Arguments for the FairTax

Reasons to Call Representatives About HR 25

Jul 14, 2009 Christopher Pascale

The current tax code is complicated. The FairTax will simplify it so that every American can understand it.

The FairTax, also known as HR 25 in the House of Representatives, has been in Congress since 1999 when it was introduced by Georgia Representative John Linder (R). If implemented, taxes would be collected based on a 23% inclusive sales tax ($77 retail items would cost $100) as opposed to collecting taxes from a person's paycheck, payroll, and investment gains, such as 401 (k) retirement plans.

Given that it has not been passed in the decade since its introduction many might believe that the FairTax is a passing idea that caught the attention of a minority of voters, and perhaps some special interest groups.

However, many citizens are becoming educated on the issue, especially since 2005 when The FairTax Book, by Rep Linder and libertarian radio talk show host, Neal Boortz reached #1 on the New York Times Bestsellers List.

Although the FairTax is not perfect, it has several advantages:

Transparency of the tax code
Reduction of the size of government
People collect all income prior to taxation
Broaden the tax base

The FairTax is Transparent

The current tax code is over 60,000 pages long (note the photo below of Rep Linder). The FairTax code is just over 130 pages.

The current tax code is so complicated that an entire industry (tax accountants) had to be created just to ensure that citizens pay their taxes correctly. Tax accountants are so valuable that many of them charge several hundred dollars per hour for their services, and most people feel that they must pay it for fear that they will end up on the wrong side of the IRS for not filing correctly.

The FairTax Calls for the Elimination of the IRS

With the FairTax in place, the Internal Revenue Service, and its more than 100,000 employees would be moved over to another government sector, or moved out to seek employment elsewhere.

While it is not preferable to lay off a large number of people, it is not efficient to feed an industry that would not only be unnecessary, but has a history of abusing the people it is supposed to serve.

While the IRS would be a thing of the past in its current form, there would still be a system in place to ensure that government revenues are being collected, but it would be significantly smaller. According to the US Census Bureau, there are more than 300 million people in the US. That is 300 million people involved in tax filing by way of filing for themselves, or being listed as a dependent. All of those people require a lot of work, hence, the more than 100,000 people at the IRS.

However, if the only point of revenue collection was from retail stores, then this faction of the government could be significantly reduced. If there were 30 million retailers, then 10,000 IRS employees would be necessary for retention. 3 million would require approximately 1,000. The US Census has shown that the numbers are closer to 300,000 retailers.

The FairTax Allows People to Have Their Entire Paycheck

The current tax system allows the government to take a person's money before it is actually determined how much they owe.

For example, a person earning $3,000 a month would typically be expected to pay 25% of his earnings to the government in the form of income tax. However, if this person was laid off on October 31, and earned no money for the rest of the year, he would fall into a lower bracket and receive a refund.

While a refund sounds nice, it would have been much nicer for that person's family if they'd have had the money ($7,500) that had been withheld over 12 months plus however long it took to file. This money could have been saved or invested.

However, then the government would have to wait for the money they are owed in income tax.

The FairTax Broadens the Tax Base

One of the aspects of the FairTax many supporters feel is very positive is that all consumption is taxed. While a person earning $3,000 a month is taking home that much instead of around $2,200 (after income, medicare and other taxes) he is free to either increase his lifestyle, which also increases tax contributions and money into the economy, or he can increase his investments and charitable giving, which will also boost the economy.

After a lifetime of middle income earnings, retirement can be more lucrative as there will be no deferred taxes to watch out for, allowing retirees to withdraw all of their money and do what they please with it.

Additionally, those who do not currently contribute to the system will under the FairTax. Since income is the current method of taxing wealth, people who claim no income pay no income taxes. This group includes drug dealers, thieves, prostitutes, and illegal immigrants.

With a consumption tax in place, all people would be taxed the same, including the very wealthy who currently pay much less in taxes by way of capital gains rates, which go no higher than 15% on investments that pay out over long periods of time.

The FairTax is not the only method of tax reform, but it is a very good one. It will allow people to understand the tax code while eliminating waste and increasing everyone's take-home-pay to 100% of what they earn. Fry cooks and rocket scientists alike will keep their money until they spend it, choosing when the government is entitled to it, and how much.

Sources

Clark, Derek. "Pros and Cons of the FairTax". geekpolitics.com

"Tax Payer Horror Stories". rpc.senate.gov

Bell, Kay. "A Look at Many Capital Gains Rates". bankrate.com

The copyright of the article Arguments for the FairTax in Accounting is owned by Christopher Pascale. Permission to republish Arguments for the FairTax in print or online must be granted by the author in writing.

Retirement Investment Growth Under the FairTax	Savings Growth Under the FairTax	Old Tax Collection Point Under FairTax
New Tax Collection Point Under the FairTax	Rep Linder Comparing Current Tax Code to HR 25