Trickle-up-Taxation vs. Neutral Tax – What’s the differences?

I’ve had many people ask me, what is the difference between your plan called Trickle-up-Taxation and the Neutral Tax? The plans are almost identical, and both Tom Ryan and I came up with our ideas independently.

The premise of both tax plans is removing direct taxation and implementing indirect taxation. Under the Neutral Tax, the federal government wouldn’t tax your directly, but your state would tax you directly, and the federal government would then indirectly tax you by taking a flat percentage from the state’s tax revenue. Thus, taxation would be devolved to the states.

Trickle-up-Taxation works in the same way, but it begins on the local level first. Under Trickle-up-Taxation the state, for the most part, would relinquish all direct taxation and direct taxation would happen on the county and city levels. The state would then indirectly tax you by taking either a flat percentage from these municipalities or a different percentage based on a particular tax.

Now Trickle-up-Taxation had a federal component to taxation as well, which was, in essence, the Neutral Tax, but I have not focused on that aspect as of now because the first step must occur on the state level and here’s why.

Political Reality and Human Nature

The problem I see with the Neutral Tax is that even though it is a brilliant idea, it is unlikely to be implemented because it neglects to take into account the political realities, as well as, neglects human nature. Let me explain.

For the Neutral Tax to be implemented, it would require politicians in D.C. to give up power willingly. Having the ability to tax and give tax breaks and loopholes to your donor base are too powerful of a tool to give up. If I can’t give you a tax loophole and squeeze out your competition why would I contribute to your campaign?

The best and only way to remove corruption in government isn’t through campaign finance laws; there are always ways to get around them. The way you limit corruption is by removing the power and scope of a politicians’ influence. If they have no control and authority, then the money will dry up.

I believe in human depravity, and I do not believe that D.C. will ever limit their power. They continually seek to expand their influence and power; not restricting it.

Human nature has shown us that people desire more power, so why not have the states take power away from the federal government under Article V Convention of States (COS)? If people want more power why don’t the states just take power away from D.C.?

Under the current structure, the states will never conduct a COS because they can use the federal government as their shield to increase government spending in their state without raising taxes or increasing state debt. For instance, under the ObamaCare’s Medicare Expansion, states were able to bring in billions of federal tax dollars into their state and dish it out to their constituents without taking responsibility for the massive increase to the national debt. Even if it raises state debt, it is delayed by years and by this time the politician will have been termed out, and it will be the next person’s problem. It’s the old kicking the can down the road scenario.

You see, states don’t have a Federal Reserve where they can make fake money appear out of nowhere. If they want to expand government they must either raise taxes or borrow money. If you can grow government without raising state taxes or state debt then why would you want to lose that protection? You can be a grade A hypocrite and rail against D.C. and at the same time take billions of dollars. It’s a mutually beneficial arrangement for state and federal politicians.

Even though so many of us want to limit D.C. and the federal government, we can’t initiate a nationwide ballot initiative. We are stuck with the current dynamic and have no hope of changing anything.

Why we start locally

People cannot do a nationwide ballot initiative to remove power from the federal government and amend the Constitution, but people can do that on the State level. Remember people created the states and the states created the federal government, therefore you must follow the same path. You start with the people taking power from the state and then the state taking power from the federal government.

I’m running for State Controller in California. I have no legislative ability to implement Trickle-up-Taxation. Even if I was a legislator do you think the state legislature would willfully give up power to the local government? No, it wouldn’t. But as Controller, I have full independent authority to audit any agency or program that spends state funds and thus I have full access to the state’s books. As Controller, I will also be an ex-officio member of the Franchise Tax Board and Board of Equalization and thus will have the ability to create the tax and government structure of Trickle-up-Taxation and then I can put my idea straight to the people on a ballot initiative. The people by themselves can amend the state’s constitution without the legislators. Thus I bypass the political machine of Sacramento and go straight to the people.

You see, I don’t need a host of like-minded politicians in the legislature. I just need to convince the people that it is in their best interest to keep more of their tax dollars locally and thus give the people more control to shape their community to meet their community’s needs.

The political machine in state government will not like this one bit, but if the people stripe power away from them, they are left with few options. If they try and take a more significant percentage of local tax dollars, then there will be immediate blowback from the voters, because the people will immediately see a cut in local services and programs.

What is the State to do?

Because of human depravity, the state government will want power because so much power has been stripped from them. Since money is bypassing the state and moving locally, the state will have only one place to take power from, and that is the federal government which they created. With Trickle-up-Taxation implemented on the state level, you have just created the incentive for states to go after the federal government.

How does the state do that? They do that via Article V Convention of States. The federal government might not like it, but they have no choice in the matter. They are powerless to stop the states.

The states in a desire to have more power now will solve multiple issues that will be faced with the Neutral Tax. The most obvious being will a judge rule that Neutral Tax is unconstitutional? Who knows, but if the original federal aspect of Trickle-up-Taxation, which is the same as the Neutral Tax is implemented via COS and a Constitutional Amendment is put in place stripping power from the federal government, then no legal issue exists.

The second problem with the Neutral Tax is, if the Neutral Tax is enacted on the federal level by Congress then Congress has the power to take it back. With a COS scenario that will be impossible.

So even though Trickle-up-Taxation and Neutral Tax are in essence the same, the fundamental difference is how and where to begin the implementation. I believe when we acknowledge the political realities and human nature we see that the only way to bring these tax plans and governmental restructuring to bare are through Trickle-up-Taxation. First, on the state level then we move on to the federal level.

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