Let’s try FairTax, flat tax

The Joplin Globe ^ | 2/9/06 | Editorial Staff

[Eaglewatcher]

Interest in the flat tax has been elbowed aside on Capitol Hill in favor of the FairTax concept, which is a progressive national sales tax that not only would replace the federal income tax but also could put an end to Social Security payroll taxes. Either would be an excellent replacement for the paperwork-heavy, cumbersome U.S. Tax Code.

The advantage of the FairTax is, of course, that it is fair and simple. Only those spending $250,000 or more would pay the highest rate. Other rates would reflect spending levels, and a rebate mechanism would get money back to the poor. And, if the House and Senate get antsy about potential backlash, they could exempt taxes on food and medicines. The big plus for Uncle Sam is that the FairTax is viewed as conducive to revenue growth. Unfortunately, politicians love the complex and overwhelming U.S. Tax Code because it provides them with ways to tinker with taxes for social engineering or dispensing corporate welfare.

And so, despite a growing number of people calling for a major overhaul of the tax system, Americans once more will have to deal in April with the voluminous code.

When the 16th Amendment established the federal income tax in 1913, the code was only a couple of pages long and the rate was a flat 1 percent.

Now fast forward to today. The code contains more than 3.4 million words. According to Tax Code On-Line, 7,500 letter-size pages would be needed if the code were printed 60 lines to a page. Furthermore, interpretations of the code can vary from Internal Revenue Service office to office. It has been estimated that the nation’s gross national product would increase by 10.5 percent in the first year of the FairTax. “By removing the embedded cost of the income-tax system,” says Tom Wright, executive director of FairTax.org, American-made goods would be more affordable at home and competitive abroad.

A predictable result would be the return of more U.S. jobs from overseas. Congress has a full plate with the war in Iraq, the threat of terrorism, Medicare and Social Security and sundry other issues. But the FairTax — and, for that matter, the flat tax — should not get lost in the Capitol Hill shuffle.

[Eaglewatcher]

This one should boil the pot! Someone suggesting that the FairTax is actually leading the reform race.

[Fiddlstix]

BTTT

[ops33]

I would support this ONLY if it had a provision for repeal of the 16th Ammendment. Without the repeal of that ammendment there would be nothing stopping Congress from reimposing some form of income tax in the future.

[ccmay]

Only those spending $250,000 or more would pay the highest rate.

I don't see how this can work. Will people be asked at the cash register what rate they have to pay?

-ccm

[Always Right]

This one should boil the pot!

Wow, Joplin, MO! A town of 40K people. What next, a high school paper?

[lewislynn]

I would support this ONLY if it had a provision for repeal of the 16th Ammendment.

It doesn't...

[lewislynn]

“By removing the embedded cost of the income-tax system,” says Tom Wright, executive director of FairTax.org, American-made goods would be more affordable at home and competitive abroad.

Well, "more affordable" untill you add the 30% tax.

Competitive abroad because WE pay the 30% tax not the foreign purchaser...IOW American taxpayers/consumers subsidizing foreigner's purchases.

[K-oneTexas]

I don't think you can legally repeal a constitutional amendment by a vote of Congress. The FairTax calls for the repeal of the 16th Amendment. Which is proposed and voted on in Congress and then placed on the ballot for the people to vote on it.

Without the repeal of the 16th Amendment we would have both the FairTax (a consumption based tax) and the current Federal Income Tax (as it says based on income). That might please politicians, to have both, but not the average 'Joe Six-Pack' and I think there is more of him than politicians.

[lewislynn]

The FairTax calls for the repeal of the 16th Amendment

Where? At the AFFT site?

[jess35]

Google is your friend. ;)

[K-oneTexas]

The text of the legislation is below. SHoud you prefer to read it: http://thomas.loc.gov/cgi-bin/thomas.

TITLE I--REPEAL OF THE INCOME TAX, PAYROLL TAXES, AND ESTATE AND GIFT TAXES

SEC. 101. INCOME TAXES REPEALED.

Subtitle A of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes) is repealed.

SEC. 102. PAYROLL TAXES REPEALED.

(a) In General- Subtitle C of the Internal Revenue Code of 1986 (relating to payroll taxes and withholding of income taxes) is repealed.

(b) Funding of Social Security- For funding of the Social Security Trust Funds from general revenue, see section 201 of the Social Security Act (42 U.S.C. 401).

SEC. 103. ESTATE AND GIFT TAXES REPEALED.

Subtitle B of the Internal Revenue Code of 1986 (relating to estate and gift taxes) is repealed.

SEC. 104. CONFORMING AMENDMENTS; EFFECTIVE DATE.

(a) Conforming Amendments- The Internal Revenue Code of 1986 is amended--

(1) by striking subtitle H (relating to financing of Presidential election campaigns), and

(2) by redesignating--

(A) subtitle D (relating to miscellaneous excise taxes) as subtitle B,

(B) subtitle E (relating to alcohol, tobacco, and certain other excise taxes) as subtitle C,

(C) subtitle F (relating to procedure and administration) as subtitle D,

(D) subtitle G (relating to the Joint Committee on Taxation) as subtitle E,

(E) subtitle I (relating to the Trust Fund Code) as subtitle F,

(F) subtitle J (relating to coal industry health benefits) as subtitle G, and

(G) subtitle K (relating to group health plan portability, access, and renewability requirements) as subtitle H.

(b) Redesignation of 1986 Code-

(1) IN GENERAL- The Internal Revenue Code of 1986 enacted on October 22, 1986, as heretofore, hereby, or hereafter amended, may be cited as the `Internal Revenue Code of 2005'.

(2) REFERENCES IN LAWS, ETC- Except when inappropriate, any reference in any law, Executive order, or other document--

(A) to the Internal Revenue Code of 1986 shall include a reference to the Internal Revenue Code of 2005, and

(B) to the Internal Revenue Code of 2005 shall include a reference to the provisions of law formerly known as the Internal Revenue Code of 1986.

(c) Additional Amendments- For additional conforming amendments, see section 202 of this Act.

(d) Effective Date- Except as otherwise provided in this Act, the amendments made by this Act shall take effect on January 1, 2007.


Of course it would take an actual constitutional amendment voted on by the people to repeal the 16th Amendment. But the bill (HR 25) provides for it. Congress would have to pass the actual repeal amendment and pass it to the voters.

Interstingly enough the chance exists to actually do this. Conversely the Presidents illustrious commission came back with the same tried and true patchwork and hodge-podge we've had for decades.

Voters need to "bash" their elected representatives and senators constantly and consistantly to make the change. Not a flat tax and not a national sales tax. The flat tax will never be flat and the sales tax will only cause state and local governments to get into a bidding (or should I say pi**ing) war over rates.

[K-oneTexas]

Thanks to "Bigun" on 10/31/2005.

A Comparison of FairTax^SM, Income Tax, and Flat Tax

January 2003	FairTax, H.R. 25 Linder-Peterson	Federal Income Tax Pre-2001 Law	Armey Flat Tax H.R. 1040
16th Amendment	Proposes repeal.	No change.	No change.
Complexity	Individuals do not file. Businesses need only to deal with sales tax returns.	Very complex; 20,000 pages of regulations; I.R.S. incorrect over half of the time.	Withholding continues. Individuals and businesses must still track income and file income tax forms.
Home Business	Must record all business expenses and is subject to IRS audit? NO!	Must record all business expenses and is subject to IRS audit? YES!	Must record all business expenses and is subject to IRS audit? YES!
Congressional Action	23% Linder/Peterson Fair Tax Act of 2003 (H.R. 25). Employees receive 100% of pay. Social Security and Medicare funded from consumption tax revenue, not your paycheck. (H.J.Res61) - Will repeal the 16th Amendment.	Used by lobbyists and the wealthy for tax-breaks and loopholes. Used by bureaucrats for social engineering.	Rep. Armey’s H.R. 1040 has some problems, but is superior to current law.
Cost of Filing	No personal forms are filed. Significant cost savings.	$225 billion in annual compliance costs. 1	Simplified. ­ costs are somewhat reduced.
Economy	Un-taxes wages, savings, and investment. Increases productivity. Produces significant economic growth.	Taxes savings, labor, investment, and productivity multiple times.	Imposes a tax burden some of which is still hidden in the price of goods and services.
Equality	Taxpayers pay the same rate and control their liability. Tax paid depends on life style. All taxes are rebated on spending up to the poverty level.	Current tax code violates principle of equality. Special rates for special circumstances violate original Constitution and are unfair.	The flat tax is an improvement over the current income tax, but it is still open to manipulation by special interests.
Foreign Companies	Foreign companies are forced to compete on even terms with U.S. companies for the first time in over 80 years.	Current tax code places unfair tax burden on U.S. exports and fails to neutralize tax advantages for imports.	Taxes U.S. exported goods, but not foreign imports to the U.S., creating unfair competition for U.S. manufacturers and businesses.
Government Intrusion	As the Founding Fathers intended, the FairTax does not directly tax individuals.	Current tax code requires massive files, dossiers, audits, and collection activities.	A flat tax still requires personal files, dossiers, audits, and collection activities.
History	45 states now use a retail sales tax.	The 1913 income tax has evolved into an antiquated, unenforceable morass, with annual tax returns long enough to circle Earth 28 times.	A flat tax just won’t stay flat. Starting out nearly flat in 1913, the income tax grew out of control with top rates over 90% until Kennedy administration.
Interest Rates	Reduces rates by an estimated 25-35 percent. Savings and investment increase.	Pushes rates up. Biased against savings and investment.	Reduces rates 25-35 percent. Neutral toward savings and investment.
Investment	Increases investment by U.S. citizens, attracts foreign investment.	Biased against savings and investment.	Neutral toward savings and investment.
IRS	Abolished!	Retained.	Retained. Reduced role.
Jobs	Makes U.S. manufacturers more competitive against overseas companies. Escalates creation of jobs by attracting foreign investment and reducing tax bias against savings and investment.	Hurts U.S. companies and decreases available jobs. Payroll tax a direct tax on labor.	Positive impact on jobs. Does not repeal payroll tax on jobs.
Man-hours required for compliance	Zero hours for individuals. Greatly reduced hours for businesses.	Over 5.4 billion hours per year.	Reduced.
Non-filers	Reduced tax rates and fewer filers will increase compliance.	High tax rates, unfairness and high complexity harm compliance	Reduced tax rates and improved simplicity will improve compliance.
Personal and Corporate Income Taxes	Both are abolished.	Retained.	Retained in a different form.
Productivity	Increases.	Inhibits productivity.	Increases.
Savings	Increases savings.	Decreases savings.	Increases savings.
Visibility	The FairTax is highly visible and easy to understand. No tax is withheld from paychecks.	The current tax code is hidden, embedded in prices, complex, and incomprehensible. Taxes are withheld from paychecks.	Business component of flat tax and payroll taxes are hidden. Would be embedded in prices. Taxes withheld from paychecks.

[1] Testimony by the Arthur Hall, Tax Foundation and before the House Ways and Means Committee, 1998.

[slowhandluke]

I don't see how this can work. Will people be asked at the cash register what rate they have to pay?

That's where the bait-and-switch comes in. The government gives everybody some amount of money each year as a standard tax credit, sort of like a guaranteed income. At some point, they'll want to make this based on need (i.e. income), and so we'll be back to having to file 1040 forms again.

Any tax that has income-redistribution effects, will eventually require a form 1040, and will become as onerous as our current system. That is just the nature of politicians and income redistribution.

[arthurus]

I have not read teribly much about the Fair Tax and comment based on what it says in this post.

The concept of differing tax rates for different classes of citizens would surely render this tax quite as odious as the current income tax and will be the engine that builds a bureaucracy every bit as large, complicated, and arbitrary as what we have already and gives the Congress a wonderful playground for jiggering the rates and making exemptions and rebates. The rebates will be manipulated and jiggered and will gradually be"reformed" so that the poor, difined at every rising income levels, will be removed from the tax rolls, just as now, and become a necessary constituency for tax and spendding increases as they will see no adverse tax effect on themselves.

In 5 years if we get this "Fair Tax" the current proponents, assuming they are all conservatives, will be wailing and gnashing their teeth about how "they didn't do it right."

[Jack Black]

Fair Tax replacing Social Security tax is just more stealing from the successful, as is indexing, two level inflation adjustments and taxing benefits.

I oppose them all.

The only FAIR solution to social security it to have strict individual accounts. No need to wallow into the swamp of the stock market, which only gives the Socialists ammunition to snipe at us.

Nope. Just take the individual contributions, add in the employer match, credit interest at the T-bill rate in effect at the time and compound as appropriate. This becomes your personal account, which can be converted to an annuity at any age, or moved to an IRA at age 60.

Under the socialist Fair Tax scheme above I guess we are one giant step closer to "from each according to his ability (spending), to each according to his need (age)"

Ugly. Very ugly. It's little twists like this that make me wonder about both the real motives and real effects of this proposal.

[lewislynn]

Of course it would take an actual constitutional amendment voted on by the people to repeal the 16th Amendment.

Really? You sure that's how it works?

But the bill (HR 25) provides for it.

Then why didn't you show the part(s) from HR25 that provides for it?

[K-oneTexas]

If it didn't take an amendment to repeal any DEMOCRAT Congress could repel the Executive and Judicial branch. Pretty sure it takes a constitutional amendment, yes. And the bill calls for repeal.

I printed in Comment #11 the text of the bill reflecting that also.

[lewislynn]

If it didn't take an amendment to repeal any DEMOCRAT Congress could repel the Executive and Judicial branch. Pretty sure it takes a constitutional amendment, yes. And the bill calls for repeal.

I meant are you sure it requires a vote by the people to amend the Constitution? It doesn't.

The bill says it (the 16th) "should be repealed" I wouldn't call "should be" very compelling language for a bill expecting to replace the income tax...You do, I don't.

[K-oneTexas]

Let's see. Was not the 18th Amendment repealed by the 21st Amendment and not by an act of Congress. Back in 1995-1996 (104th Congress) there was an attempt to repeal the 16th Amendment (Income Tax); eleven times it has been tried to repeal the 22nd Amendment (Presidential Term Limit) - all in all not an easy process.

However I wonder if a majority of both Houses of Congress voted for and passed the FairTax knowing full well if "recommended" repeal of the 16th Amendment and then did not turn around and vote to create the constitutional amendment repeal it and send it to the voters - where would they stand in the eyes of the voters (their constituents).

Such a bill, to repeal the 16th Amendment (HJR 45) has been put up by Rep. Paul of Texas.

Also, Section 401 of HR 25 gives the states the authority to collect the tax. Therefore the IRS isn't needed any longer. Now, what do anyone think would happen if the Congress passed the FairTax allowing the states to collect the tax and send Washington its portion and didn't create the constitutional amendment to repeal the income tax. What is the IRS going to collect. Provision of IRS Code for income tax is gone (Title 1, Section 101). What do you do when the IRS knocks on your door with the full knowledge that your duly elected officials kept a "shadow tax agency" in place for what purpose - theirs?

I'm not a lawyer, let alone a constitutional lawyer. But in reading the words as printed leads me to come to certain conclusion using some common sense. Spending 27 years in state and local tax law as an accountant and an auditor dealing with statutes, rules and court decisions lead me in the way I read all tax law. If Congress allowed by scenario to occur I believe another 'revolution' would occur to free a citizenry from oppressive taxation. Humm, I think we've been here before.

The alternative is do nothing and tweak again and again and again what we already have.

All this is just my take and my read and my opinion - that and 60 cents or more today will get you a cup of coffee. Excuse me, Starbucks maybe $3 or $4. I just know we have to make a change and we have to ensure our elected representatives know that.

[K-oneTexas]

The FairTax bill actually repeals portions of the IRS Code. Those portions of the bill are 'SEC. 101. INCOME TAXES REPEALED'; 'SEC. 102. PAYROLL TAXES REPEALED' and 'SEC. 103. ESTATE AND GIFT TAXES REPEALED'.

So IRS Code somewhat gutted or emasculated or whatever you want to call it. Now you must turn your attention to the major offended - the underlying 16th Amendment that authorizes and defines the income tax.

A two step process. Simple even for a politician if his constituents put the fear of losing his/her job in them.