No one should need any convincing that our present federal and state income tax system is costly, oppressively complex, and economically inefficient.
The present federal tax code exceeds 54,000 pages and contains more than 2.8 million words, and much of it is for providing special tax breaks for individual companies or industries. Well, take heart because help is on the way.
A Fair Tax Plan has been introduced into Congress in the form of House Bill 25 and Senate Bill 25, and, if passed, would establish a federal progressive national retail sales tax.
We have previously discussed a Flat Tax in this column, which is a severely modified income tax that would be a vast improvement over the present system, and one that we should seriously consider.
But the FAIR Tax, as taken from an open letter from 80 college professors and financial experts to the President, Congress, and the American People, would be different, and in many ways far better.
The FAIR Tax is a national retail sales tax that would be levied upon only the final sale of goods and services.
It also provides that all income, capital gains, payroll, Medicare, and estate taxes, and social security (FICA) withholdings would be abolished upon its implementation!
Among other things, this would enable all workers and retirees to receive 100% of their paychecks and pension benefits because, since there would no longer be an income tax or these other taxes, there would be no need for any withholding from their paychecks. That would further mean that the woes of April 15 would be gone forever with regard to the federal government!
Importantly enough, this tax would not fall disproportionally upon the poor.
This would be assured by a rebate to all households each month on all of the sales taxes that were paid on necessities, up to an independently determined poverty amount of spending. That poverty level would probably be determined by a government agency like the Department of Health and Human Services.
In addition, there would be no sales tax attached either to the rental of or mortgages to purchase real property.
The sales taxes would be collected on all retail transactions, just as 45 states do already. And, importantly enough, the sales tax itself would be revenue neutral.
That is to say, it would not increase or decrease the amounts of tax monies that are paid each year to the federal government.
But it would significantly reduce the amount of administrative, collection, and enforcement expenses that the government now expends – and it would also materially reduce fraud.
How so? Because the only audits that would be required would be those of retail providers of goods and services.
And since the transparency of the tax system would be increased to almost complete, and the complexity would be reduced almost out of existence, it would increase everyone’s belief in the fairness of the system.
Obviously the imposition of this system would also result in similar enormous savings in compliance costs to individuals and corporations, which conservatively cost a total of about $225 billion per year.
And, importantly enough, this would also allow individuals and corporations once again to make family and business decisions based upon family and business considerations, instead of tax considerations.
In other words, for the most part the only people that would lose under the FAIR Tax would be some of the accountants and tax preparers of this world, as well as the employees of the Internal Revenue Service.
In addition, members of Congress would also lose a great deal of their power with the passage of this measure.
Why is that true? Because the ability to designate tax breaks for particular special interests directly results in a great deal of power for the members of Congress. And this power translates into campaign contributions, which, in turn, keep politicians more beholden to those same special interests. Passing the FAIR Tax would substantially do away with that problem area.
There would be other favorable tangible and intangible results as well. For example, all people, whether citizens or documented or undocumented residents, would end up paying their appropriate share of taxes. So this measure would materially enlarge the federal tax base.
Furthermore, it would also make our domestic goods more competitive with foreign goods both inside and outside of our borders.
Why? Because under our present system, payroll, Medicare and social security taxes are now paid on the labor to produce the goods and services that are created here, but not on those created abroad. With this new system, the taxes would be the same for all goods and services in our country, regardless of their origin. This is the system that most foreign countries use already, to our competitive disadvantage.
Similarly, the tax biases against working for the extra dollar and saving and investing money would also be removed, thus strongly re-encouraging these beneficial practices. Today’s income and capital gains taxes to an appreciable degree punish working for the extra dollar, and the saving and investing of those dollars. So removing these disincentives would directly lead to higher economic growth, a faster growth in productivity, more jobs, lower interest rates, and a higher standard of living for the American people.
Finally, even though the FAIR Tax would be designed to be revenue neutral, it would probably eventually increase gross revenues for the government, for each of two reasons. First, the savings both to individuals and to businesses would probably spur the economy significantly just by themselves, so more tax money would be generated. And secondly, since simplicity of enforcement as well as the reality and perception of fairness would all be increased, more people would pay their full share of taxes without feeling that they were being treated as chumps. So what’s not to like?
So how do we implement this change? Well, people are getting excited, and not only those involved with the Tea Party, and they are communicating that excitement to their members of Congress. That is what it takes, so please join them. Imagine the positive changes. Yes, the sales tax will probably be around 23% of all retail transactions, but keeping all of your income until you decide to make a purchase, no longer keeping records for the filing of tax returns, repealing all taxes on savings and investments, and so much more would truly result in a much better, less expensive, and more equitable system, for the prosperity of us all.
For further information, please visit www.passfairtax.com, or call (800) 962-8237.
JAMES P. GRAY is a retired judge of the Orange County Superior Court, the author of Wearing the Robe – the Art and Responsibilities of Judging in Today’s Courts (Square One Press, 2008), and can be contacted at email@example.com or via his website at www.judgejimgray.com .