Fair Tax—This is Fascinating
Chris Rock has a line about how we don’t pay income tax—they take it. The method with which tax is calculated, how much you owe and the various penalties and benefits you are eligible for is so sophisticated that the US IRS Tax Code is a whopping 54,846 pages long. 54,846 pages! It’s so complex that CPAs specialize in various fields, much like doctors and lawyers.
I’ve grown up with this system and have accepted it as part of American life. Color me surprised when I find that many of the Republican candidates for the 2008 Presidential election are proponents of something called Fair Tax. In a nutshell, Fair Tax would get rid of income tax, disband the IRS, and all government taxation would be derived from a 23% sales tax. You keep your whole paycheck, and the government gets theirs from what you purchase. From Americans For Fair Taxation: About the Fair Tax:
The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.
Whoa! I might have my head in the sand, but I really didn’t see this coming. What a fascinating idea! There’s apparently a New York Times bestseller written by Neal Boortz called The Fair Tax Book
To make it more fair to folks earning less, the government hands out “prebate” checks every year, so people near the poverty line won’t have their income drowning in taxation. From CNNMoney.com: Behind Huckabee’s radical ‘Fair Tax’:
But the sales tax plan would partly offset this effect by sending every household in America, from the family of a poor single mother to Warren Buffett, a check to cover the taxes on their spending up to the poverty level.
Factor in that cash from the government, and each family’s net tax burden goes down, so that the Fair Tax looks more progressive.
For example, a family of three earning $30,000 a year and spending all their income would give 7% of their pay to the government; one earning and spending $125,000 would pay a net rate of about 19%.
At first blush, this seems pretty brilliant. At the very least, it’s a fresh new look at an existing problem. There are many things to consider—decreased consumption and spending, for one—but on the other hand it would start drawing tax from people that have successfully avoided them in the past (think: illegal immigrants, drug dealers, etc).
That Boortz’ book made bestseller is evidence itself of the interest in something like this; let’s see where this goes in the coming months.