A Comparison of the FairTaxSM, the Income Tax,
and the Flat Tax August 2001 |
FairTax, H.R. 25
Linder-Peterson |
Federal Income Tax
Pre-2001 Law |
Flat Tax, H.R. 1040
Armey |
|
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. |
Congressional Action |
23% Linder/Peterson Fair (H.J.Res45) - Will repeal the 16th Amendment. |
Used by lobbyists and the wealthy for tax-breaks and loopholes. Used by bureaucrats for social engineering. |
Rep. Armeys H.R. 1040 has some problems, but is far superior to current law. |
Cost of Filing |
No personal forms are filed. Significant cost savings. |
$225 billion in annual compliance costs. 1 |
Significant simplification 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. |
The current tax code violates the principle of equality. Special rates for special circumstances violate the 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. |
A flat tax taxes exported goods and does not tax 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 wont stay flat. Starting out nearly flat in 1913, the income tax grew out of control with top rates over 90% until the 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 with 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. |
The business component of the flat tax and payroll taxes are hidden and would be embedded in prices. Taxes are withheld from paychecks. |
[1] Testimony by the Arthur Hall, Tax Foundation and before the House Ways and Means Committee, 1998.
10 year old data, invalidated by the Bush tax cuts.
Sorry, no cigar.