The Real Tax Loophole

The Real Tax Loophole

Taxation Should Raise Revenue — Not Solve Society

We need to create a simpler approach to taxation — one based on revenue, with clear protections for labor and small businesses.

The principle behind that approach is this:

Taxation exists to raise revenue fairly and predictably — not to solve every social problem.

The Problem With Modern Tax Systems

Over time, the tax code has become a tool for almost everything:

• encouraging specific industries
• discouraging others
• redistributing income
• influencing behavior

Each of these goals may be valid on its own. But when they are all embedded in the tax system, the result is predictable:

complexity, inconsistency, and constant revision.

The system becomes difficult to understand, difficult to administer, and easy to manipulate. It requires specialists to navigate and invites continuous pressure for new exceptions.

At that point, the system is no longer stable. It is reactive.

A Simpler Principle

A well-designed tax system should do one thing well:

raise revenue in a way that is broad, predictable, and difficult to game.

Other policy goals — healthcare, education, inequality — are important. But they should be addressed directly, not embedded in a tax code that becomes increasingly fragile as a result.

When taxation is asked to do too much, it performs its core function poorly.

What This Looks Like in Practice

If the goal is simplicity and durability, the structure of the tax system matters more than the number of provisions within it.

In earlier work, I proposed a framework built on three elements:

a revenue-based tax, which captures economic activity directly

a standard deduction, which protects small and early-stage businesses

a labor deduction, which recognizes the role of employment in the economy

This approach is not designed to engineer outcomes. It is designed to create a system that is:

easy to understand

difficult to manipulate

aligned with how value is actually produced

It shifts the focus from accounting definitions of profit to observable economic activity.

Why Labor Matters

Most tax incentives are targeted. They favor specific industries, activities, or outcomes.

Employment is different.

Hiring isn’t a special case. It’s a universal one.

Every part of the economy depends on people, even as automation expands. A system that recognizes labor is not attempting to direct behavior — it is acknowledging a foundational input to production.

Protecting labor within the tax structure also protects the tax base itself. More employment supports income, consumption, and long-term revenue stability.

This is not social policy embedded in taxation. It is structural balance.

A System That Can Adapt

The economy is changing.

Automation and artificial intelligence are increasing the share of output produced with less labor. At the same time, traditional income-based taxation becomes less reliable as a primary source of revenue.

A system that relies solely on income will struggle in that environment.

A system that taxes output, while recognizing and protecting labor, is better positioned to adapt.

It does not depend on how production is organized. It captures value whether it is generated by people, machines, or some combination of both.

Accepting Imperfection

No tax system is perfect.

A simple system will not account for every edge case. It will not eliminate all incentives to optimize behavior.

That is a tradeoff.

But complexity creates its own problems — ones that are often larger than the issues it attempts to solve.

A system that is simple, stable, and broadly applied will outperform one that is precise but constantly evolving.

Addressing Non-Resident Property Ownership

One gap in a traditional income-based tax system is that it does not fully capture individuals who benefit from a city without reporting income there — particularly those who own second homes or investment properties.

This can be addressed simply and fairly.

Properties that serve as a primary residence would continue to be treated as they are today, with no change in tax treatment. Homeowners who live in the community full-time would not be affected.

Properties that are not a primary residence — such as second homes or investment properties — would be subject to a modest additional surcharge. This ensures that individuals who benefit from the city but do not contribute through local income taxes still make a reasonable contribution to maintaining the infrastructure and services they use.

The goal is not to penalize ownership, but to align contribution with usage. Those who live and work in the city contribute through income taxes. Those who do not, but still benefit from the city, contribute through the property they own.

This approach is simple, transparent, and consistent with the broader objective of creating a fair and balanced tax system.

While individual taxation can be simplified and property-based gaps addressed, the largest structural issue lies in how businesses are taxed.

The Bottom Line

The purpose of taxation is not to solve society.

It is to fund it.

The more we ask the tax system to do, the more complex it becomes — and the less effective it is at its core function.

A better approach is to start with a clear principle:

Raise revenue fairly. Keep the system simple. Let other policies do the rest.

That is how a tax system remains durable over time.

That is how it earns trust.

And that is how it continues to work as the economy changes.