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August 11, 2004
Taxes
What Would You Do If...
Posted by Bobbie Gossage at 4:27 PM
After his tax breaks, President Bush is toying with the idea of eliminating the IRS and income tax altogether. In lieu of this, a flat federal sales tax would be instituted. A few people I know have been rallying for this for years, and not just because they hate the IRS. They argue that a flat sales tax is the only fair way to tax everyone. But critics say the sales tax would have to be 30-50% (gulp). Then again, you'd have more money to pay with. What would you do if you had the deciding vote on this issue?
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Interesting... the last time I heard so much talk about this was during another presidential race. Wonder how Steve Forbes feels about George Bush now.
Hey, isn't this going to put a lot of accountants out of business?
Indeed, this is a perplexing dilemma. A flat tax is fair, no argument about that, but is it feasible? Eliminating the IRS altogether would save money, simply because you would be eliminating the bureaucracy and the endless costs associated with running that ugly machine of inefficiency. But I'll pose and even tougher question: if the IRS, and all the loopholes associate with taxation, did go away and the American public did have more money, wouldn't we be failing to heed P-Ditty's warning -- "Mo money, mo problems?"
Indeed, this is a perplexing dilemma. A flat tax is fair, no argument about that, but is it feasible? Eliminating the IRS altogether would save money, simply because you would be eliminating the bureaucracy and the endless costs associated with running that ugly machine of inefficiency. But I'll pose and even tougher question: if the IRS, and all the loopholes associate with taxation, did go away and the American public did have more money, wouldn't we be failing to heed P-Ditty's warning -- "Mo money, mo problems?"
Actually, Notorious B.I.G. warned, "Mo money, mo problems." And it's P. Diddy, not "Ditty."
Seems like an exceptionally bad idea but quite in keeping with Bush's general platform. The flat sales tax would would tax the poor who spend a greater % of their income and favor the rich who might save or invest more. It would also make it impossible to make those who can afford it bear more of the tax burden, something now possible with "tiered" income tax rates which rise with income level.
I've been reading about FairTax for some time now, which is a group behind a national sales tax. The idea has intrigued me but I don't think this article or the one linked is near enough information to make a decision on. I firmly believe other options should be explored. We shouldn't dismiss a sales tax out of hand just because the idea came from one party or the other.
Absolutely I would be for it! It is horrible to see the amount of money that comes out of my paycheck every week for taxes. Even more horrible to think about where it is going.
The size of the tax rate is relatively irrelevant as it would unlikely be an increase in overall taxes paid. What is most important to consider is the impact to the savings rate. A consumer is most likely to slow spending and save more if they are visibly taxed on each purchase. While in the long term an increase in the savings rate is a "good thing" in the short term the drop in sales would cause significant panic in the business community, which creates or destroys jobs. The short term reaction to a decrease in sales could very likely create a 19th century level "Panic".
I don't think it will have to be that big (30-50%). Other countries are using the explained tax system and they pay anywhere from 15% - 25%. Another problem is that people will have a tendency of saving their money so they won't be taxed and that hurts the economy.
While the idea of eliminating the expense of the IRS is attractive, the flat tax is flat unfair to lower income people. With a 20% sales tax, a person earning $27,000 and spending $22,000 pays $4,400, or just over 16.25% of income. A wealthier person earning $200,000 and spending $120,000 pays $24,000 in taxes, or 12% of income. This assumes the lower income person spends about 80% of income and the higher income person about 60%. It could be argued that this spending assumption is not realistic, but we should consider the temptation for wealthier people to save, and earn more untaxed income on that savings. This distribution of the tax burden does not seem just.
Even if you do not agree with the unfairness of a sales tax, it should be noted that eliminating income taxes also reduces the ability for our government to track the flow of money. This might also initially sound attractive to people like me who wish for smaller government, until we consider the impact this would have on financial crime investigations, child support enforcement, and other similar important public services. Many single mothers and dads depend on intercepted tax returns and garnished wages to help pay for food and clothing for their children.
I also wonder if local governments might feel more freedom to tax income once the federal income tax is removed.
The IRS: This is a non constitutional item. The taxes were put into place to pay for a war along
time ago. The government has lied and covered up this Federal EGO to make sure they have a
way to receive more funds then needed. It is a simple revenue constraint for those who make
capitalism work.
The IRS is a Control freaks dream! They have no blood that runs through their
veins. This Illegal dept. collects money from every person that makes our
country work! Then certain politicians tell everyone how the rich never pay
taxes. Who has the right to the money one makes...The person that makes the
money.
Spending is what makes our system work not the collection of those dollars
that hire people for employment...that pay people so they can inturn pay bills
and buy cars...
Economics and civics are not being taught in public schools no days...WHY
Certain politicians do not want you to understand...to be knowledgeable in
your life. They want to expand government spending because you are to
illiterate to run your own life.
Study your history people big government does not work!
For one to believe that BIG BROTHER is going to take care of you [IRS
collection service for BIG BROTHER] is truly an embarrassment to humanity.
Wake up the more money you have in your hands the better life will be. Those
rich people you hate so much...without them spending and creating we would
have nothing of what we have today!
I am not rich but I have knowledge and this is power...Wake up and smell the
roses...Can the IRS and start voting for representatives with Courage!
Be Safe and may God Continue to Bless this Great Country!
GF Ingledew
sosllc@comcast.net
Veteran 5th Special Forces Vietnam
I agree with a Flat Tax. A flat tax, equally levied among all without exception or entitlement would be fair and just. I think wealthier individuals would reinvest their capital in either economic, job generating activities or philanthropic endeavors. A big misconception is that people who gain more money from a flat tax would hoard their money in a bank but I think banks could not offer the lucrative returns that some individuals would expect. Although it would be prudent to place some of their capital in safer ports-bank, bonds, etc. - some of their capital would also be invested in job creating activities-start ups, existent business expansion, etc. We have to be realistic, however, and assume that some of this capital may be spent overseas in other economies and may not do anything in the US domestic job drain.
I dont think that the elimination of the IRS is realistic. I think realized savings from a streamlined IRS should go to collection & enforcement. The burden of paying FICA taxes should be placed on the individual with the employers only responsibility being to report to the IRS how much was paid to the employee, similar to how 1099s are done today. Having businesses match contributing taxes for employees only gives corporations another reason to move jobs overseas because the internal revenue collection systems overseas are not as streamlined as ours.
I am an entrepreneur with a small healthcare service company so my employees are generally highly compensated. The Medicare Prescription Drug Benefit passed by the administration left my company with more capital. I did not bonus out the windfall or take a larger salary. I hired more employees, made more capital expenditures, spent more on advertising. My intent was to generate more capital.
Some people with more money from a flat tax will hoard their money or increase their personal debt through discretionary spending; some people will pay more in taxes than they have ever spent; but some will create more jobs. Companies sending jobs overseas may be persuaded to bring some of those jobs back if their tax burden were less.
http://anon.taxableincome.speedera.net/861Evidence/index.html
Once again, the Republicans steal a page from the Libertarian Party, no doubt trying to sway fence-sitters into re-electing Pres. Bush. But it's the same old fraud. The government benefits from the IRS, therefore it won't eliminate it. Only a revolution (a la The Boston Tea Party) or a 3rd party change of government will ever set the wheels in motion.
We're all fed up with the complexities of our income tax. And we've heard plenty of presidential candidates promise to replace the income tax with a simple tax system. But, year after year, new laws are enacted that make our income tax even more complex and confusing.
After listening to many screaming taxpayers, I've concluded that there are four improvements that most people want in a new tax system. First, they want a tax that is fair. Second, they want a tax system that is less complicated than the one we have now. The third priority is encouraging people to save more of their income. And, finally, American businesses are looking for breaks to make them more competitive internationally.
Americans are also concerned about the federal deficit. And our leaders in Washington should realize that any tax overhaul plan must be revenue-neutral, meaning that it would be neither a tax increase nor a decrease.
Several interesting proposals have made their way into the press in recent years. A national sales tax and a value-added tax have been proposed, but the flat tax proposals have captured America's attention. Certainly, any of these proposals could have a dramatic impact on each of us. They could affect how we earn our living, how we save and invest, and how we spend our money. They could also significantly affect the value of our investments, and impact our employers, our governments, and our economy.
The overhaul proposals are only frameworks. Thousands of details need to be addressed before we can know how any of these proposed tax systems would work. Of course, the details are the heart of any tax system. Lots of proposals and theories sound appealing. But, as with our current income tax, "the devil is in the details."
Most of the popular flat tax proposals would tax individuals on salaries and wages, as well as benefits provided by employers. These taxable benefits could include contributions to retirement plans, life insurance coverage, and disability and health insurance coverage. The intent is to include all compensation in taxable income. But does it make sense to begin including group health insurance in taxable compensation? After all, the government wants employers to provide universal coverage, and one of the most effective ways to discourage something is to tax it.
Some flat tax proposals have included unlimited exemptions for interest, dividends, and capital gains. This would encourage everyone to save and invest. But, would it be fair? Imagine a factory laborer making $20,000 in one year. And consider a super-rich software mogul receiving a billion dollars in cash dividends and another billion in capital gains from stock sales that same year. Would the laborer in this example think it fair for her to pay more income tax than the software mogul?
The age-old problem of "what is wages?" could still be a difficult issue under a flat tax. Would employees still be taxed on personal use of a company car, for example? And would the IRS continue to audit family-owned businesses, looking for payments of personal expenses from company funds?
Of course, the biggest challenge now for the IRS is the widespread problem of unreported income. Would everyone who is paid in cash report it all under a flat tax?
And what about those who are self-employed? Suppose that after a long stint as an employee, you decide to make the big leap to self-employment. After all, having a business of their own is the American dream to many people. In your first year of self-employment, you may need to advertise extensively, and among other things, buy some office furniture and computer equipment. So let's say you have $50,000 of revenue that first year, and $50,000 of expenses. After just breaking even the first year, how much income tax should you owe? Should any of your business expenses be deductible? How many records should you keep to back up the revenue and expense figures you report? And wouldn't you be glad if I quit asking you so many questions?
Another critical issue is the treatment of foreign income. Some have suggested that income earned abroad be completely exempt from U.S. taxes. But this would not provide appropriate incentives. It would simply open the door to a whole new group of loopholes.
We need to carefully evaluate all of the side effects these changes could have. For example, if charitable contributions were no longer deductible, would colleges and charities become more dependent on taxpayer funding?
If mortgage interest becomes nondeductible, real estate values may drop significantly, creating a problem for mortgage lenders as well as for property owners.
Anyone owning a municipal bond would see its value drop, if interest earned from the bond became taxable.
And here is another issue with tax overhaul that bothers me. How would we transition from our current income tax to a new tax system? Change can be painful, and a drastic transition of this type could take many years and would surely have winners and losers.
Even if we made it through the long transition to a flat tax, people would still complain that they pay too much tax. They would still believe the government wastes their money. The flat tax proposals have not offered to lower our taxes or get us a better return for our money.
Still with me? Good. Now, the most critical issue of all. For several decades, Congress has used our tax system to encourage certain types of behavior, and to discourage other types. That is one reason why our tax code has become so complicated. There are thousands of tax incentives and penalties in our tax laws. Congress has used tax breaks to help American companies export their products, buy new equipment, and create jobs. Investors have been encouraged to fund low-income housing projects, help municipalities raise capital, and save for retirement. The list goes on and on.
If we had a simplified tax system, how would Congress encourage certain types of behavior, and how would they discourage other types? None of the tax overhaul proposals have given a comforting answer to that question.
Many of us would prefer that Congress not try so much behavior modification (aka social engineering). To those who want less government regulation, that has great appeal. But, after all these years, would Congress really stop trying to bring about desired changes in our society, our economy, and our businesses?
Perhaps a more simple and fair tax system can be created, somehow still including the most important incentives. A fairer tax, lower compliance costs, less government intrusion, and an increasing savings rate should be high priorities for us all.
Here are some of the reasons why a national sales tax would not work:
1. It would encourage spending overseas. Why vacation in Hawaii and pay an additonal 30% for everything when you could go to The Bahamas instead?
2. Without the IRS, there would be virtually no reporting. As it is now, recipients of cash payments are tempted to under-report their income. Wouldn't they have the same temptation with a national sales tax? Who believes that mom-and pop businesses would remit all of the tax they collect? What about those who sell over the internet? (Who believes they all report all of their income now?)
3. The IRS and state tax authorities are heavily dependent on information reporting (W-2s, 1099s, etc.). Without this information reporting, and with no IRS, who would ever remit all of the tax they collect?
4. A large number of exemptions would work their way into the system (ie prescription drugs). But how would Congress provide incentives to encourage employers to offer group health insurance, etc.?
5. There would be too much room for hanky panky. For example, if services were not subject to the sales tax but parts were, wouldn't we over-charge for labor and correspondingly under-charge for parts, in order to minimize the tax for our customers? Who would monitor this sort of thing?
Mr. CPA,
Of course you are against a national sales tax! The complexity of the IRS is what makes YOUR living.
You OBVIOUSLY have not read HR25 in its entirety and read because you would see that your statements are laughable.
Rebutting #1:
1. It is possible that some vacationers would choose to go to the Bahamas instead of Hawaii, but the vast majority of Americans currenlty can't afford to go to either currently! The economic impact to the United States economy would be IRRELEVANT.
2. Currently, the amount of untaxed income is estimated to be $1 Tillion every year! Illegal activities are obviously not paying income tax (prostitution, drugs, porn, illegal aliens). It is VERY easy to be an income tax cheat in the current system. With a National Sales Tax, NINETY Percent (90%) of Federal Tax Collection Points are reduced! That means the cost of compliance will go DOWN for us all. (http://www.fairtaxvolunteer.org/smart/faq-main.html#33)
3. 45 states in the Nation already have a states sales tax and vehicles in place to collect and account for it. HR25 provides that each merchant and each state would keep 0.25% of Federal Tax receipts to help pay for compliance. Cash transactions are indeed hard to track - for both income and purchases. While a few "mom and pop shops" may cheat, the BIGs like Wal-Mart certainly can't afford to do it. The electronic audit trail (i.e. credit card transactions) would be an easy deterrent.
We spend $250 Billion for compliance EVERY year currently. That is a LOT of cheating for "mom and pop shops" before it reaches that amount. (http://www.fairtaxvolunteer.org/smart/faq-main.html#44)
4. With Congress, anything is possible - including screwing up a good system. Employers will obviously continue to offer health benefits in order to be competitive to retain employees. One HUGE advantage is with all the currenly hidden income taxes AND the Payroll taxes that the insurance companies are paying to every doctor, hospital, nurse, janitor, pharmacist, delivery driver, etc. - insurance premiums should become lower for everyone.
Many economists have stated that the embedded cost of income taxes in EVERY product makes, on average, every product we buy 22% higher and services we purchase 25% higher. The elimination of the IRS would LOWER the costs of most products and services. (http://www.fairtaxvolunteer.org/smart/faq-main.html#5)
I can feel your pain CPA, but what you need to realize that many entire career paths have been and continue to be lost with technology and time. The career path of CPA's that was only created in 1916 would come to an end, but macroeconomically, the value you would add to the economy would be far greater in the future than it is now.
Read http://fairtax.org and HR25 with an open mind and consider the nation as a whole rather than your own special interests.
The concept of a "fair" flat tax is laughingly impossible. The reality is that under the current tax code (however imperfect) individuals pay a far closer to "fair" amount than they would under a flat tax (or sales tax) system.
Wealthy individuals (however loathe to admit it), usually owe a sizable amount of their success to favorable business conditions, federally funded infrastructure (highways, telephone systems, internet infrastructure, etc.), national defense, and the US rule of law. Without, these federal 'services' very few wealthy individuals could have accumulated the wealth they now hold. By contrast, the services utilized by the poor (since they usually have less need for national defense, highway systems, or US property laws) are relatively inexpensive (welfare programs for instance cost less than 1 penny per federal tax dollar). As for the middle class, they simply don't matter since under most flat tax and sales tax scenarios, the middle class disappears. A few middle class families will become wealthy, but most will see their standard of living drop to near poverty levels.
Under the current system, per dollar of GDP, US individuals pay less tax than any other industrialized nation. A large part of how that is possible is thanks to the "steering effect" of the US tax code. By insuring that tax burdens are distributed fairly, the current tax code provides the foundation for the strength of our economy.
As any successful business owner knows, it is far better to pay a little more in taxes and have that money provide economic stimulus that will increase business activity, than to have tax cuts or tax code changes that will ultimately stifle business activity and provide a net loss to businesses (even after tax "savings").
Personally however, I look forward to the possibility of a national sales tax. The resulting economic disaster and decline in standard of living will fuel a popular movement that will crush the conservative and libertarian movements, and guarantee a progressive agenda for the next 40 years! If anyone doubts that just look at how unified the progressive movement is against Bush. And Bush has only implemented a small part of his tax plans!
Hmmm...let's see...that would be LESS tax to pay for the wealthy...and MORE tax to pay for the poor.
A National Sales Tax ....
Wow, think of all the scandals in which businesses HAVE BEEN caught in of late. Let's make it easier for wealthy people to become even weathlier. I speak of the numerous high-profile scandals as an important reminder. These are just the ones that the government has been able to capture.
Government's people is the same as the private sector -- HUMAN BEINGS!! Govt runned versus privatization is an oxymoron often times. Many govt functions have become 'inefficient' by design in numerous middle and upper level position creations. Thus private industry can swoop in to save the day with its efficient strategies. Let's not forget that initial savings can often turn into price gouging by the private sector.
All wealthy people do not work hard nor understand what real work is about. The business community always like to preach "fair play" but that only relates to what they can get with little or no effort. Let's sacrific the future for a few short term gains.
The tax system is in need of major overhaul, but it has to start with getting politicians into Congress who will do their jobs.
This is a so-called Christian nation that allows others to practice their beliefs. HOWEVER, I don't see how anyone can say with a clear conscious that the poor should pay the same as the wealthy. Many poor people do work and barely meet their and their family's needs. If you had to choose 2 of the 3 basics of living standards: food, clothing, and shelter .... what would you choose???
Many problems have very complex components that must be tackled individually and/or in conjunction with other contributing factors. There is no ONE MAGIC PILL to solve this tax code problem nor any other problem. A problem can be simply stated, but have many solutions that bring about the end goal. Life like the economy is far more complex than in 1802.
Where I say Government's people should say ...
Government's problem is the same as the private sector
My first step would be to tackle the AMT. Bush's tax cut has put greater burden on middle class people as their income rise. The tax cut pushes the lower limit down to encompass more people, while the wealthy continue to reap major benefits. How can $200-$2,000 really benefit a family of 4?? You can put that on a downpayment for anything of worth except the ever growing amount of debt people have already.
Before even "fixing" the tax code, let's do real campaign finance reform. I'd limit candidates to spending $500,000 on advertising. The surplus money should go to Social Security or Medicare (Hey, greedy politicians created the problem by borrowing on the future). Maybe it would cut out a lot of foolishness and make people talk about the issues with such a major constraint
Under the current tax system, the rich are still getting richer and the poor are still getting poorer. In my opinion, it's clear that tax policy has nothing to do with this disparity between classes. The tax policy has been evolving for over 90 years since it was a truely flat tax. Have that rich gotten richer and are the poor still poor? Yes.
I am for the Fair Tax system. Not flat tax, fair tax. National Sales Tax of 23%, plus rebates for those below the poverty level. Not between 30-50%, 23%. Read more about it at fairtax.org.
It seems to me in reading the comments that those opposed to the Fair Tax policy have special interests to satisfy, there own. My special interest is my family and I would enjoy the raise (provided by the fair tax) and it would save my business over $150,000 a year in payroll taxes. Nice savings for a $8 million company. In that regard alone I don't know why every business in America wouldn't push for this policy.
Of course when "B.A.'s" $8 million company drops to being a $7 million company due to the chilling economic effect of a national sales tax, that $150,000 savings won't look anywhere near as nice.
Read www.fairtax.org.
The FACTS are that with HR25,
Working people at and below the Poverty Level WOULD NOT pay ANY tax! ANY! In fact, if they CHOOSE to buy used items (i.e. a used car instead of a new car; a used home instead of a new one; clothes from a consignment shop instead from Wal-Mart
What people need to realize is that HR25 would ELIMINATE payroll taxes. FICA (Social Security) taxes are 7.65% of EVERYONE's paycheck (+ 7.65% from your employer - which effectively lowers your wages to begin with), but only up to around $65,000! In other words, the 11,000,000 people who work in this nation are paying for the Social Security. The VAST VAST majority of those folks are low or middle class.
HR 25 would actually remove the burden of Social Security away from workers and place it on the American Consumer as a whole! The Rich would not be able to escape it. If the Rich build a $10,000,000 NEW house, guess what - they would pay $3,000,000 in Sales Tax! If a middle class person buys a $150,000 USED house, they would pay $0 in taxes! If a Rich person buys a $50,000 NEW luxury car, they would pay $15,000 in tax! If you buy that same car from them 5 years later for $20,000, you would pay NO TAX!
Only people who choose to pay NEW items have to pay the tax. The best thing is that the Rich cannot find the endless number of loopholes in the IRS code (like taking their money out of the United States altogether) to avoid paying taxes. If they want to live a Rich lifestyle in the United States, then they must pay for it like everyone else.
If the Liberals out there would actually look at fairtax.org with an open mind and look at the Prebate table (http://www.fairtaxvolunteer.org/smart/faq-main.html#3) + their own FICA withholdings from their own paychecks and DO THE MATH, they will see that HR25 would lower almost EVERY Middle and Lower Class Worker from their current tax burden. Foreigners (both legal and illegal), Income Tax cheats, Illegal activities (prostitution, drugs, child pornographers, human trafficers, mafia/mobsters, and any other underground economy), etc. all will be forced to pay Sales Tax when they go to the store - just like in States that already have sales tax.
JS,
Read this: http://releases.usnewswire.com/GetRelease.asp?id=135-08122004
Flat tax might be a good idea, but anything attached to the buying of products is a bad idea. This would put an incentive on people NOT to buy. What would you do as a consumer? You would look other places to make purchases. Smuggling would go up, and then we would need more police for the borders!
Keep the IRS ... do away with the American public.
Bush is an idiot with a Harvard MBA. This proposal would unreasonably shift the tax burden from the highly compensated to the less fortunate. Under this proposal the rich would get richer and the poor would get poorer.
Most crime is directed toward those with money; therefore, the rich need police and fire protection more than the poor, so they should pay more for this protection than the poor. The same goes for national defense; the rich have more wealth to lose if the US is detrosyed, so they should pay more to protect it.
Lastly, taxation is complex and so-called loopholes exist to give incentives to people to spend in ways that, in the mind of Congress, benefits us all. By giving private citizens a tax incentive to spend and invest in certain ways, the government does not have to do it themselves directly. This reduces the size of government, while simultaneously meeting all of the legitimate needs of our citizens.
Written by a Harvard MBA, with both a CPA and attoney's license.
Very interesting comments from all of you. Brainstorming on this subject is just what is needed. It is time for change, Change is scary but inevitable. I agree that the Income tax is unconstitutional . It is a convoluted mess full of loop holes. As I was reading these comments, I had the following thoughts.
We could think about ways to make the financial institutions, which ultimately hold all of the worlds money transactions, responsible for all money movements and the tax collection. There should be provisions to insure that basic existence up to the poverty level is not taxed. As the wealthiest nation, that's the least we could do as a social net.
Yes we are a consumer driven society but it has reached an unhealthy level much like our level of obesity. We are suffering from Affluenza and unless we are willing to address this head on we will suffer.
If we are serious about changes, why not deal with the Trillion dollar and still growing deficit. If you had gone away on vacation and had not read or watched the news, you would forget all about the so called terrorism which has now conveniently replaced the cold war. The defense industry and the healthcare industry need to be reeled in and overhauled before they bankrupt us. On the healthcare side, you could just say no! to expensive drugs and treatments and believe me there are endless alternatives that have worked with no side effects for thousands of years. But what do you do about the defense industry and their responsibility for the violence and tyranny that plagues us today? Maybe we should have different levels of taxation. Lower on organic and non-polluting and heavier on polluting and environmentally destructive. That certainly would stimulate development of new cleaner technologies and healthier products.
I believe that all of these things need to be addressed as part of a bigger and better plan. Unfortunately, I do not believe that we can get these kind of changes unless we are willing to have 3rd parties at the table and the guts to tell the RepublicRats to go get jobs and let someone else have a shot at improving things.
Chad Bradley,
You should be very careful when citing a press release as if it were evidence. I've read the fairtax website and the press release you mentioned, and as an economist I can tell you that there is a world of difference between the 'evidence' posed by fairtax and legitimate economic analysis. Take a look at it again for yourself and see if you can figure it out (Hint: real economic analysis includes the equations used and details the assumptions made, such as average expenditure levels and economic impact based on marginal propensity to save/spend).
I suggest you read Paul Krugman's article on taxes at: http://www.faireconomy.org/econ/taxes/KrugmanTaxCutCon.html
It's a good way for you to begin to understand both the political and financial forces that are behind the flat tax and sales tax movements. It should help you to see the flaws in your argument more clearly.
J.S.
This would accomplish exactly what we want: encourage earning and saving, and penalize consumption. Currently we encourage people to over-spend (called "stimulus" by those who justify it, and we also punish investment.)
The risk in implementation is that getting rid of the IRS and income tax is probably impossible, so we would probably end up with both taxes in the end.
Let me present another potential downside of a flat tax. A 'flat tax' would further excellerate the underground conterfeit market of products, a problem that costs companies millions now. Would this then require additional governmment oversite, investigation and enforcement. Would not this lead to the need for additional government resources and could it result in a return to the days of the 'G-Man,' and merely shift 'big' government from the IRS to a new agency - most likely under Homeland Security, which would be charged with yet another potential source for funding terrorist threats.
Flat Tax is a little scary. Ireland relies heavily on sales tax to fill out the coffers. As a result every year key money making products have heavier taxes added each year. Not to fuel the stereotypes but the key items that are hit every year are gasoline, alcohol and cigarettes. As a result inflation is at an all time high with very little sign of dropping. Ireland is now the second most expensive country in Europe if not the world. Gas is over $4/gallon and set to rise again soon. The cost of rudimentary needs such as basic clothing, nothing designer shall we say, would make the average consumer here gag. I believe that either way you look at it tax on income and tax on sales both have the potential for governmental abuse. One comment was to make banks responsible for collecting taxes direct from accounts. Ireland already thought of that scam. It's called DIRT (Direct Intervention Retention Tax) i.e. the bank automatically taxes the pathetic revenue generated by interest on savings accounts etc.
Would this flat tax apply to capital purchases?? Add 21% to your new car, would it apply in addition to property tax? Add 21% to your home or to your office space. Trust me I hate income tax but I fear flat tax.
Those above that have disagreed with a flat sales tax have obviously not done their homework. All the reasons are reactionary and canned! Rich get richer. Hinders consumption. It is the FAT CATS pushing this. The MAN is out to get us! I fear they engage in the political process the same way.
To those "Reactionaries" nothing one posts here will make a difference, and those FairTaxers should not expend your energy with them. Instead focus on the intellectuals that are willing to listen and make up their own mind, rather than repeat the rhetoric of their leaders. You want allies that believe because they discovered on their own. Not followers that blow with the wind!
For those "Thinking men/women", I only ask this. Look into it yourself. Actually research the bill. Crunch the numbers for your household. Ask questions and make up your own mind. We do not need to scare you with rhetoric. The truth stands on its own!
Here’s the way to generate (inside the U. S. economy) "heaps & gobs" of money that will be looking for a place to be invested.
America is currently plagued by the problem of joblessness, and in spite of the best efforts of those in charge of remedying it, little, if any, progress is being made. Other countries such as China, Japan, Korea, and others seem not to have this problem to the great extent that the U. S. A. does. America’s retail shelves are stacked with cheaper foreign goods that have driven American manufactured goods out of the market. Americans no longer provide many services in the U. S. A. because they have been outsourced to foreign countries such as India because labor costs are much cheaper there.
Methods of taxation in other countries also contribute to the American unemployment problem. Most Americans do not realize the Europeans, Australians, and Canadians (with their GST----Goods and Sales tax), and countless others with a VAT (Value Added Tax) have had a discriminatory tax on American goods and services for decades! This discriminatory tax is 15 to 25% in Europe.
It works like this: every business has many costs, one of which is taxes (payroll taxes, profits taxes, etc.). In the U. S. A., these costs, like all other costs, are included in the prices of our products, but we don’t itemize (clearly showing) the specific increment that is taxes. When we ship that product to Europe, etc., they add the VAT to the already tax-laden American product.
Companies in the VAT countries, like American companies, have to pay taxes, but they keep track of the taxes as the product proceeds along the production process. They call the incremental taxes VAT. When the product is put on the retail shelf in Europe, etc., it includes the VAT, and the VAT is revealed to the customer.
Now it gets interesting: when a tax-laden American product (about 22% on average) is put on the shelf next to the EU product, in Europe, the VAT is added to the American product. Now the American product is 20+% more expensive than the comparable EU product! Guess which one sells?
Conversely, when the EU product is exported, they remove the VAT! When that EU product is exported to the US, it sits on the retail shelf in the US with no taxes included right next to the American product with all the taxes included! So, once again, the American product is 20+% more expensive than the comparable EU product, and on our own shores! Guess which one sells?
We have put up with this nonsense for decades, while we debate tariffs on foreign steel and other like products produced domestically in the U. S. A. that must be protected from foreign competition if our domestic industry is to survive. Tariffs and other protectionism measures have not proven to be a satisfactory solution in protecting our domestic job market. The Smoot-Hawley tariff of 1930 was enacted to protect the American farmer from competition from much cheaper imported farm products. It represents the high-water mark of U.S. protectionism in the twentieth century, and it precipitated negative results (retaliation by other countries).
There is a plan all ready to go that, if enacted into law now, will produce the kind of super-rapid economic growth and new job-creation that is sorely needed, plus generate many additional good results for our nation! It is H.R. 25, the Fair Tax Act of 2003. This bill has bi-partisan sponsorship, widespread support among the hard-working taxpayers/voters, and fast growing support within the House of Representatives (over 55 co-sponsors) and Senate.
The Fair Tax will produce these highly desirable results:
· Our nation will enter a period of many years of sustained economic growth with new job-creation unequalled by anything in our past history.
· The Fair Tax plan will bring back a measure of fairness and freedom to America that has been sorely trampled-upon by the Income Tax System (and IRS) for many, many years.
· Receipts from the Fair Tax will be more than sufficient to fund the Social Security System and Medicare, plus enable the government to meet its needs and steadily pay-down the national debt.
The Fair Tax draws on a much larger tax base (our GNP, gross national product each year, when it is sold) than does the income tax; virtually no one will be able to evade paying at the "check-out" register. This will lighten the load for all of us. Under the Fair Tax the "sticker price" of all that you buy will fall 20-30%. So, even with the 23% Fair Tax added on, the cost of living would be no more than it is now, more likely it would be less.
The Fair Tax will:
· Replace the current complex and unfair federal tax system with a simple sales tax.
· Eliminate personal and corporate income taxes and Social Security, Medicare, gift and estate taxes.
· Save taxpayers $250-$600 billion now being wasted in complying with the current tax code.
· Lower "sticker" prices 20-30% by removing the cost of business compliance with the current tax code.
· Make American products more competitive with foreign products. Thus, hurling American manufacturing levels to dizzying heights not seen within recent memory.
· Provide a more stable revenue source and raise the same amount of money for the federal government with the imposition of a 23% sales tax with no loopholes.
· Dramatically lower tax rates for lower and middle-income Americans by pre-bate payments to households to offset the sales tax on necessities.
· Protect and ensure the funding of Social Security and Medicare.
· Repeal the 16th Amendment and eliminate the Internal Revenue Service as we know it. Taxes on income will no longer be constitutional.
· Bring capital investment flooding onto American shores. Business, no longer being taxed, will enjoy America as the most “business-friendly” nation on earth.
Whole-heartedly support House Resolution #25---the Fair Tax reform proposal as a curative solution to relieve the American people of the tyranny of our present tax system (income tax IRS) and put Americans back to work. That would be a great legacy to leave the American people.
The current 7-million-word tax code requires 1,168 pages (2 volumes) to publish, and an additional 6,439 pages of Federal Tax regulations that apply to income taxes. The IRS has created 480 tax forms with an additional 280 to explain how to fill out the 480. More Americans work in tax compliance occupations (CPAs, tax attorneys, etc.) than serve in the entire U.S. Armed Forces. The IRS is twice as big as the CIA and five times the size of the FBI. The compliance costs dwarf the amount of the tax collected. In addition to that, the IRS spends a yearly $10 billion budget. The total national cost of compliance (not counting the taxes paid) is $250 billion yearly. That's $850 per capita of U.S. population.
The Fair Tax reform proposal, which may be fully understood at the website www.fairtax.org, is the best alternative to replace the IRS. It is a simple (retail only) national sales tax. It is not a VAT (value added tax---applied at every level of the production process). Business-to-business transactions, not being retail, are not taxed. Nothing is deducted from the employee’s paycheck. He has to spend it on new goods only, not used goods, for it to be taxed. Thus, one is in charge of one’s own "tax destiny.”
The individual person is allowed to spend the first $8,860 of his yearly income tax-free (he will get monthly reimbursement refund checks for taxes paid on that amount), $17,720 (for a couple), $20,800 (household of 3), $23,880 (h.h. of 4), $26,960 (h.h. of 5), $30,040 (h.h. of 6), $33,120 (h.h. of 7), $36, 200 (h.h. of 8).
Under this system, "sticker" prices would fall 20-30%, thus, giving our exports a much better competitive edge when sold abroad. This would "kick" the economy into high gear. Businesses (no longer having to send the IRS any money at all) would simply pass the savings on to the consumer, their shareholders, and their employees as higher wages. Forty-five of the fifty states use a sales tax to generate revenue because they know that it is the fairest, simplest, easiest, most cost-effective, most problem-free method of taxation. The state taxing authority in each state would assume the duty of collecting the national sales tax for the U. S. government. Only the retailers file a tax return stating the amount of their sales for the year. For everyone else, April 15 is just another spring day.
Each taxpayer gets a monthly refund check in the amount taxed on his spending up to the poverty line. So, in effect, he is only taxed on his spending above the poverty line. In no case will anyone sacrifice more than 23% of his total income to the sales tax, even if he spends all his income on retail purchases.
Unspent income remains tax-free and available for investment or education expenses. Compliance cost of administering the Fair Tax is only $8 billion yearly. That is a big savings compared to the $250 billion we now pay. The IRS, with all the taxpayer support services that it has made necessary, is intolerably burdensome and expensive.
At the Fair Tax website, don't stop with the first frame. Click on each of the major headings for more complete information. It will take awhile to do all this, but it is well worth it. You will learn everything you've always wanted to know about the economy and taxation, but were afraid to ask!
See also:
http://www.fairtaxvolunteer.org/materials/comparison.html
and http://www.geocities.com/cmcofer/fca3.html.
Then go to www.congress.org and tell your congressmen that you
want the Fair Tax Act, HR 25, passed into law ASAP!
America, producing an endless supply of high quality, competitively priced goods and services, will have a behemoth-size trade surplus. An ever-expanding economy will shift the balance of payments in favor of the U. S. A. America will be a lender to many, a debtor to none. There will be jobs and income for all who will work.
“There is nothing more powerful than an idea whose time has come.” ---Victor Hugo.
Sincerely Yours,
John Paul McDaniel
4932 Oak Bluff
Mesquite, Texas 75150-3193
972-226-5798
Best Regards,
John Paul McDaniel
Go to: www.fairtax.org
Thoughtfully consider this also:
A sales tax would eliminate the Internal Revenue Service, cheating, innocent mistakes, audits, back taxes and penalties, tax preparation fees and hours filling out complicated forms that
even the IRS admits it doesn't understand. Huge savings from fraud, evasion, and abuse also would result.
Opponents say a sales tax wouldn't be fair to the lower and middle classes because they would pay at the same rate as the wealthy. Actually, they would pay much less. If John Kerry were to buy another $8,000 bicycle, he would be charged far more than a commoner purchasing a $100 bike at Wal-Mart, for example, and Kerry no longer would have access to a bevy of legal loopholes that the commoner cannot afford to employ.
In the Federalist Papers, Alexander Hamilton wrote: "It is a singular advantage of taxes on articles of consumption that they contain in their own nature a security against excesses. They
prescribe their own limit, which cannot be exceeded without defeating the end purposed -- that is, an extension of the revenue."
The higher the sales tax is raised, in other words, the more people are likely to cut back spending to avoid the tax.
Thus, a sales tax would give poor people a means legally to avoid taxes.
Also, as Hamilton pointed out, a sales tax would put downward pressure on government spending by restraining the growth of revenues.
It's odd that today's political left so vehemently opposes an ideal embraced by the father of American liberalism -- and even
odder that, if the truth were known, they probably oppose it for same reason Hamilton favored it.
For Goodness Sakes! Go to the www.fairtax.org website and learn the facts. The FairTax is the most wonderful idea to come along in your lifetime. Get on board. Quit guessing about what it is and how it would work. Help make it happen and reap the rewards. There are NO negatives to it!
The Fair Tax would have these very POSITIVE effects on the real estate market:
1.Mortgage interest deductions mean nothing when you have 100% of your income and no taxes, so there is nothing to deduct from.
2. Mortgage Interest deduction is more than off-set by being able to keep 100% of your income.
3. Having 100% of your income will make qualifying for a home mortgage easier.
4. The fact that all borrowing will be at tax exempt rates means all home owners will be able to borrow money at 25% to 30% less than taxable rates today.
5. The value of all existing homes is tied to the construction cost of new homes. If there is a one time increase in the cost of new homes because of the Fair Tax, then it will pull up the value of all existing homes, thus creating a equity win fall for all existing home owners, i.e. 70% of all American households own their home.
6. The strong demand for housing is being driven by two factors, low interest rates and demographic trends that are expected to continue for the next 20 years.
7. The fact that the Fair Tax will make America the tax haven of the world will bring in huge amounts of capital to this country. New factories, more employment, and the influx of capital will drive interest rates even lower. Demand for housing will be even stronger than it is now.
8. A key factor for all home owners is the Fair Tax produces a strong increase in the true after-all-taxes purchasing power of Americans. After-tax-purchasing power is the true measure of the benefit of the Fair Tax and can not be ignored by our critics. That means an increase in the standard of living for all Americans. This is explained in the attached article I prepared for my real estate collogues.
No money - no problems? So we get RFID rice grain computer chips injected (unknowingly) when we get a 'flu jab' or other vaccination to solve the problem.
How about a flat 3% on bank account transactions? The econony is huge and the government just taking a small percent is enough to run the schools and hospitals and public services. Scrap the defence to being just that...defending the coast of a country and preparing for any disasters natural or otherwise.
Think about it.
Adam.
I'd probably ask him for a break for me and my friends and family.
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