With all the economic information thrown our way on an hourly basis, it makes you wonder where the hell our money is going. Think about it for a minute… we get taxed an average of 20% on our salaries every paycheck, pay property tax, pay sales tax, and only God knows whatever other kinds of taxes we pay. So why must this whole system be so damn complicated that we pay people to do our taxes for us? Could it be so that nobody understands it except for the people taxing us?
For the past 4 years all we’ve heard about is how several states and counties have run out of OUR money. We got to the point that our own Federal Government ran out of it themselves. As we all learned… it wasn’t the first time that this had happened. So how are supposed to trust a tax system that is either:
a) Not collecting enough tax for the job.
b) So convoluted that monies get… ahem… misplaced.
I believe that we have to simplify a system that is obviously not working and at the same time make sure we tax all of our country’s citizens. Now I am not an economic guru by any means, but I think that the Fair Tax is worth a serious look. See below and they read the pros and cons. Tell us what you think… maybe together, we can find a solution.
What is the Fair Tax?
From Geek Politics:
1. Pro: The fair tax is much easier to understand than the current convoluted tax income tax system. When an entire industry (tax accountants) has been created to understand paying taxes, there is a problem. The picture below is Representative John Linder holding the 132 page Fair Tax Act in contrast to over 60,000 pages of U.S. tax code.
2. Con: That industry would be completely destroyed, and many jobs in the IRS would be lost. There would still be jobs to work on taking in the money, but many less than what is needed currently.
3. Pro: Transparency. Transparency in government is always a good thing. With over 60,000 pages in the current tax code, most people have no idea what is in it. What happens is the people who have more money pay accountants to find loop holes that get them out of paying taxes. Poorer people can’t afford the accountant so they just end up paying the base rate. With the fair tax it is easy to see that everyone pays the same rate on the things they buy.
4. Con: The sales tax would have to be pretty high to stay revenue neutral, i.e. bring in the same revenue for government as the current system. The bill that is currently in Congress is at 30% and independent groups have said the number is probably closer to 34%. This is a pretty large amount of money added to each thing we buy. This is especially true when you think of big ticket items. A $20,000 car suddenly cost $26,000. For somebody who has been saving under the current tax code, this would be a hard hit.
5. Pro: With a national sales tax, there would no longer be a tax on investments. This would obviously be really great for the stock market. There would be a lot of money that would come in from the sidelines and help turn the markets around. It would also encourage venture capital to invest in entrepreneurs to help fuel the American dream. Many jobs could be created with this new influx of capital.
6: Con: Along the same lines as number 4, the large sales tax would discourage people from buying things. Our economy is very heavily dependent on consumers, and a large sales tax would probably make some people spend less on things, save more, and pay off debt. Now, personally I would take almost all of that as a pro. In the long term it would be a benefit, with more people out of debt they could really stimulate the economy as opposed to spending money they don’t have which got us into the current mess. However, in the short term reducing consumer spending could have some impact, and this is an argument anyone against the fair tax will probably give.
7: Pro: The fair tax would hopefully increase productivity in our country. Currently, we have an income tax that gets progressively more burdensome the more money you make. This reduces the incentive to work harder and be productive the higher you move up the ladder. Taxing consumption makes a lot more sense than taxing production.
8: Con: The fair tax increases entitlements. From Wikipedia:
Under the FairTax, family households of lawful U.S. residents would receive a “Family Consumption Allowance” (FCA) based on family size (regardless of income) that is equal to the estimated total FairTax paid on poverty level spending according to the poverty guidelines published by the U.S. Department of Health and Human Services … Opponents of the plan criticize this tax rebate due to its costs. Economists at the Beacon Hill Institute estimated the overall rebate cost to be $489 billion (assuming 100 percent participation). In addition, economist Bruce Bartlett has argued that the rebate would create a large opportunity for fraud, treats children disparately, and would constitute a welfare payment regardless of need.
9. Pro: A huge pro of the fair tax is it would significantly broaden the tax base. Illegal activity (such as selling drugs) that creates large amounts of income would now get taxed. Under the current system we just get lots of rich drug dealers. Under this system they now get taxed every time they buy something. Along the same lines, this would also tax illegal immigrants. This would go a long way towards solving the illegal immigration problem.
10. Con: Opponents of the fair tax claim it could create an underground economy of people trying to evade taxes. Under a sales tax, intermediate goods that are a part of production would not be taxed. This creates potential for businesses to claim something is an intermediate good when really it is the end product that should be taxed. This would however constitute evasion and the bookkeeping that would be mandated for businesses should prevent most of this.
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Good stuff
Thanks. I think at this point the system is broken and perhaps something radical needs to be implemented. People will freak if they get a 25-30% sales tax… but that’s the thing, it wouldn’t be called that, it would be the TAX period. I think the government should look into it further instead of condemning it.
“5. Pro: With a national sales tax, there would no longer be a tax on investments.”
Part of the tax disparity between rich and poor is that investments (which the wealthy seem to have a lot of) are currently taxed at a lower rate than regular income (which the rest of us have). Eliminating the capital gains tax altogether would just increase the gap. And while it wasn’t mentioned in the list, I’m guessing the Fair Tax Act wants to do away with the estate tax, which only applies to anything over $5 million, as well.
True. Never said the system was perfect but the current one is utterly a mess and the fact that we still continue with it seems a little bizarre, no? I believe that several elements of the Fair Tax are very valid and far more organized than the multitude of taxes we pay now.
Agreed that the tax code could definitely be pared down to something more manageable, but I don’t think a tax structure that charges college students and CEOs the same for necessities such as toilet paper and bread is the way to do it. And my spideysenses REALLY start tingling when I hear there’s a portion that translates to “oh, and we’re going to eliminate those taxes that only applied to the wealthy.”
Agreed that the tax code could definitely be pared down to something more manageable, but I don’t think a tax structure that charges college students and CEOs the same for necessities such as toilet paper and bread is the way to do it. And my spideysenses REALLY start tingling when I hear there’s a portion that translates to “oh, and we’re going to eliminate those taxes that only applied to the wealthy.”
Fairtax sounds great, but thats because frauds always do.
I offer 50,000 dollars — a legal binding offer — if anyone (including you) can show me even one page of Fairtax own “research” that proves it’s a retail sales tax that replaces all other fed taxes.
Just one page. That’s all, JUST ONE PAGE. My email is my book work at yahoo dot com, email me for a link. I have offered this 50K for nine months now, and Fairtax leaders, or you, can collect it, donate it to charity, I don’t care. But Fairtax leaders know their plan is a fraud. Google Fairtax fraud and see for youself, or email me.
We appreciate the comment and value people, like yourself, that have strong and valid opinions on any and all subjects we write about.
My point is really that our system (tax system) is really a convoluted mess. I’d rather look at options such as this and perhaps interject other ideas which might be more productive than continue with the mess we have created. Obviously any tax system in which half the people pay and all benefit seems unfair. Just a thought…
As for the $50K… if you are serious, I am sure I can find a crew to get on it! Thanks for the input Mark, we appreciate the feedback.
That #9- Pro is a laugh. This is according to Bruce Bartlett, Tax Analyst Report: Under the Fair Tax, every time you purchase a service, you would probably get 2 prices_ one you can pay with a check or credit card that includes the Fair Tax and one you can pay in cash and save 23%. Because there would no longer be any audits of income, since the IRS would have been abolished, tracing such tax evasion would be extremely difficult. That is how underground economies and illegal drug activities are going to run. Cash basis, no paper work, no money trace. Some Fair Tax, isn’t it.
Noted… now give me another option because it seems to me that this already happens even with the IRS in existence. Also the article does not state the IRS would be abolished. It mentions that a con would be that several jobs would be cut… so the ‘no paperwork, no money trace’ you are talking about is a fallacy. Thank you for your comment.