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.
You'd profit by spending some time on the FairTax website to see how, in fact, the individual tax burden would actually decrease under the FairTax.
I'm already familiar with it and back it 100%..I'm simply saying that a new round of federal "user fees" or some such will replace the taxes currently collected by the IRS..
Nope - those aren't "rebates to the poor" at all. they are prebates which are a return of some of the sales tax money you pay - and they go to everyone who qualifies based upon family size, not income. they are not an entitlement but a tax refund.
Or why income should be taxed at all rather than only consumption which each family can control - and investments NOT taxed to help many of us climb the ladder of economic success a rung or two.
True, it doesn't change the calculation of the cost of financing the FairTax. What it does change is the calculation of the total cost of the home, including taxes, and brings it back pretty close to a wash over the life of the loan.First, the principal is now 30% more than it would have been so even if I have more "pre-tax" dollars to pay it down, I have more to pay down. Only now I have interest costs on the FairTax eating into my payment on the principal. Second, most of my "pre-tax" dollars are going to pay the FairTax dollars on my other purchases. Sure I have more take home, but everything costs more - my electric bill, my day care, my car, my food, my gas. The FairTax ain't no free lunch - just the opposite for large purchases.
You seem oblivious - as are most taxpayers - to the fact that you and your father are being taxed by hidden taxes which are the tax costs embedded in all producs because of the income tax. It's a tax no one can escape under any income-based tax and it's a pernicious one since it IS so hidden but it's still there big time.
Check the FairTax website or get The FairTax Book to see what's involved and how most people would fare better under the FairTax.
No - change the tax system to the FairTax and not have the "gap" at all but instead help lower taxpayers' tax burden since we all have to pay some part of this "gap" right now - as well as many other non-productive costs caused by the income-based tax system.
Investors pay income tax on US bonds? It does not seem logical.
That's sort of like asking "is there any significant country where a representative republic such as ours has worked in the past".
The answer is none, since the FairTax is a new tax system that has been exhaustively studied economically. It is not a VAT or GST such as many Euro (and other) countries have ... not even close. Most countries could not even begin to consider such a tax since they do not habe entities such as our states that already collect sales taxes. Even though these existing sales taxes have a different base than the FairTax, the mechanism of collection is basically the same. Most other countries have nothing like that to start from.
Please list the hings that you find "not fair" and your reasoning why.
True, but again you are making those payments with dollars earned on which no income or payroll tax has been paid. If I have time later, I'll work up a spreadsheet illustrating the transaction under both models so we can make a fair assessment.Be sure not to apply all their increase in take home to their mortgage payment. Like I said, they still have to pay more for the rest of their stuff. You should use a percentage of their take home pay as payment toward their mortgage, don't you think? (And be sure to calculate the FairTax charged on their interest payment. Interest is payment for financial intermediation services and the FairTax would tax the payment of interest that is above the "base rate.")
No reason to have "tax breaks" at all ... these merely represent targets of opportunity for many of our congressmen and their K-Street pals. Mutually beneficial - for THEM.
Better to have each taxpayer pay at the same tax rate but have some control over what he pays by his consumption choices and lack of tax on income at all.
Is there something un-American somehow about getting ALL of your paycheck without Uncle grabbing off part of it before you get it????
Post #82
"... For nearly a century ..."???
Governments have always taxed since they began to exist about 6,000 years ago - ALWAYS - so it's not about to stop now nor did it ust start this last century or two. It's what governments seem to do best so get used to it and help the FairTax supporters work to change it into something more manageable, less burdensome, and something that offers the possibility of helping influence government spending downward.
How is that not possible? It's free market econmics 101... a person with capital will invest or loan that capital in such a way as to generate an acceptable after-tax rate of return. Taxation of interest income effectively pushes up the gross interest rate an investor seeks in order to generate the desired rate of return, so removing this taxation will apply downward pressure on interest rates.But the investor is still paying taxes on their return, only with the FairTax they would pay it at the register. They need to receive the same nominal return on their investment so that their "real return" on the investment isn't reduced.
Good point.
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