I believe there are only two real players in the race to dramatically simplify the tax code in the United States. There should be no question among those of us committed to such change that either plan is dramatically better than the system under which we currently find ourselves. I would like to take this opportunity to discuss the pros and cons of each approach. Either effort would stand a much better chance of succeeding with the support of the other camp.
I started life as a flat tax supporter so I can certainly see myself supporting either cause, since at one point or another, I have. Listed below are a few of the reasons I changed my position. I would be happy to have anyone add to it or bring up your objections so that we could have a full understanding of the issues that concern each side. I’m sure we can all learn something from each other if we can keep an open mind.
Efficiency – Clearly, efficiency is one of the areas in which the Fairtax excels. Retailers already collect sales tax in all but a couple of our smallest states, so collecting the Fairtax will be very simple and inexpensive matter indeed. It costs no more to collect 23% than it does to collect 3%. Tax returns are no longer required by every business and individual, which will eliminate a mountain of paper received by the IRS annually. Only businesses engaged at the end-user level will submit a simple statement of total sales and sales tax collections, just like they already do at the state level.
Fairness – Too often, the term wealthy is synonymous with high income. The fact of the matter is, the truly wealthy in this country often have relatively low taxable incomes. High income earners are more rightly looked at as high producers. Any income tax penalizes production and, for the most part, leaves wealth alone. The Fairtax taxes consumption which is more closely associated with wealth than income. Right now 100% of income taxes are paid by people who worked for that money in a legal enterprise. Meanwhile, all of the money generated through tax sheltered investments of the wealthy, illegal activity and outright tax evasion by criminals goes untaxed. The Fairtax would treat all that money equally at the point of consumption.
Progressivity – Probably the most firmly entrenched dogma I have heard in the tax reform debate is idea that all sales taxes are regressive. This was actually the last piece to fall into place for me when I switched sides. The prebate provision in the Fairtax is an ingenious way to provide just the right amount of progressivity without resorting to class warfare which is so prevalent with an income tax. The beauty is that everyone gets exactly the same benefit, which is the tax on spending up to the poverty level. This will mean nothing to the rich and at the same time give the poor another opportunity to improve their lot by spending wisely so that they can save even more. Used goods are exempt from the Fairtax, so not only will people be able to buy used goods and not pay the tax. This fact will increase the value of used goods, providing more opportunities for lower income individuals to make money by collecting and selling items that can be salvaged.
Corruptibility – Political careers are built on manipulation of the tax code. "Special incentives” and plain old loopholes are the life blood of lobbyists and politicians who easily hide these special favors in the vastness of our tax code. The Fairtax is simple and, most importantly, applies to everyone equally. All goods and services are, and must remain, taxable in order to prevent manipulation by those who would try and gain influence through such manipulation.
Enforcement – This is the easy part. Our current system creates over 300 million potential law breakers by making anyone who earns money liable to report and remit taxes on that income to the government. There are a little over 1.1 million retail establishments in the US. From which group would you rather collect taxes?
Liberty - In my mind, the most compelling argument for the Fairtax is the freedom it returns to the American taxpayer. The burden is no longer on the individual to report the source and amount of funds earned. The framers of our constitution understood how oppressive such a requirement would be when they specifically forbade the government from the establishment of such taxes. It was only the empty promise that just the very rich would be subject to an income tax that the 16th Amendment passed thereby removing this protection. The repeal of the 16th Amendment is such an integral part of the Fairtax that it provides for the Fairtax itself to be abolished if the 16th amendment is not repealed. That is how committed the authors of this bill are to prevent a situation in which both a sales tax and an income tax could ever coexist.
Submitted by:
Kevin Plunkett
Real Estate Investor
