Skip to comments.Commentary: Doing away with the Internal Revenue Service (IRS) (Replacing With The Fair Tax)
Posted on 02/01/2008 12:06:25 PM PST by Man50D
There has been much misunderstanding-deliberately promoted by income tax system defenders recently-about the effects of the FairTax on different income segments of the taxpaying public. Let's clear the air a bit.
The greatest benefits of tax reductions under the FairTax, according to respected economists, accrue to low income taxpayers (an average 14% reduction) then to the middle class taxpayers(an average 7% reduction) and then even to the wealthy (an average 5% reduction).
How can this be and still raise enough revenues to replace all taxes now collected under the income tax system? It's because the taxpayers base is dramatically broadened under a consumption tax by bringing in illegal immigrants, as consumers, and the $1.5 trillion annual underground economy. In addition, the very wealthy pay the full 23% rate on spending, which is an increase over the typical 15% capital gains tax now paid on dividends and stock gains when redeemed (Warren Buffet's recent complaint). In a nutshell, the more you spend under the FairTax, the more taxes you pay. Remember, too, that all the gimmicks that those with tax lobbyists and tax lawyers are able to exploit in the current 67,500 pages of income tax regulations also disappear (along with the role of tax lobbyists as there are no exemptions, loopholes or deductions).
The President's Advisory Panel on Tax Reform declared that taxes would go up on the middle class under a consumption tax when they ignored the definitions in the actual pending FairTax legislation and created their own flawed consumption tax. They quietly loaded it with exemptions they felt more "realistic", ignored the distributional effects of eliminating highly regressive FICA taxes (you know, the ones that represent the highest tax payments by low and moderate income taxpayers) and refused to examine the $22 million of FairTax research. They then declared a consumption tax (which many writers have wrongly assumed was the FairTax) as requiring a higher rate and punitive to the middle class.
The FairTax monthly prebate actually wipes out all federal taxes on the poor and a diminishing amount of taxes are reimbursed the further one is from the poverty line.
There is great resistance to the FairTax within the circles of those who profit from the complexities of the income tax code. Last year 53% of all lobby expenditures in Washington, DC were paid to tax lobbyists. It's big business that includes not only lobbyists and tax related think tanks and tax reforms groups (entirely devoted to tweaking the income tax code) but academicians who have built careers on understanding the arcane details of the code.
Add to that the center of resistance to a simple, transparent system without gimmicks-the Congressional tax writing committees themselves. In truth, Congressional Members from both parties are addicted to using the tax code to reward friends and contributors, punish opponents and inept attempts to manipulate citizen behavior through the code. In other words, our tax writing process is driven by all the wrong reasons.
This is the single biggest reason that our tax code is so complex that it costs taxpayers $265 billion a year just to complete tax returns. It is so complex that the IRS can't answer taxpayer questions right more than six of ten times. It is so complex, the IRS comes up $350 billion short of owed taxes every year (raising the average taxpayer bill by about $2,000 annually).
On the merits, the FairTax takes politics out of the tax code and the tax code out of business decisions. It is the politics that are tough because passage requires overcoming powerful institutional players. To this end, Mike Huckabee and a host of other candidates have joined 72 Congressional co-sponsors and a growing army of citizens who believe that the public can still drive public policy ( a novel idea first suggested by the Founding Fathers). Otherwise, we are stuck with a system that makes debt more favorable than wealth, puts the "Made in America" label at a severe competitive disadvantage and punishes labor and investment. It's a system driven by politics, power and profit instead of economics or fairness. It's a lucrative gig for those in Washington and a destructive torture for everyone else.
Instead of borrowing money from the Chinese to pay out rebates to American taxpayers (as welcome as they will be) maybe we should think about what happens to the American economy when we make the USA the most desirable "tax haven" in the world. We have lost at least $12 trillion in American capital to offshore locations in recent years. Economists who have studied the FairTax agree that this wealth and a lot more in foreign investment will rush to our shores once the FairTax is enacted.
As FairTaxers say, "Dare to Be Fair". The FairTax won't be perfect and the transition will require adjustments but compared to the badly broken income tax system that so bedevils taxpayers and damages our economy, it's well worth it.
The FairTax research-as well as a recent article on how the FairTax helps the middle class by brilliant Boston University economics chair, Larry Kotlikoff, can be found at FairTax.org
Fair Tax ping!
I can only support a change to the Fair Tax if is requires a Constitutional ammendment repealing the income tax. Without that, there is nothing to prevent a future Congress from re-imposing an income tax.
I am undecided about the fair tax. Someone did bring up the question concerning how you do the changeover. Lots of people who have made major financial decisions based on the current system could be ruined over night through no fault of their own.
Even a fair tax has to have someone to collect it, which means the IRS remains.
Has Wesley Snipes been sentenced yet?
It’s in the bloody Fair Tax Bill!
It can't and it won't.
no it is not.
it is LEGISLATIVE not constitutional.
Under HR 25 located at http://www.thomas.gov
SEC. 101. INCOME TAXES REPEALED.
Subtitle A of the Internal Revenue Code of 1986 (relating to income taxes and self-employment taxes) is repealed.
There is NOTHING stopping a reenactment of income tax on top of the 30% sales tax.
Name one position any of the candidates have taken that can’t be abolished by a future Congress.
The claim that a good thing can’t be supported because it could in the future be corrupted is poor reasoning.
but mike huckabee staked his ENTIRE CREDIBILITY ON THE IRS BOOGEYMAN!!!!!
How did taxes get collected before the IRS?
without a constitutional change this, giving all the claims as to revenue neutrality as a given assumption, does NOTHING to help taxpayers.
We are taxed too much, the IRS must go, this tax scam proposal does nothing but give us idiotic huckabee commercials.
Love the optimism.
same old same old
Retail businesses collect the tax from the consumer, just as state sales tax systems already do in 45 states; the FairTax is simply an additional line on the current sales tax reporting form. Retailers simply collect the tax and send it to the state taxing authority. All businesses serving as collection agents receive a fee for collection, and the states also receive a collection fee. The tax revenues from the states are then sent to the U.S. Treasury. ............................................................
Frequesntly asked Questions about the Fair Tax
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