The income tax has four negatives: (1) We are forced to pay money to the government; (2) filing the tax forms invades our privacy, forcing us to reveal how much money we have, how we got it, how we spent it; (3) it’s a hassle to keep records, then hire accountants or attorneys to make sure we filed correctly "under penalty of perjury"; and (4) the exemptions and deductions discriminate against gays, singles, childless couples, and others based on spending and lifestyle choices.
Conservatives and progressives both insist that taxes are necessary. (Conservatives are supposedly anti-tax, but how else would they pay for their global, decades-long "war on terror?") But let's suppose they're right. Wouldn’t it be better if the feds could collect that money without invading our privacy or fostering discrimination (issues that progressives supposedly care about), and without hassling people with burdensome record-keeping and form filing?
If you agree, the answer is to replace all federal taxes with a national sales tax (aka the Fair Tax, not be confused with the Flat Tax, which is merely a variation on the income tax). This one national sales tax could replace federal income, payroll, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
How high must a national sales tax be to replace all those? FairTax.org estimates 23 percent (on top of state and local sales taxes). That sounds like a lot of extra money to pay at the store each time you shop. But the average person now pays 33 percent of his or her income to taxes (Tax Freedom Day came on April 30 in 2007, according to TaxFoundation.org). A 23 percent sales tax isn't much to abolish all federal taxes. It still leaves you 10 percent for state and local taxes.
Consider the benefits:
* No invasion of privacy. No record-keeping or filing with the IRS. No audits.
* No tax attorneys or accountants to hire. More money for you.
* Transparency. You'll see what you and everyone else pays. That’s bad for those who want higher taxes – hidden taxes are easier to raise – but good for those who value an informed democracy over smoke-filled, backroom deals.
* No discrimination. Straight singles and gays complain that marriage currently brings tax benefits denied to them. Childless couples complain that tax laws favor couples with children. A Fair Tax won't end the culture war, but it'll lower the volume.
Article comments
— go to most recent comments1 - gonzo marx
done this dance before
my bit of dissent revolves around who set it up, and who benefits the most
big business
they don't have to pay any taxes any longer under this supposedly "fair" plan
i know their side of the argument, that they never pay taxes anyway..the consumer does
but unless every stock/equity trade is treated the way they do "consumption" for tax purposes it remains just another dodge scheme
add that simple thing, and tack on and import tax for ALL goods coming in the country (higher rates if there is not equitable trade between us and them...like with, say China) and i'll shout priase form the rooftops
without those two things, it remains a very clever scam for the benefit of the few, imo
well written article...thanks for sharing it with us
Excelsior?
2 - Clavos
I've been in favor of the FairTax since more than a year ago, when my own tax guy gave me a copy of Neal Boortz's book.
Thanks, Thomas, for a clear and concise explication of it.
3 - Ruvy in Jerusalem
What the great Gonzo said in comment #1.
To amplify his comments: Israel has a 15.5% VAT, which is a national sales tax. If we removed that, and moved the burden of the taxes onto a progressive income tax system, consumption here would increase immensely. So would prosperity. An income tax can be arranged so that there is barely any paperwork involved, and the Israeli income tax levied on individuals is such a system.
Be grateful for the vampire that is not sucking the blood out of your veins, Tom - a national sales tax.
4 - gonzo marx
i forgot to mention the boondoggle of the "pre-bate"
this one really boggles my Mind to try and get around...how does it make it "simpler" in any way?
no..fair would be an across the board consumption tax on everything under the sun...goods and services...add the import tax, and be done
this way a business buys something, it pays tax on what they buy, same as a person...you buy a stock, you pay your tax...your house, toilet paper...anything
with the volume of consumption (slightly higher for imported goods)the actual percentage wouldn't be burdensome...especially in light of removing the income tax
but you can have NO exceptions for ANYONE or anything...
otherwise, throw out the word "fair", it reeks of a marketing gimmick/Orwellian double speak under the proposed plan
Excelsior?
5 - Lumpy
The prebate is the largest social welfare and wealth redistribution scheme ever conceived of. It's payoff to the left to get them to go along with the fair (lol) tax.
6 - Dr Dreadful
Here's a radical thought: income tax set at the same rate for EVERYBODY AND EVERY BUSINESS. Across the board. Same percentage of your income, no matter what you bring in, so you pay according to your ability to pay. Deducted at source, whether it's wages, social security, welfare, child support or whatever. The rate itself could be variable: reviewed annually and raised or lowered depending on national need. If Congress starts seeing dollar signs in its sleep and sets it too high, vote their asses out next chance you get. Now how fair and simple is that?
7 - Clavos
One thing I don't understand is how all you folks can fail to see that ALL the taxes a corporation (or any business) pays are passed through to the customer in the price of the goods or services.
The folks who rent my house pay the property taxes, not I. I merely collect the tax from them and pass it on to the government; the taxes are not coming out of my pocket, they're coming from my tenants.
It's a simple concept. The ONLY entities that REALLY pay taxes in our economy are the people.
The tax stops here...
8 - gonzo marx
i understand your point Clavos, but here's my thinking
my proposal lets the Free Market work FOR taxpayers...to wit - those businesses that take a small hit to their profit margin in order to keep their price after consumption tax low in order to increase sales volume will be rewarded with higher sales and thus greater profits than those who just "pass the cost along" in toto
how's that grab ya for Enlightened capitalism?
oh yeah..nice to see ya got yer keyboard fixed there, Lumpy
Excelsior?
9 - STM
Doc, I'm really bloody surprised at you, to say the least (consider that a slap on the wrist for evensuggesting such a thing). Flat taxes (and that's exactly what the so-called Fair Tax is) are the economists' equivalent of the Flat Earth Society.
Think about it, old boy, in terms of this so-called Fair Tax idea (which is actually quiote right wing in terms of how it affects the lower paid). If I earn $200,000 a year, and rush off to buy my groceries for a family of four, and let's say it comes to $100 (if I buy it at Aldi!), I pay 23 odd dollars in tax.
Now, a single mother of three, perhaps working part time on a wage of let's say $45,000, dumped by her husband who is fighting her through the courts for custody and won't give her a cent for the kids, does the same shop and it comes to around the same amount.
She also pays $23 in tax, not to mention 23 per cent on everything she buys for her children's school needs, holiday entertainment, etc.
While I would have to do the same on my hypothetical $200,000, it would be far less of an impost on me than her simply because of my earning power. I honestly don't have a problem with paying a bit more tax so that she pays a bit less.
These so-called Fair Taxes are in fact extremely unfair. I favour a GST/VAT of about 10 per cent on all goods and services except basic unprocessed/uncooked foostuffs (milk, meat, eggs, butter, vegies, fruit, bread, etc), coupled with an income tax applied on a sliding scale that is less at the lower end and higher at the top end, but not so high that it discourages people from working hard to earn a quid.
Basically, the so-called Fair Tax idea is an extremely to the right scheme that gives higher earners more money and lower earners a lot less.
For that reason, it's also extremely bloody selfish.
10 - gonzo marx
good input STM, always a pleasure to hear the thoughts from Down Under
i forgot to mention, my proposal also has the added benefit of promoting American manufacturing/jobs/services
by using a higher consumption tax rate for imported goods and services (say 7% for domestic and 10% for imports, the actuarians would have to hammer out the exact rates needed) you have tax policy actually helping to foster and create American jobs as good business?
example - that Toyota plant making cars in the U.S. would have a lower retail price than a comparable car built in the Mexican Ford plant that would have the higher rate applied on similar models of cars...
folks can still choose what they want, but pricing now favors the domestically produced car!
i like STM's idea for exempting domestic uncooked foodstuffs...so i'm stealing it (thanks cobber)
i would have one tax free exemption...US savings and Treasury bonds!
and there's the gonzo tax plan, film at 11
Excelsior?
11 - Dr Dreadful
Yeah, but Stan, I'm not talking about sales tax (there are holes in that scheme you can sail the QM2 through, so bugger it say I), but income tax.
Of course here in the US, the whole thing is complicated by state taxes, which are levied on top of federal ones (although some states, such as Oregon and Texas, raise revenue by other means).
I do long for the simple, hassle-free (for Joe Bloggs, at any rate) Pay-As-You-Earn scheme we had in England. Haben Sie in Australien etwas ähnliches? Sometimes, in early February, I really feel that you need a master's degree in economics just to live here...
(Sorry about the lapsing into German back there - I think it's from discussing European beer with zing on another thread...)
12 - Thomas M. Sipos
Lumpy: "The prebate is the largest social welfare and wealth redistribution scheme ever conceived of. It's payoff to the left to get them to go along with the fair (lol) tax."
Very true. Unfortunately, such a payoff may be necessary to get it passed. Otherwise, how do you placate all those "single mothers of three who earn $45,000 a year"?
13 - STM
"Very true. Unfortunately, such a payoff may be necessary to get it passed. Otherwise, how do you placate all those "single mothers of three who earn $45,000 a year"?"
Don't be a dickhead Thomas ... you know this tax isn't fair. It's designed to give more money to high-income earners and less to low-income earners. Period.
As a person in my country in the highest tax and income bracket, I can tell you with absolute certainty that I like the idea that I pay a bit more so the single mother of three pays less.
There is nothing more detrimental to the wellbeing of a nation than having the haves having too much and the have nots having too little.
Somewhere in between keeps the social fabric unruffled, and your Fair Tax idiocy won't achieve that by a long shot.
Just remember, it's not always about you ...
Perhaps that's America's problem, in part. No real sense of community.
14 - Thomas M. Sipos
STM: "Don't be a dickhead Thomas"
You're the first in this thread to reach for abuse rather than a rational and civil response, so I guess you lose.
STM: "There is nothing more detrimental to the wellbeing of a nation than having the haves having too much and the have nots having too little. ... Just remember, it's not always about you"
It seems you assume I'm rich. FWIW, I'm not in one of the higher income tax brackets. I make well under six figures a year and I don't own a house (I missed out on the real estate boom).
Speaking of which, one of my fellow libertarians opposes a national sales tax, because he'd lose his mortgage and marriage deductions. He thinks the current system is more favorable to home owners (who are usually not the working poor).
But even though I'm not in one of the upper tax brackets, I hate those forms. They're a hassle, and an invasion of privacy. I'd even be willing to pay a little more in sales taxes just to never have to fill out a tax form again.
15 - gonzo marx
so your advocacy of this misnamed program stems from not wanting to fill out forms?
i'm a homeowner , married and i itemize...do my taxes online ...which takes under 2 hours...where's the difficulty here?
imo, certainly not worth even the bullshit the pre-bate would cause...much less the objections i raised earlier
your mileage may vary
Excelsior?
16 - Ruvy in Jerusalem
So Thomas, if the income tax and the way income was withheld in you country was reworked to make the amount nearly equal what the tax owed should be, and no forms had to be filled out, would that please you? That is usually the way things work here in Israel...
17 - Dr Dreadful
The difficulty, gonzo, lies at least partly in worrying whether, in your mind-bendingly complex journey through H&R Block Online or TurboTax, you've missed or misreported something that the IRS auditors are going to nail you on good sometime in the next five years.
Ruvy: you have PAYE in Israel too? Don't you just love it? :-)
18 - gonzo marx
actually Dr...it ain't hard at all, i don't find a single bit of the H&R process "mindbending" in the least...
before i sit down to do it, i have all my paperwork right with me, and i enter what's asked for and click away
now, it is possible i don't squeeze out every dime i possibly could..but if i wanted to spend a little extra on their services to have a pro go over it, i'm sure it would be fine..with their guarantee and all
but since i'm not trying to game the system in the least...i have no worries about an audit
now, would i rather not need to use H&R?...yeah, but i'm leery of using the IRS system alone, and am more comfortable having the H&R guarantee...i consider their price for the service reasonable under the circumstance
but that is just me...your mileage may vary
Excelsior?
19 - STM
Thomas: "You're the first in this thread to reach for abuse".
Once again, don't be a dickhead - dickhead is not a form of abuse, it's a form of address.
20 - STM
Thomas: "But even though I'm not in one of the upper tax brackets, I hate those forms. They're a hassle, and an invasion of privacy. I'd even be willing to pay a little more in sales taxes just to never have to fill out a tax form again".
And in the process, consign those who are really in need to even more hardship? Think about it seriously Thomas.
21 - STM
DD: "Ruvy: you have PAYE in Israel too? Don't you just love it? :-)"
We have PAYG (Pay as you go) here too, but you still have to put in your tax return forms.
What's the problem? It doesn't take that long, especially if you get a tax accountant to do it :)
Lately, though, I always end up owing. Bad news.
22 - bliffle
A moments thought reveals the flaws in Clavos' theory that businesses pay no taxes, just collect them from customers and pass them on to the government.
1) It is Clavos' responsibility to pay property taxes whether he has tenants or not. If his tenant absconds in the night Clavos must still pay. If he is unable to rent his domicile he still must pay. he can neither protest to the government that he has no tenant, nor can he chase old tenants and demand that they pay more retrospectively to help him pay his taxes. Clavos is indeed responsible for paying his property taxes.
2) one could equally well say that no worker really pays taxes since he must, perforce, collect sufficient moneys from his employer to pay those taxes levied on his income.
Clavos' argument is so easily refuted that one wonders that anyone advances it anymore.
23 - Thomas M. Sipos
It's not just the forms, it's the principle. It's an invasion of privacy.
Ruvy, the Israeli system may please me more, though I'd need to know more details.
24 - bliffle
Devising a 'fair tax' system has been the hobby of shallow thinkers for a long time. Alas, NO tax system is fair. Someone suffers unfairly, and some scoundrels benefit unfairly. Always.
If it must be so, that any system will be unfair, then it is best to keep the tax amount small and to spend wisely on projects of the greatest general benefit (instead of private pelf).
25 - Doug Hunter
"It's designed to give more money to high-income earners and less to low-income earners."
I suppose by give you mean allow them to keep what they've earned.