Posted on 02/20/2006 3:30:35 PM PST by Bigun
Written by Jan Larson
Sunday, February 19, 2006
The Internal Revenue Service reported [1] last week that $345 billion (not a misprint) in taxes owed for 2001 has not been collected. Not to worry, the report also indicates that IRS enforcement efforts will recover approximately $55 billion of this “tax gap.” Bully for the IRS.
Even if the IRS is successful in recovering the amounts they seek, there is simply no way that a $290 billion shortfall can be justified regardless of how it is spun. There are several reasons why taxes rightfully owed are not collected. Many taxpayers underreport income and/or claim undeserved deductions. In other words, a lot of people cheat on their taxes. Is anyone surprised?
Another factor that significantly affects tax compliance is the complexity of the tax code. According to a report [2] from the Americans For Fair Taxation [3], the federal tax code, rules and IRS rulings comprise more than 60,000 pages. While complexity undoubtedly leads to some paying more than they rightfully owe, that complexity also results in billions in unpaid taxes.
The report also indicates that individuals and businesses spent over six billion hours at an estimated cost of $265 billion dollars attempting to comply with the maze of tax rules and regulations. This is equivalent to a workforce of over 2.8 million people spending the entire year doing nothing but tax compliance.
To cover the uncollected taxes, the 130 million U. S. taxpayers are effectively subsidizing the tax cheats to the tune of over $2600 each. In other words, if the cheaters were prevented from cheating, the average taxpayer would see reduction in his or her tax bite by over 30%.
If the tax gap and compliance costs were in and of themselves not sufficient reason to scrap the tax code, the tax code also hurts the U. S. in other ways. The income and payroll taxes ostensibly paid by businesses (but are in fact simply passed along to consumers) make U. S. products less competitive on world markets. This leads to job losses in the U. S. and, as we also saw last week, record trade deficits. The complexity of the tax code also enables politicians to reward and punish via the tax code. This is probably the single worst aspect of the U. S. tax system.
The sheer lunacy of a tax system that fails to collect billions owed, enables political manipulation, hurts the economy and in general works against the taxpaying public is astounding.
There is a solution however. It is a solution that would eliminate individual compliance requirements and make April 15 just another day. This solution would greatly reduce business compliance costs and similarly reduce the size and scope of the IRS. This solution would lead to job growth and economic expansion. This solution would eliminate most of the opportunities for tax cheats and political manipulation. The solution? The Fair Tax.
The Fair Tax would eliminate all income and payroll taxes and would replace them with a national sales tax paid on the retail purchases of new goods and services. The Fair Tax protects low-income individuals and families by rebating taxes paid up to the poverty level.
The first reaction by many people to the idea of a national sales tax is that prices of goods and service would go through the roof. Under the Fair Tax, this is not the case. Consumers are already paying for the corporate income and payroll taxes embedded in the price of virtually all goods and services. It is estimated that these embedded taxes average approximately 22% of the retail price of goods and services. Make no mistake; you are paying these hidden taxes.
Under the Fair Tax individuals would incur no compliance costs and businesses would remit Fair Tax receipts similarly to the way state sales taxes are remitted today. No more armies of lawyers and accountants to figure out IRS regulations. The IRS (or some similar agency) would need to ensure compliance from just the approximately 25 million businesses instead of 155 million businesses and individuals, as is the case today.
Maybe most importantly, the Fair Tax would eliminate the patently unfair manipulations of the tax code that Congress uses to hand out favors to wealthy constituents and lobbyists. The elimination of the incentive and ability to tinker with the tax code would go much farther toward making members of Congress more “ethical” than any other type of reform.
The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The House version already has 48 cosponsors. The Americans for Fair Taxation estimate that it would require just 3000 active supporters in each congressional district to make the Fair Tax a reality. Each of the 435 districts represents approximately 300,000 taxpayers. That means that if just one percent of taxpayers became vocal supporters of the Fair Tax and took the time to write and/or call their representatives in Washington, the Fair Tax could become law.
The Fair Tax would be the most significant tax reform since the Boston Tea Party. Don’t leave this reform to others. Take a few minutes to let those in Washington know that the time for the Fair Tax is now. Think about that as you pore over your 1040 this year.
[1] http://www.irs.gov/newsroom/article/0,,id=154496,00.html
[2] http://www.fairtax.org/pdfs/Tax_compliance_facts.pdf
About the Writer: Jan A. Larson is currently employed in private industry in Texas. 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. jan@pieofknowledge.com.
PING!
Fixing the tax system isn't about fixing tax cheats, it is about fixing our out of control government and its spending. There isn't a problem with the people, it is with the people in government. The only tax cheats are our governments.
"To cover the uncollected taxes, the 130 million U. S. taxpayers are effectively subsidizing the tax cheats to the tune of over $2600 each. In other words, if the cheaters were prevented from cheating, the average taxpayer would see reduction in his or her tax bite by over 30%."
Anyone want to bet that we'd see tax increases since the burden was reduced by 30%?? I never met/saw/listened to any politician that didn't meet tax revenue he/she didn't like..
"The Fair Tax protects low-income individuals and families by rebating taxes paid up to the poverty level."
Herein lies the problem....the US Government already makes approximately 9% mistakes on SSA disbursements, and at a STAGGERING cost. National retail sales tax does the same thing with the cost of rebates to the poor.
You've got it right! Explain to me why gambling losses are deductible in any amount, but medical out-of-pocket expenses have to be 20 percent of your income to be deductible? Or why lower income families struggling to put their children in quality private schools aren't gettting a tax break?
***without the cost of rebates***
Its about BOTH
I beg to differ with you there my friend! As that great old American philosopher POGO once said "I have seen the enemy... and HE is US!!!"
There isn't a one of us who would hire a carpenter to put up a shelf for us and not supervise what they do yet nearly all of us fail to supervise our employees in government at ALL levels!
I wish I am wrong but it ain't going to happen. The government is bigger than we are.
ONLY because we continue to allow it my FRiend!
I wasn't alking about people watching government. I was talking about tax cheats. Tax cheats are not the problem, the government is, and, yes, people not watching the government is.
When someone explains to me how my father, who spent a lifetime paying income tax and now pays virtually no tax on a fixed income, doesn't get totally screwed by a 20%+ sales tax, I'll jump on board.
Otherwise, I'll keep my focus on going after big-government politicians and supporting tax-cutting ones in elections.
Yeah, recover it and spend! We need more spending! You can bet that the $345 bill supposedly owed the gummint is doing a better job for the economy than building bridges to nowhere and paying alphalpha "farmers" for not growing the stuff!
Can anyone inform us of any significant economy where this tax system has worked in the past?
Fair Tax Bump. Good article.
That my friend is exactly right !!! There is NOTHING fair about a "fair tax"
Amen to that. However, if we could lessen the cheating, all us honest folks could pay less too.
Texas and Florida.
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