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First let me say that I think both hocus' and JAFO's posts were excellent.

Hocus: You conclude that we agree 100% on the idea of citizens paying their own way as much as possible, and then when they cannot pay the government would step in to help them. This is great to have common ground. Now let me move on to how I view fair taxation.

I'm going to focus on education costs. The state I live in (NH) is having a tough time with this due to a coalition of towns suing the State, and winning via some bizarre constitutional interpretation by the State Supreme Court. Our old system was that each town charged their citizens a property tax to fund the local school district. This caused some amazing disparities in tax rates from town to town due to differences in: population density, proximity to vacation spots, industry levels, etc. The "solution" was for the state to decide to fund each town with X dollars per student and levy a state-wide property tax to generate the revenue needed.

Here's my take on the inherent unfairness of this method of school funding. I live in a condo-townhouse, the other owners in the development obviously have almost identical property values and therefore pay the same amount of property tax that I do. I have no kids, while my neighbor has two kids and makes more than I do, and he gets more deductions on his federal income taxes. It costs our town an average of $4600/student for education. I can guarantee you that my neighbor does not pay $9200 in property taxes.

Now, because I want to retire early, I try to reduce my expenses and save as much as I can. Unfortunately, I have to pay $3000 in property taxes (the majority of which goes to school funding) which means that I have to make some tough choices: should I fund my Roth IRA or take a vacation? Should I max out my 401(k) or should I replace my seven year-old car? My neighbor on the other hand, isn't concerned with saving for retirement and packs up his kids and goes to Disneyland every year. Here's what it boils down to: I indirectly fund part of his vacation and have to choose if I can afford to take my own! Since he doesn't have to pay for his own children's education, he has lots of discretionary income to play with.

There are many government services that are impractical to charge the end user directly for: police, fire, armed services, etc. On the other hand, there are many services that can be paid for by user fees: highway (toll booths and auto registration), water and sewer, and school. My town sends me a separate bill for my water and sewer usage, they don't compile all the citizen's usage into one big bill and then levy a town-wide property tax to pay for the service. Why should school be any different? After all, water is more important than school, you can live with out education, but without water you'll die.
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