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.
I have no doubt that Squirrels everywhere would agree!!!
The income accruing untaxed builds up (compounds) at a faster rate than it would if the income were spent as it came in (which is what your example actually presumes. It makes far more sense for the investor under the FairTax to continue the build-up so that he'll have additional funds.Sorry, you don't understand compound interest. It doesn't matter if you take out 30% at the beginning of a investment or just at the end. The return to the investor is the same. The tax is just another factor being multiplied in a list of factors (the periodic returns). As you evidently didn't learn in grade school math, it doesn't matter in what order you multiply numbers in, the result is the same.
Why surprised, you assumed the current interest rate is 42% higher than it would be under the fair tax. I am shocked your example only shows a 5-8% savings.
I think the Fairtax pretty well won this one, since we can't find any reasonable set of assumptions that makes the numbers not work in it's favor. To tell the truth, I was suprised by the results - I expected it to be a wash, not a 5-8% savings in favor of Fairtax on the total cost of purchasing the home.I don't think your example was realistic at all. Give me a little time to do it the way it I think it should be done.
Since prices will rise, yes I would expect lenders to take additional profits. Workers get to take home more, why not businesses and banks? Prices will see a 20% increase even if business pass on all their tax savings to the customers.
You miss the point that if you continue under the income tax, you'll take a "hit" when you spend the already-taxeed money due the the embedded tax costs that raise prices solely due to the effects of the income tax.
You seem to think you'll get a free lunch. You won't. No matter how you slice it you'll pay more tax. At least with the FairTax you can control the amount and timing of the taxes you pay since not all things are taxed where with the income tax ANY expenditure has the hidden taxes embedded.
Also, with the FairTax there would be no tax on the investment income you generate so that you could allow it to compound much mopre rapidly than under the income tax. You'd end up with far more wealth fairly quickly under the FairTax if you'd use reasonable restraint in your consumption. You seem fairly well-to-do so accelerated compounding should be easily accomoplished.
I suspect you'd be much better under the FairTax since - after all - one of the things it accomplishes is raising the general level of he economy meaning that there'll be many more investment opportunities. You're looking at the glass as half empty when someone with your resources should be seeing that it is really half-full and will fill up rapidly under the FairTax. You're far too pessimistic.
Just using the same interest rates under both cases would do it.
Giving employees 100% of their wages (ignoring non-Uncle deductions) does not increasse the money supply and therefore is not inflationary. it just puts more disposable personal income in the hands of hose who can, guess what, dispose of it for their families when they couldn't before since it was held hostage by Uncle with little recourse on their part.
And prices pre-tax will drop under the FairTax ending up about where they are now or perhaps a bi less. the economy will grow considerably.
Your #181 is full of BS and lies. It is not true at all - as several posters have pointed oput to you before (many times, in fact).
HA!!! You're million dollar nest egg should actually go much further under the FairTax unless you're very stupid. Whoops - forgot who I was talking to ...
Prices will drop after the income tax is eliminated and I've shown seveal times that there is indeed room in embedded cascading business income taxes to cram a good bit of increase into prices due solely to the income tax and its effects - without even considering payroll taxes or even compliance costs.
Your horseback economic evaluations, then, are nonsense and prices will decline substantially after income tax goes away. the prebate adds about 3.5% to the rate - not 5% and if you'd get your consumption urges under control and invest you "million dollar nest egg" you should be able to expand it by compounding so quick it would make your head swim.
To say they WILL is very pessimistic ... and it's should be up to all of us as voters to help make sure this does not happen.
If you have some studies to show how many illegal aliens currently receive S/S illegally, present it.
This should be interesting ...
"... If I were designing a sales tax ..."
Omigawd - run for the hills folks, All is lost!!!
How about sushi??? It that a prepared food??? What does "prepared" mean and who defines it? Who defines "food" for that matter. Are sunflower seeds in the shell food or are they seeds? What about steak bought at one of the black market Mexican importers? Its that food? How do you tax it???
What does the phrase "prepared food like those by restaurants" mean. What is a restaurant? Does that include sidewalk cafes? What about street hotdog vendors or walk up food sellers???
Got the picture Rightie???
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