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.
Careful - you'll force him to take his socks off ... and you know what THAT means ...
Only if you blurr the term marginal tax rate to mean effective tax rate, and effective rate of income tax to mean effective rate of gross sales. Otherwise the fairtax numbers really don't add up. There is no free ride of everyone ends up with more money and prices come down. That is a fairytaxtale.
I've spend six years showing that the numbers that the fairtax promises don't add up. You can't have all the tax savings going to both raise take home pay and lower prices. The savings can only go to one place. There simply are not enough dollars saved to reduce prices 20 percent and allow everyone to keep 100 percent of their current gross pay. Not even close.
You disagree with the concept? Walmart has 1.8% of sales embedded as taxes. Suppose Walmart's suppliers have another 1.8% of their sales (measured as a percentage of retail value, just for convenience so it's fair to add the percentages together) embedded as taxes.That wouldn't be cascading taxes, that would be accumulating taxes. Cascading happens when you tax a tax on multiple levels. That isn't happening here.
I don't understand your point. A wholesale company's tax costs are reflected in the price of that company's products at wholesale. The retailer buys, incurrs it's own tax costs, and passes all of it on to the consumer. The final retail price includes corporate taxation at every level in the supply chain.That's a simplistic view of pricing, but for argument, let's assume you are correct. In pigdog's example, no one except the first level has any value added to the product whatsoever. They only have the cost of the input (which is, except for $1.00, only profits from the previous levels) and profits (which makes me wonder why the first level doesn't sell straight to the customer). The actual value of the product hasn't changed - it's still just a $1.00 product with $65.44 worth of profit tagged on to it. Nice gig if you can get it, but it's not very realistic.
Ever worked in a distribution business or field marketing organization? You'd understand why.I'm assuming distribution businesses and field marketing organizations actually have employees, and buildings, and trucks, and telephones - stuff like that. Am I right?
Uhhhhhhhhh, he pretty much admitted it is illustrative of the concept, but not exact, in his post.And what, exactly, does it illustrate. It doesn't illustrate that business taxes or tax costs or whatever they're called today, cascade - because they don't. (If they did, don't you think we would have heard about first from someone other than pigdog? Maybe Milton Friedman, but not pigdog. He didn't make some new discovery - what he thinks he discovered doesn't exist.)
New question: are you against Fairtax in particular, NRST in lieu of income tax in general, or both?Both. A NRST will never work. The rate will be too high to enforce. And I am really against the way the FairTax is being hawked with lies, half-truths, and conjecture.
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Level Selling Price Inputs Cost of Value Added Total Cost of Sales Gross Profit (Loss) Income Tax @ 34.4% Net Profit Net Profit Margin Accumulated Tax Paid Accumulated Tax
as % of Price
I'm not "assuming" anything ... YOU are. I've never mentioned "guest workers"; you have. You're merely trying to inject some BS into the discussion.
The bill is clear enough in what it say, I think. I'll let the court interpret it, not some jacklegged Squirrel with an agenda.
The "fairytaxtale" is the woefully lacking set of misinformation you of the SQL Squad keep proffering.
There you go again, tryoing to plant some straw man claim of "x%" again as an "impossible" decrease.
However many years you may have spent offering up invalid claims, Rightie, there have been many more FairTax supporters rebuting your claims and showing you to be wrong. Still are.
I see that Nightie is illustrating his lack of understanding of what the cascading example shows. that's pretty typical.
I also wonder if he really knows what "execrated" means ... he's such an onager!!
Okay, if those tax costs are not passed down the supply chain, where do they go? They just magically disappear into the ether beacuse they're not being levied on a direct retailer?The incidence of the corporate tax is one of the mysteries of economics. It can be borne by labor, capital, or consumers. Of the studies I've read, I can't remember one that says it is borne by consumers. Most say the incidence is on mainly capital (the investors), but may be shifted to labor (through lower wages).
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