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It’s time to simplify the federal tax code
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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.
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