What is the Deal with Income Taxes?

OpinionEditiorials.com ^ | February 23, 2004 | Jan Larson

[ancient_geezer]

What is the Deal with Income Taxes?
February 23, 2004
Jan Larson

I filed my wife’s and my federal income tax return last week. Despite using a well-known brand of tax preparation software, I spent several hours on each of three separate occasions gathering information, entering it into the program and checking for completeness and accuracy.

Our return is not complicated at least not compared to some in our age bracket. We both received W-2 forms from our employers, we have bank and brokerage accounts that generate taxable income and we paid property taxes on our home, mortgage interest and had some charitable contributions that produce deductions.

When I printed our return and the supporting worksheets, I ended up with 65 pages.

This is, of course, ridiculous. But even 65 pages of documentation for our tax return pales in comparison with the number of pages in the U. S. tax code [1]. The tax code is overwhelmingly complicated. It is so complicated that tax evasion is common and even conscientious taxpayers often fail to accurately complete their returns. It is estimated that the costs to taxpayers of tax compliance is over $200 billion.

One would think there must be a better way for the government to collect taxes. There is a better way. It is called the Fair Tax.

The proposed Fair Tax is a national consumption or sales tax. Under the Fair Tax proposal, workers would keep 100% of their paycheck – no more payroll tax or federal withholding. Each person would be taxed when they buy goods or services, much the way state and local sales taxes work today.

The Fair Tax website [2] offers some points to consider with respect to the Fair Tax:

* Hidden income taxes increase the cost of goods and services by an estimated 20 to 30%.
* The current tax on income acts as a disincentive to work, save and invest.
* The payroll tax is the most regressive and unfair aspect of our current tax system and hurts those at the bottom of the economic ladder the most.
* The complexity of the tax code invites manipulation.

The advantages of the Fair Tax are considerable:

* Eliminates taxation of income, leaving all workers with 100% of their paychecks.
* Eliminates tax filing for most individuals.
* Eliminates “hidden” taxation. All buyers of goods and services know exactly what they’ve paid in taxes.
* Is revenue neutral.
* Promotes economic growth by freeing up resources currently dedicated to tax compliance.
* Virtually ensures tax compliance, slashing government enforcement costs.

This proposal sounds too good to be true. Unfortunately, it is, at least without considerable citizen support for change.

Only the most naïve believe that the Internal Revenue Service and the tax code exist solely for the purpose of collecting revenue. The tax code is one of the most useful tools for members of Congress to hand out favors to special interests.

The nature of the payroll tax and federal withholding also works in the favor of the tax collectors, not the taxpayers. Most taxpayers are happy to get a refund in April. Many do not fully grasp the magnitude of the amount of money that has been extracted from their earnings throughout the year.

Not to be forgotten when considering a rewrite of the tax code are those that directly benefit from the complexity of the current tax code – tax accountants, the entire tax preparation industry and the IRS itself. A lot of people would be adversely affected should the IRS be abolished and tax compliance become automatic. To be sure, these groups would not take tax reform lying down.

The U. S. tax code is much like an elephant in one’s living room. There are those that realize the elephant eats a lot and creates a mess, but there are others that consider the elephant to be nothing more than a member of the family.

Only Congress can change the tax code. It is time they did so – for the good of America and all Americans that suffer under the current oppressive tax system. Write your Representatives and Senators and express your support for the Fair Tax. Visit the Fair Tax website to learn more.



[1] http://www.fourmilab.ch/ustax/www/contents.html
[2] http://www.fairtax.org

###

Jan A. Larson is currently employed in private industry in Texas. He is a staunch supporter of honesty in government, fiscal conservatism and equal opportunity for all. He holds a bachelor of science degree from the University of Nebraska, a master of science degree from the University of Kansas and an MBA from Colorado State University.

[ancient_geezer]

The U. S. tax code is much like an elephant in one’s living room. There are those that realize the elephant eats a lot and creates a mess, but there are others that consider the elephant to be nothing more than a member of the family.

The question becomes, which kind of Congress Critter, is yours?

Time to find out don't you think?

FairTax - Congressional Score Card

[ancient_geezer]

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

[Kerberos]

Tell me about it. I am managing a tax office this year and it is an eye opening experience to have a front row seat. It is also quit an experience in actually seeing how the government penalizes those that our successful in our society, and rewards those that contribute nothing.

Particularly in the realm of the EIC credit (Earned Income Credit), but I will save that for another thread when I have more time.

[ancient_geezer]

It is also quit an experience in actually seeing how the government penalizes those that our successful in our society, and rewards those that contribute nothing.

Founders had the fix for it:

Patrick Henry, Virginia Ratifying Convention June 12, 1788:

• "the oppression arising from taxation, is not from the amount but, from the mode -- a thorough acquaintance with the condition of the people, is necessary to a just distribution of taxes. The whole wisdom of the science of Government, with respect to taxation, consists in selecting the mode of collection which will best accommodate to the convenience of the people."

[Montesquieu wrote in Spirit of the Laws, XIII,c.14:]

• "A capitation is more natural to slavery; a duty on merchandise is more natural to liberty, by reason it has not so direct a relation to the person."
  --Thomas Jefferson: copied into his Commonplace Book.

Federalist Papers #21:

"Imposts, excises, and, in general, all duties upon articles of consumption, may be compared to a fluid, which will, in time, find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. "

and in the same Federalist Paper he also noted:

"It is a signal advantage of taxes on articles of consumption
that they contain in their own nature a security against excess.

They prescribe their own limit, which cannot be exceeded without
defeating the end proposed - that is, an extension of the revenue.

When applied to this object, the saying is as just as it is witty
that, "in political arithmetic, two and two do not always make four."

If duties are too high, they lessen the consumption; the collection
is eluded; and the product to the treasury is not so great as when
they are confined within proper and moderate bounds.

This forms a complete barrier against any material oppression of the
citizens by taxes of this class, and is itself a natural limitation of
the power of imposing them.

Impositions of this kind usually fall under the denomination of indirect
taxes, and must for a long time constitute the chief part of the revenue
raised in this country." (Emphasis added).

 

---

 

But what would old dead white guys know.

Thomas Hobbes from Leviathan

• It is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income

[IronKros]

What would be the incentive for buying a house? Would they not add the tax to the cost of the house?

[IronKros]

The government would send out a check every month to every american household? Am I reading this right?

Perhaps most importantly, to ensure that no American will pay tax on necessities, the FairTax plan provides a prepaid, monthly rebate for every registered household to cover the 23% consumption tax spent on necessities up to the federal poverty level. This is how the FairTax completely untaxes the poor, and lowers the tax burden on everyone else. Can you see how much freer life will be with the FairTax instead of the income tax?

[NC28203]

Prices of houses would probably drop considerably under most consumption tax plans. The combination of the tax at purchase with the removal of the mortgage interest deduction would negatively effect the amount that someone would be willing to pay for a piece of property. Given that the home is a major asset for many households, a drop in the value of that asset would lead many people to oppose such a plan despite all of the other benefits that it may provide.

[pogo101]

I agree with the post's notion of replacing most income taxes, and hence the need to file returns, with a comprehensive consumption tax. The tricky part is this: liberals will try to sabotage any such effort such that we would soon end up with ADDED taxes instead of REPLACED ones.

[kevkrom]

What would be the incentive for buying a house? Would they not add the tax to the cost of the house?

Anything previously taxed would not be taxed again, so all property would be exempt from sales taxes. New (never-taxed) improvements to property such as houses would be taxable.

However, there's a (common) fallacy about "adding" the tax to the cost of the house. You already pay taxes when you buy that house, they're just invisibly layered into the price of the materials and labor. The NRST would likely be roughly price-neutral, as 20+% of the cost of goods and services, on average, represent the tax burden in the good or service.

[kevkrom]

The government would send out a check every month to every american household? Am I reading this right?

Yes. For any household who wishes to receive it (restrctions: must be US citizens not currently incarcerated), a "rebate" of the amount of taxes paid on poverty-line spending (set amounts per adult and per child) is sent so as to elimintae regressiveness and to exempt subsistence ("necesity") spending from taxation on the assumption that the right to life, et. al., should be free from taxes. There is no requirement to file for the rebate, and the filing only requires roughly the same information required to register to vote.

[ancient_geezer]

What would be the incentive for buying a house?

First: You are no longer paying income or payroll taxes. You have you full gross pay from which to finance a home. Interest on loans are not taxed.

Second: older homes are grandfathered, NRST is only assessed on initial retail sale. The rule the NRST is explicitly based on is that once the tax is paid it will not be taxed again to prevent cascading taxes and VATs. Tax once but only once.

Third: the cost of materials in a new home would decline approximately 22% do to repeal of business taxes (income & payroll) and consequent removal of costs of tax compliance.

Fourth; each household will receive a monthly consumption allowence equal to the taxes paid on the povertyline of consumption, taking the place of personal exemption, standard deduction, and tax credits of the income/payroll tax system.

Fifth: if you purchase as an investment, rental etc. No NRST is assessed, for rentals the NRST is collected from the renter, for business purpose the NRST is collected from the final consumer of the products of business at the retail register.

refer also : Homebuilder and Home Mortgage

 

How much more incentive is necessary?

[ancient_geezer]

The government would send out a check every month to every american household? Am I reading this right?

Yes:

 

All legal residents will receive a FCA equivalent to the FairTax paid on essential goods and services. The FCA will be paid in advance, in equal installments each month. The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate.

Every year, the Department of Health and Human Services [HHS] determine the "poverty level" for each family size.

The 2001 "FairTax" Family Consumption Allowance Figures
Family Size	HHS Poverty Level	Annual FCA	Monthly FCA
One	$8,590	$1,976	$165
Two	$17,180	$3,951	$329
Three	$20,200	$4,646	$387
Four	$23,220	$5,341	$445
Five	$26,240	$6,035	$503
Six	$29,260	$6,730	$561
Seven	$32,280	$7,424	$619
Eight	$35,300	$8,119	$677

1) Federal Register: February 16, 2001, Pages 10695-10697).

[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer

A family of four, for example, could spend $23,220 per year free of tax because they will have received over the course of the year rebates totaling $5,341. $5,341 is the amount of sales tax paid on $23,220 in expenditures. A family spending double the "poverty level" or $46,440 per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.

The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.

[71] To illustrate the plan's progressive nature we can examine the tax burden that a family of four will have at various annual income levels (or in this case, annual spending levels).

H.R.2525 "The FairTax Act

Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their paycheck:

Fedup Smith makes $39K per year...once the FairTax is the law of the land he will receive an instant increase in pay of $200.00 per week. Since he has a family of four, he will receive a FCA of $445 per month, for a total of $1,305.00 additional income per month that he can do with as he sees fit

[ancient_geezer]

The tricky part is this: liberals will try to sabotage any such effort such that we would soon end up with ADDED taxes instead of REPLACED ones.

The legislation expressly repeals all federal income, payroll, and estate/gift taxes.

Any other proposal is not HR25.

H.R.25
SPONSOR: Rep Linder, John (introduced 01/7/2003)
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.

Finally, they are attempting to do that now through many mechanisms, and there is nothing really standing in there way. On enactment of HR25, they would have the burden of getting passed a conservative filibuster, as well as faite accompli of the taxes having been repealed and the electorate fully aware of the advantages to themselves in maintaining the NRST.

Finally, once the NRST is enacted, it becomes possible to repeal the 16th amendment and expressly prohibit future income taxes as called for in HR25. With an NRST making income taxes obsolete:

H.J.RES.61
Title: Proposing an amendment to the Constitution of the United States to abolish the Federal income tax.
Sponsor: Rep Johnson, Sam [TX-3] (introduced 6/24/2003)      Cosponsors: 5
Latest Major Action: 9/4/2003 Referred to House subcommittee. Status: Referred to the Subcommittee on the Constitution

will achieve ratification.

[ancient_geezer]

I agree with the post's notion of replacing most income taxes

The NRST replaces all federal income taxes.

[ancient_geezer]

The combination of the tax at purchase with the removal of the mortgage interest deduction would negatively effect the amount that someone would be willing to pay for a piece of property.

Mortgage deduction just means no tax on interest, exactly the same as under the NRST. Interest paid or as income in not taxed.

With more money in the consumers pockets, and lower tax related costs to the homebuilder and the homeowner. This scenario is hardly of concern. The net effect is greater wealth for homeowner, buyer and builder.

As always the market will decide the ultimate selling price of a home. It is how much you can keep out of that price as a seller that counts toward you wealth.

There is no tax on your income from that sale of your home nor an NRST to be applied. The NRST is only levied on newbuilt homes, not older homes of which your reply is concerned.

[WhiteGuy]

YOU LIAR!!!!

You're still working?

Not very "ANCIENT" if you ask me.

(You still might be a geezer though........)

FAIRTAX BUMP

[WhiteGuy]

OOOps.....

I thought you were the author.............

My bad.

(Maybe you are ancient after all.................)

[ancient_geezer]

Hehe, I just postem, I don't write em.

If I worked? How do you think I come up with all the time to have fun on FR????

[WhiteGuy]

HA!

Good point.

and, continued good work on the NRST cause!

[ancient_geezer]

However, that does beg the question as to how you find all that time ;O) LOL