Time for a change

Posted on April 16, 2007 | Type: In the News
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The good news is you have until midnight Tuesday to file your tax return. The bad news is that you probably spent an inordinate amount of time and money preparing it. But if you believe nothing can be done about this, you may be wrong.

An ideal system of taxation would be simple and transparent. Reasonably conscientious payers could comply with assurance that they had paid the correct amount. The tax itself would inflict minimal economic damage. Tax avoidance would have little impact on business and personal decisions.

Our current system fails spectacularly on all counts. Our tax code is so complicated that we are forced to spend over $200 billion on recordkeeping, preparation and filing of tax returns. That effort requires a workforce of 2.8 million people, more than work in auto, computer, aircraft and steel manufacturing combined.

We lose another $200 billion yearly by making tax decisions when economic decisions would produce more income. Then there is the army of corporate tax lawyers and accountants who must be paid for, the cost of tax planning services and the cost of audits and lawsuits. Now you're up to $500 billion a year that we lose from our economy before we pay a single tax dollar.

Even then, literally nobody understands our tax system well enough to prepare a repeatably accurate return. Tax professionals vary widely in the returns they produce from similar tax data. The IRS doesn't pretend to understand the hideously complex code they are supposed to administer. Inquiries to the IRS helpline receive incorrect answers about 50 percent of the time. The service refuses to stand behind its own advice.

Yet our taxes cost us even more. According to Dale Jorgen, chairman of the Harvard Economics Department, 22 percent of the price of consumer products actually represents the costs of the taxes paid by producers and suppliers in the process of making the product.

Although we've made an absolute mess of our federal taxes, this problem is solvable. Many reforms have been proposed, but the best idea by far would be to eliminate our present federal tax system and replace it with a national consumption tax, the FairTax.

It almost sounds too good to be true, but this time it isn't. Americans for Fair Taxation, a group of concerned citizens, raised millions of dollars to fund careful analysis by economists at major universities regarding alternatives to our dysfunctional taxation system. They concluded that a 23 percent sales tax on all goods and services, assessed only when a product is sold to the end-user, could completely replace not only individual and corporate income taxes, including the AMT, but also capital gains taxes, payroll taxes, and estate and gift taxes.

Think of how this would transform our economy. With the taxation burden removed, Americas manufacturing base could be restored. Assets now offshore (an estimated $12 trillion worth) could be brought back home without tax penalty. Higher paying jobs would be created.

There would be no IRS. No tedious keeping of tax records, no invasion of privacy, no dread of April 15 or worry about making mistakes. We would pay taxes only when we chose to spend our money. Visitors, legal and illegal, would pay their share.

Of course, sales taxes are inherently regressive. The FairTax proposal solves that by rebating, to all taxpayers, the tax on spending up to the Federal Poverty Level. The rebate check would be based only on family size. Thus, low income families would not only pay no net sales tax, they would take home 100 percent of their paycheck with no payroll taxes deducted. The cost of everything they purchase would drop up to 22 percent with the embedded tax costs taken out. Working and saving would become more attractive. This could be the best anti-poverty program ever!

You can find out more about the arguments on both sides at www.Fair-Tax.org. But this is a power struggle, not an intellectual debate. Lobbyists and politicians who make their living manipulating the tax code on behalf of the favored few are adamantly opposed and, worse, they're in a blocking position for now.

Well get the FairTax only when we demand it, loud and clear.

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