Let me tell you how it will be; there's one for you, nineteen for me.'Cause I’m the taxman, Yeah, I’m the taxman.If you drive a car, I’ll tax the street;… if you try to sit, I’ll tax your seat; if you get too cold, I’ll tax the heat;if you take a walk, I'll tax your feet. … And you're working for no one but me. —The Beatles
I received a check the other day from a client who paid for some graphics that I had produced the previous month. The check wasn’t large, but my wife was quick to tell me to make sure that I put a third of the money away for taxes.
Almost everyone complains about taxes. And everyone looks for ways to pay less of them. Taxes are one of only two things, we are told, that are inevitable. State and federal governments run on them and, since neither state nor federal governments have the ability to control spending, they keep increasing.
The Bible contains approximately 1,291 pages and contains 774,746 words. But the Tax Code represents over 9,400 pages and over 7 million words. The code’s accompanying regulations contain a staggering two-and-a-half million pages.
Entire industries have been created to prepare tax returns. Law firms make a handsome living interpreting the tax code and looking for loopholes so that their clients pay fewer taxes.
The Internal Revenue Service (IRS) has about 93,000 employees. They range from attorneys, return processors, officers who enforce tax laws, people who oversee operations, and many other positions.
The IRS can levy fines and penalties, interest on unpaid and late taxes, and can prosecute tax cheats. They can freeze checking and savings accounts. It is the only government agency that can levy fines and seize property without due process.
One would think that there has to be a better and more efficient way to collect taxes, one that is reasonable and fair to the American citizens who are over taxed. Actually there are two viable plans that have been considered: The flat tax and the fair tax.
The flat tax idea proposes a single flat rate that all taxpayers pay on their taxable income. Efficiency is probably the most compelling reason for a flat tax. Under the flat tax every person with an income prepares a simple post-card sized form. Each person would calculate their income for a year and pay the IRS a flat tax, depending on income levels, of anywhere from 17% to 25% on those earnings. Those Americans whose earnings are below a set amount would pay no tax. A flat-tax system will dramatically reduce the time required for tax preparation.
The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with a progressive national retail sales tax of approximately 23%.
The FairTax Act (HR 25 & S 296) abolishes all federal personal and corporate income taxes, gift, estate, inheritance, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes. It will be administered primarily by existing state sales tax authorities. It taxes us only on what we choose to spend on new goods or services, not on what we earn. It is fair, efficient, and transparent.
With a national sales tax, the under culture of black marketeers, drug dealers, and nefarious types who pay little or no income tax will be required to pay their share. They purchase goods and services just as everyone else does.
In addition, the FairTax collects more revenue from the wealthiest Americans than it does the middle or poor classes. For example, I am not wealthy, but I’d like to purchase a fishing boat. I can only afford a small open boat with a small motor. I’d pay a FairTax proportionate to the size of my purchase. But if a wealthy person buys a big sailboat or a yacht, he would pay tax on that sizeable purchase. If I choose to purchase a used boat, there would be no tax because the tax had already been paid when the boat was bought new.
Would the cost of goods or services rise because of the FariTax? The answer is no. They would go down. That’s because FICA contributions, capitol gains, and other corporate taxes, which are passed on to the consumer, are eliminated. That would essentially reduce the cost of manufactured goods.
Best of all, the FairTax eliminates the IRS.
Next time we will discuss how the desperately poor will fare under the FairTax.
Comments
The Flat Tax is not a viable alternative because it is an "Income Tax". The government defines "income" and you must report all your income which means more forms and we are back where we started, and it does not eliminate all the other federal taxes we still would have to pay. The FairTax is the way to go. It eliminates all federal taxes, reduces the cost of products and stimulates the economy because people will have more to spend.
The Fairtax scheme is any thing but fair! And, while business costs may go down somewhat, retail prices will rise significantly. People will need to have more to spend in order to pay the higher prices. What many folks don't understand is that the 1998 Jorgenson embedded cost of the income tax study included employee income tax and payroll contribution amounts in the 22% embedded costs. Unless one believes that those employee dollars will go to the employer, then business costs can only go down an estimated 10%, and retail after tax prices will rise by 17%.
There is no free lunch!!!
Liberals who absolutely love a graduated income tax that punishes the "rich" are constantly providing misinformation about the Fair Tax. Liberal economist Dale Jorgenson is in the minority. Laurence Kotlikoff, economics department chairman at Boston University and coauthor of The Coming Generational Storm strongly supports the Fair Tax along with 75 other well known economists and over 100 members of the House of Representatives. The reality is that not only will the cost of goods go down, but the increase in spendable income added to every American's paycheck will create a boom economy the likes of which haven't been seen since the Reagan tax cuts.
According to the Hartland INstitute, "Calculations conducted by several nationally known economists conclude the Fair Tax package would eliminate tax costs currently hidden in retail prices, taxes that represent 22 to 25 percent of the cost of retail goods." It appears that Van Gleson has his stats wrong.
My stats aren't wrong unless you believe that your income tax and payroll contributions (FICA) would be removed from your gross pay and used by employers to reduce their costs. In other words, a gross pay reduction. You can't claim that everyone would receive 100% of their gross pay and retail prices will go down! For fairness and contractual reasons, your gross pay is yours! But, that means that only business income tax costs would disappear under the Fairtax. So, how much is that?
Using 2007 estimated federal tax revenue data, with retail sales of $9.5 trillion, business income taxes were $291 billion or 3% of sales, business share of FICA was $435 billion or 4.5%, and business compliance costs were $265 billion, (according to Boortz), or 2.5%. Add them up and business costs could be lowered by 10% on average, and when the 30% sales tax is added, retail prices would increase by 17%. (1.00 x .9 x 1.30 = 1.17)
So, prices will rise, but so will your takehome pay. It's a wash!
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