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10 Tax Principles

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10 Tax PrinciplesShort Introduction

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10 Sound Tax Principles

To create excellent systems ofgovernment, it is important that certainhigh standard principles areestablished and adhered to. Suchprinciples should be used as solidguidelines for creating systems of

taxation as well. Not very muchattention has been paid in any countryto establish such important guidelinesfor taxation and the result has beenthat no excellent systems of taxationexist in Indiaor any other country.

The following 10 soundprinciples are largely ignored byall systems of taxation inexistence and also by most taxreform proposals. Only 2020Taxfollows all 10 tax principles almost

exactly.

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The first 4 principles of taxation are byAdam Smith (1776 Wealth of Nations).Adam Smith can be regarded as the"Godfather" of economics. Theadditional 6 principles of taxation are

by Alf Temme (author of Automatic-Tax 2005 and other economicsrelated topics such aswww.UniversalDemandLaw.com1975):

1. The subjects of every state

ought to contribute towards thesupport of the government, asnearly as possible, in proportion totheir respective abilities; that is, inproportion to the revenue whichthey respectively enjoy under theprotection of the state.

Actual complete text of AdamSmith maxim nr.1:I. The subjects of every stateought to contribute towards thesupport of the government, asnearly as possible, in proportion to
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their respective abilities; that is, inproportion to the revenue whichthey respectively enjoy under theprotection of the state. Theexpense of government to theindividuals of a great nation is like

the expense of management tothe joint tenants of a great estate,who are all obliged to contribute inproportion to their respectiveinterests in the estate. In theobservation or neglect of thismaxim consists what is called the

equality or inequality of taxation.Every tax, it must be observedonce for all, which falls finallyupon one only of the three sorts ofrevenue above mentioned, isnecessarily unequal in so far as itdoes not affect the other two. In

the following examination ofdifferent taxes I shall seldom takemuch further notice of this sort ofinequality, but shall, in mostcases, confine my observations tothat inequality which isoccasioned by a particular tax
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falling unequally even upon thatparticular sort of private revenuewhich is affected by it.

2. The tax which each individual isbound to pay ought to be certain,

and not arbitrary.

Actual complete text of AdamSmith maxim nr.2:II. The tax which each individual isbound to pay ought to be certain,and not arbitrary. The time of

payment, the manner of payment,the quantity to be paid, ought all tobe clear and plain to thecontributor, and to every otherperson. Where it is otherwise,every person subject to the tax isput more or less in the power of

the tax-gatherer, who can eitheraggravate the tax upon anyobnoxious contributor, or extort,by the terror of such aggravation,some present or perquisite tohimself. The uncertainty oftaxation encourages the insolence


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and favours the corruption of anorder of men who are naturallyunpopular, even where they areneither insolent nor corrupt. Thecertainty of what each individualought to pay is, in taxation, a

matter of so great importance thata very considerable degree ofinequality, it appears, I believe,from the experience of all nations,is not near so great an evil as avery small degree of uncertainty.

3. Every tax ought to be levied atthe time, or in the manner, in whichit is most likely to be convenientfor the contributor to pay it.

Actual complete text of AdamSmith maxim nr.3:

III. Every tax ought to be levied atthe time, or in the manner, inwhich it is most likely to beconvenient for the contributor topay it. A tax upon the rent of landor of houses, payable at the sameterm at which such rents are


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usually paid, is levied at the timewhen it is most likely to beconvenient for the contributor topay; or, when he is most likely tohave wherewithal to pay. Taxesupon such consumable goods as

are articles of luxury are all finallypaid by the consumer, andgenerally in a manner that is veryconvenient for him. He pays themby little and little, as he hasoccasion to buy the goods. As heis at liberty, too, either to buy, or

not to buy, as he pleases, it mustbe his own fault if he ever suffersany considerable inconveniencyfrom such taxes.

4. Every tax ought to be socontrived as both to take out and to

keep out of the pockets of thepeople as little as possible overand above what it brings into thepublic treasury of the state.

Actual complete text of AdamSmith maxim nr.4:


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IV. Every tax ought to be socontrived as both to take out andto keep out of the pockets of thepeople as little as possible overand above what it brings into thepublic treasury of the state. A tax

may either take out or keep out ofthe pockets of the people a greatdeal more than it brings into thepublic treasury, in the fourfollowing ways. First, the levyingof it may require a great number ofofficers, whose salaries may eat

up the greater part of the produceof the tax, and whose perquisitesmay impose another additional taxupon the people. Secondly, it mayobstruct the industry the people,and discourage them fromapplying to certain branches of

business which might givemaintenance and unemploymentto great multitudes. While itobliges the people to pay, it maythus diminish, or perhaps destroy,some of the funds which mightenable them more easily to do so.


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Thirdly, by the forfeitures andother penalties which thoseunfortunate individuals incur whoattempt unsuccessfully to evadethe tax, it may frequently ruinthem, and thereby put an end to

the benefit which the communitymight have received from theemployment of their capitals. Aninjudicious tax offers a greattemptation to smuggling. But thepenalties of smuggling must risein proportion to the temptation.

The law, contrary to all theordinary principles of justice, firstcreates the temptation, and thenpunishes those who yield to it;and it commonly enhances thepunishment, too, in proportion tothe very circumstance which

ought certainly to alleviate it, thetemptation to commit the crime.Fourthly, by subjecting the peopleto the frequent visits and theodious examination of the tax-gatherers, it may expose them tomuch unnecessary trouble,


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vexation, and oppression; andthough vexation is not, strictlyspeaking, expense, it is certainlyequivalent to the expense atwhich every man would be willingto redeem himself from it. It is in

some one or other of these fourdifferent ways that taxes arefrequently so much moreburdensome to the people thanthey are beneficial to thesovereign.

The following 6 maxims oftaxation have been authored by AlfTemme:5. A tax should not be used to givefavorable tax treatment to differentpeople or businesses for anyreason or purpose no matter how

well intentioned. Any reduction intaxes to some will necessarilyincrease the rate of taxation to allother taxpayers. There has beenalways great sentimental debateand implementation of lower or notaxes for eo le on the lowest


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rungs of the socio economicladder. This is, and always hasbeen one of the greatest mistakesand it most often amounts only toshameless vote buying bypoliticians. The fact is that the

paying of taxes by "the poor" givesthem the equal dignity of all othertaxpayers who contribute equallyto the running of their government.The equal paying of taxes does notcreate the class strife that hasbeen created by the politicians who

pretend to care for the poor andthe under-classes they areidentifying in their electioncampaigns and whose votes theyendeavor to "buy" with money they"steal" from all the rest of thetaxpayers by indirectly increasing

their tax rates in the process. The"poor" do not benefit fromfavorable tax treatment becausethe ironic reality is that their "takehome" wages gradually decline bythe amount they otherwise wouldhave aid in taxes.


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6. A tax should be as broad basedas possible, resulting in a lowpercentage rate that offers littleincentive for tax evasion and taxavoidance and all the unproductive

activities people engage in to lowertheir taxes..

7. A tax code must be formulated insimple language easily understoodby all who are subject to it and notbe a document of 65,000 pages

(like the shameful United Statesincome tax code) that cannotpossibly be known and understoodby the average tax payer and willbe subject to many interpretations.

8. To keep a tax system as simple

and clear as possible, it must haveas few as possible exemptions orspecial provisions. Insteadof exemptions or specialprovisions in the tax code,a government can have refund

rovisions or bestow rants rather


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than use favorable tax treatment asa political tool or for socialengineering. Governments thatunderstand economics welland know the rules andconsequences of

www.UniversalDemandLaw.comwillrefrain from social engineeringbecause it violates this universallaw and is destined to fail in itsdoubless wellmeaning aims.

9. Anoptimum tax replacement

must be able to be phased in veryincrementally to create as littleeconomic and political disruptionas possible. People and theirpoliticians are very risk adverseand will not easily accept aproposal that will create sudden

drastic economic and politicalchanges over a short span of time.

10. The optimum tax replacementproposal must be attractive enoughto be accepted as optimal bymulti le countries. The fact that all
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major countries have totallydifferent tax systems serves asproof that none of them as yet hasfound or implemented an excellenttax system that many othercountries would like to copy.

The 10 principles in more detail:

1. The subjects of every stateought to contribute towards thesupport of the government, as

nearly as possible, in proportion totheir respective abilities; that is, inproportion to the revenue whichthey respectively enjoy under theprotection of the state.

Adam Smith's Taxation Principle #1

deals with the subject of dignity andjustice and fairness in taxation. Thereis dignity in the paying of tax by thepoor. In most current tax theory andlegislation it is erroneously held thatpoor people do not deserve respectand belon to an underclass that


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needs special tax treatment andcannot function with dignity asrespectable full function citizens thatproudly will contribute to andparticipate in the financial support forthe running of their own governments.

That sort of paternalistic thinkingplaces "the poor" into a class by itself,rather than making them an integralpart of society with the same rightsand duties of everyone else. That sortof, undoubtedly well meaning butdivisive class strife baiting and

paternalistic thinking gave rise in thepast to the notion that only those whopay taxes should have the right tovote.

This warped justification of usingtaxation as a tool for social

engineering that leads to progressivetaxation shows a total lack ofunderstanding of taxation. It is acomplete fallacy to believe thatexcluding the poor from this or theother tax makes them exempt fromtaxation. It is wron l thou ht that "the


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poor" need tax breaks and financialsupport and that "the rich" should footthe bill for that financial support bypaying higher taxes. It is a completehoax and fallacy to propose toexclude "the poor" from taxation and

that taxes should be structuredaccording to the arbitrary socialisticdoctrine of "ability to pay". Under allsystems of taxations the poor paytaxes embedded in every product orservice they consume. The embeddedtaxes they pay are in direct proportion

to their spending. The exclusion ofthe poor from certain taxes isarbitrary and the establishment of taxbrackets is not only arbitrary but alsoout of proportion "to the revenuewhich they respectively enjoy underthe protection of the state".The

concepts of current tax theory are ingross violation of the Adam Smith #1maxim and 2020Taxis in totalcompliance with Adam Smith #1.Moreover, the vast majority of peoplewho are classified as "poor" areoun and will make a natural

t iti t ll th hi h l l f
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transition to all the higher levels ofeconomic success with a proportionalpercentage distribution to all levels ofeconomic wellbeing including theascension by a small percentage ofthem to the level of "the rich".

2. The tax which each individual isbound to pay ought to be certain,and not arbitrary.This "Adam Smith's tax maxim #2"requires a very simple tax rate thatapplies to any and all economic

transactions without exception, so thateverybody knows what the tax rate isand that there is certainty of the taxand , very importantly, that there shallbe no arbitrary exceptions to the tax(no matter how persuasively anyproposals for exceptions may be

presented by special interests and bywell meaning political leanings.)2020Tax is in full compliance withAdam Smith's tax maxim #2..

3. Every tax ought to be levied atthe time, or in the manner, in which

it i t lik l t b i t


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it is most likely to be convenientfor the contributor to pay it.This means that a tax should belevied with the least amount ofinconvenience to the tax payer. NeedI say more, there is zero

inconvenience for the tax payer withthe way in which tax is paid under2020Tax. The 2020Tax isautomatically collected through thebanking system exactly at the sametime when any money transactiontakes place. No records need to be

kept by the tax payer, no tax formsneed to be filed and no audits will beconducted. Many other taxreplacement proposals seek to reducethe inconvenience somewhat or ofteneven a great deal, but none reduce itto ZERO inconvenience asdoes 2020Tax which is "levied at thetime, or in the manner, in which it ismost likely to be convenient for thecontributor to pay it". In fact, thetaxpayer has to do absolutely nothingbecause the tax deduction iscom letel automatic without human

interface The great thing of 2020Tax


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interface. The great thing of 2020Taxis that it not only replaces the federaltax, but also replaces State, Countyand Local taxes with the single low taxpercentage of around 5% taxcollected by the banking system.

4. Every tax ought to be socontrived as both to take out and tokeep out of the pockets of thepeople as little as possible overand above what it brings into thepublic treasury of the state.

This means that the total direct andindirect cost of paying and collectingthe tax should be as little as possible.The direct and indirect cost andburden on the total economy andsociety as a whole cannot beexpressed in money alone, but withthe 65000 page USA income tax codethe total, direct and indirect, costcould be as much as $900 billion peryear (in 2005 dollars). The direct andindirect cost of collection for 2020Taxis certainly less than 3% of the currentcost. As such 2020Tax kee s "out of

the pockets of the people as li ttle as


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the pockets of the people as li ttle aspossible over and above what itbrings into the public treasury of thestate".

5. A tax should not be used to give

favorable tax treatment to specialinterest groups.Legislators are generally subject toenormous lobbying efforts by specialinterests and political groups tomodify the tax codes in favor ofspecial tax treatment for these groups

and the special interests. The2020Tax can be easily protected frommanipulative use for socialengineering and favorable taxtreatment by prohibiting anyexemptions from the tax for suchsocial engineering purposes and onlyallow changes or amendments to thetax with a 90% majority vote.

6. A tax should be as broad basedas possible, resulting in a lowpercentage rate that offers littleincentive for tax evasion or tax

avoidance


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avoidance.2020Tax is enormously broad based.It is a tax on all forms of fund transfersexcept the transfer of funds involvedwith financial instrument trades suchas stocks, bonds and other financial

"products". Only the profit portions ofsuch financial transactions are subjectto the tax. Also transfer of fundsbetween accounts owned by thesame account holder are excluded. Inaddition there is a provision for refundpetitions on certain transactions

deemed eligible by an 2020Taxrefund authority (as detailed in the full92 page disclosure of the 2020Tax).

7. A tax must be formulated insimple language easily understoodby all who are subject to it.The complete 2020Tax can be statedin easy to understand language asshown in the "Short Introduction". Atotal of fewer than 5 pages of writingare needed to state the full rules ofthe 2020Tax.

8 A tax must have no exemptions
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8. A tax must have no exemptions.Rather than exemptions, subsidiesand grants can be given and thereis a special provision in 2020Taxthat provides for an office thathandles tax refund requests that

may be granted for transactionsdeemed eligible for such refunds.2020Tax follows Adam Smiths and AlfTemme's principles of taxation asclosely as possible to create a verysimple and effective tax replacementfor www.GlobalTaxReform.com.

9. An optimum tax replacementmust be able to be phased in veryincrementally to create as littleeconomic and political disruptionas possible. People and theirpoliticians are very risk adverseand will not easily accept aproposal that will create suddendrastic economic and political

changes over a short span of time.An absolute requirement for any taxreplacement proposal is that the newtax can be phased in gradually and

incrementally without causing more
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incrementally without causing morethan just minor economic and politicaldiscomfort during an almost "painless"transition from the existing tax systemto the new proposed tax replacementsystem. The 2020Tax can be phased

in at 0.1% for the first year. Thefederal tax revenue can then at thesame time be reduced by 2% to offsetthe amount collected through the0.1% 2020Tax. The objective will beto reduce the 65000 page long USAFederal Income Tax Code by as many

pages as is possible to bring aboutthe reduction of 2% in Federal taxrevenue that will approximately matchthe revenue collected through the0.1% Automatic Tax. The Federal Taxcode can already be reduced by a fewhundred pages only on account of thefirst 0.1% step in the 2020Tax.

An additional bonus is that the 0.1%2020Tax will determine nearlyEXACTLY what percentage rate theeventual full 2020Tax needs to be tocover the bud et re uirements for all

levels of government for which it


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levels of government for which itbecomes the single combinedreplacement tax. The following yearthe 2020Tax can be raised by anadditional 0.25% and Federal taxproceeds can be reduced by another

5% and additional pages of theincome tax code can be eliminated toapproximately offset the tax collectedthrough the additional 0.25%Automatic Tax. This process can becontinued with 0.25% additional2020Tax for each following year with

matching decreases of additional 5%of the taxes collected through theFederal income tax, and of courseadditional pages eliminated from theFederal Income Tax Code. Thismethod of phasing the 2020Tax inand phasing the current income taxout, is completely transparent andpredictable and will cause the leastamount of economic surprise anddisruption. It will provide for about 15to 20 years of total tax predictabilitythat provides for tremendouseconomic stabilit and facilitates lon

term economic planning for individuals


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e eco o c p a g o d dua sand businesses alike. This form ofphasing in 2020Tax is less risky forlegislators to enact into law because itcannot create the large unexpectedeconomic impact that these legislators

could be blamed for later. Bothlegislators and the general public arevery risk averse. That is the reasonwhy most bold tax reform proposalsdo not have much chance to beenacted into law. Legislatorsgenerally will still wish to enact some

sort of reform so that they do not looklike complete laggards in the eyes oftheir constituent populations andtherefore they resort to desperatesmall dabbling with the minutestdetails of the existing tax codemonstrocities. In the process theymost often complicate the codes somemore and they cause outcries over"unfairness" and other protestationsfrom diverse and opposing specialinterest groups.

10. The o timum tax re lacement

proposal must be demonstrated to


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p pbe superior to all other"competing" tax replacementproposals so that much neededsupport from all other groups thatpromote tax simplifacation can be

consolidated behind such optimumtax replacement proposal. It mustbe proven that the proposed newtax will indeed bring in enoughrevenue to adequately replace thetotal revenue collected under thetax systems it seeks to replace.

It is quite conceivable that proponentsand promoters of other taxreplacement proposals may wish tojoin ranks to promote a taxreplacement proposal that can beproven to be superior to the taxreplacement they are currentlypromoting. To demonstrate thesuperiority of 2020Tax as the optimumtax replacement proposal it must beshown to be superior in terms oftesting all "competing" taxreplacement proposals against these10 sound tax rinci les. Additionall

some of the current tax-myths


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ymisconceptions about taxation mustbe debunked in clear language that iseasily understood by all.Catchphrases such as "ability to pay","regressive, proportional and

progressive taxation", "tax fairness orequitability" and other suchmisconceptions of current forms oftaxation have been adopted by wellmeaning governments that havepushed the United States into thequicksand of socialism and also have

promoted class and racial strife.Currently governments almosteverywhere are promoting taxtheories that are tainted by socialistdoctrines and myths because oflacking understanding of basiceconomics and taxation principles andobjectives. Many of these misguidedtaxation myths promote strife betweendifferent population groups wherestrife did not exist and they promotedeteriorating effects on the economythat lead to economic decline.

NOTE ON TAX REFUND


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PROVISIONS AND CHANGESUNDER 2020Tax.2020Tax has provisions for tax refundoffices in each State that areempowered to issue refunds on

certain transactions that are judged toamount to double taxation.Legislatures may also bestowsubsidies and grants as they maydeem appropriate but they will bestrongly reminded not to tamper withthe tax collection side of 2020Tax, lestthey want to run the risk (actually thecertainty) that they will create oncemore an incomprehensible mess likethe current 65,000 page USA incometax code. Such vote-fishing lures as"no tax on poor people" or "no tax onlife necessities" or "no tax onmedications" or "no tax on old people

pensions" etc. are all sham politics orthey reflect total ignorance on the partof the politicians of the workings ofeconomics and taxation. Shame onus, the people, to allow our legislatorsto create such a mess.

We have to be vigilant at all times


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gnow and in the future.As soon as a single special taxtreatment would be permitted by anylegislative body, the armies oflobbyists will mobilize once more to

procure similar special tax treatmentfor their special interest clients. Tocompletely or largely prevent futuretax-law complications that wouldgradually return 2020Tax to such anincomprehensible and very costlysystems of taxation that we currently

are suffering under, I propose thatthere be a requirement for a 90%majority vote to make any changes inthe 2020Tax code other than one timeincreases or decreases of smallerthan 0.25% in the percentage rate ofthe tax within any 10 year period that

must be approved by a 75% majorityvote.

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