According to a new study, SPAM costs American businesses $70 billion a year. That's a whole lot of money and productivity flushed down the drain every year. SPAM doesn't add to our country's GDP, it's a waste of time to deal with, and everyone hates it. Our lives and our economy would clearly be better without SPAM.
Now consider that compliance with the convoluted IRS tax system costs Americans over $200 billion dollars a year. That's three times worse than SPAM. The IRS doesn't add to our country's GDP, it's a waste of time to deal with, and everyone hates it. Just like with SPAM, our lives and our economy would clearly be better without the IRS.
Luckily, there's a solution that would free our citizens, businesses, and economy from the burden of IRS tax compliance. This solution would also halt the widespread cheating that goes on in the current system both accidentally due to absurd complexity and knowingly due to criminal behavior.
The FairTax plan replaces the IRS with a national sales tax. No income tax, no capital gains tax, no auditing, no loopholes, no cheating on taxes, monthly refunds up to the poverty line, and, best of all, not a single form for citizens to file - ever. Imagine getting your full paycheck without any taxes taken out.
Instead of taxes being embedded throughout the economy in the form of income taxes, payroll taxes, and various other taxes (all riddled with loopholes and exceptions), taxes would show up on your purchase receipts where you can keep an eye on them. Politicians would be hard pressed to raise taxes without a good reason if everyone's going to see it at the cash register the next day. Just look at the uproar a few percent rise in gas prices causes today. Prices won't even go up because tax is just moving from being part of the production cost to being part of the retail cost.
One benefit of a national sales tax is there's simply no way to cheat. What are you going to do, not buy anything? Honest citizens have to make up for all the tax money lost when cheaters pay employees under the table or misreport their income and investments, but with the FairTax those cheaters would suddenly start being taxed the same as everyone else. The government would even start raking in taxes when drug dealers spend their earnings. Increased tax revenue from everyone cheating today will only lessen the tax burden for the rest of us.
Logically, by eliminating the time and money spent by the private sector on IRS tax compliance, by eliminating the money spent by the government for the IRS' army of auditors, and by eliminating the ability for so many people to cheat on their taxes, the overall tax rate for everyone will go down and the economy will be more efficient. Win-win. Unfortunately, solving the SPAM problem isn't this easy.
Posted by JoshC at April 9, 2007 7:11 PM
http://www.joshchristie.com/weblog/mt/mt-tb.cgi/182
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I like the Fair Tax idea, but disagree with: "One benefit of a national sales tax is there's simply no way to cheat." More things will be sold on the black market to get around the taxes. At least some of the workers at the IRS would be needed to enforce the sales tax I'm guessing.
The other problem I have with it is being double taxed on money I already have. Let's say I have a good deal of money in the bank or in a Roth IRA or 401k. Typically, I would have already paid tax on the cash and certainly would have on the Roth account. Do I now have to pay tax on it again?
Posted by: chris hardee at June 18, 2007 9:14 PM
@John - I agree it would just about take a miracle to pull off such a massive overhaul of our tax system and still have it remotely resemble the FairTax plan when it's all said and done. Citizens and politicians need to make it a top priority, though, to ensure our future economic success.
As for people employed by our existing tax system, IRS employees will most likely be absorbed elsewhere in the myriad of government agencies since I can't imagine the federal government ever firing anyone. :) Obviously some would be needed to manage the collections of federal sales taxes. Many tax preparers are temporary seasonal employees, so they can just move to other seasonal work. Accountants are certainly not going to be out of business with all the other accounting regulations like Sarbox that exist these days. Tax lawyers, well who cares what happens to them ;)
@Chris - You bring up two great points. Criminals are always going to find ways to cheat in any system, but perhaps I should have said the FairTax plan would make it much more difficult than today and non-accidental. Today, average people are cheating on their taxes every year without even knowing it. It's simply too difficult to accurately figure out how much you owe. Paying people under the table also makes it real easy for millions of laborers and their employers to cheat. I can't imagine how difficult it must be for a contractor to track pay and taxes for every random day laborer. People doing odd jobs and those receiving tips are often cheating right now simply because it's too cumbersome to comply with the IRS. A national sales tax makes it easy to transfer money around between people and various investments for any reason without having to consider crazy tax consequences.
The transition to the FairTax system definitely has some hurdles in it's way as you brought up with the Roth IRA issue. Here's the way I think that could work: For long-term investments like retirement accounts that you've already paid tax on, the government could issue you a credit when you make withdrawals. The FairTax plan already includes issuing everyone a monthly "prebate" to cover expenses up to the poverty line. Financial institutions could report withdrawals from retirement accounts so you're next prebate would include credit for the taxes you already paid on that money. In the future, there'd be no need for such odd accounts as Roth IRAs, Roth 401ks, 401ks, etc. simply because money is money is money under the FairTax system. Every investment including your regular old savings account grows tax-deferred.
Josh
Posted by: Josh Christie at June 19, 2007 10:41 AM
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I agree with all that. Plus all your illegal aliens, drug dealers, and prostitutes would have to pay taxes.
Posted by: John Linville at June 1, 2007 3:46 PMOne reason I can't see it happening is because all your IRS employees, tax preparers and tax lawyers would be out of work. I don't think the government is going to let that happen.