vote for them.
The Federal and state court systems would be replaced by a single court system. Federal cases would originate at a higher level within the system, and county cases would terminate at a lower level within the system.
The third co-equal branch of government (the other two being Congress and the Supreme Court) would not be the Executive. The third branch would be the direct vote of the people, as described above. The executive function would be subservient; similar to how it is within a corporate structure: the people (stockholders) would elect the Congress (board of directors),
who would nominate and appoint people to top executive positions. But
unlike with a corporation, there would be no position of president or
vice-president. Emergency decisions and coordination between agencies would be made by the directors of the relevant executive agencies, in a manner directed by Congress. Anyone in a top executive position could be voted out of office by two-thirds vote of the people.
Since elections for those running for office would not extend beyond individual counties, campaign costs for such races would be low. Utilizing a process called instant-runoff voting would improve the chances of under-capitalized third party candidates. Also reducing costs would be a ban on all television and radio campaign advertising. Even so, direct voting by the people on national issues might generate huge amounts of campaign funds from those affected by the issues. To help prevent special interests from gaining unfair advantage, all businesses would be banned from making contributions. Campaigns would be financed by individuals (along with some public financing), who would be subject to contribution limits (there would also be limits to how much
an individual could contribute to his own campaign). The official election structure would not group candidates, voters, or issues, by political party. Because direct voting on issues would occur four times a year, lively political discussion and debate would occur throughout the year, and the focus would be on issues rather than on national personalities.
Update 6/4/2014: Comment received by email -
"I found your essay on restructuring government very interesting, because some of your thoughts have also occurred to me. However I think maybe you should reconsider the idea of weighting the votes of the county representative to avoid the need for having more than one per county. I see your reasoning, but the problem would be, it means that more populous counties would get less "time per constituent" in labor by the representative than less populous counties."
In the present day there are 3,086 counties but only 535 members of Congress. If under the new system there are 3,086 members of Congress, there will be much less work for each congressman to do, so if anything his congressional duties might be part-time. For the very largest counties his representation duties, which he is performing as a county employee, could be divided among more than one person, and together they would issue their county's weighted vote in Congress.
Next, read the PieEconomics essay titled An Easy Net Worth Tax.