Friday, August 24, 2007

The Fairly Flat Tax

Almost everybody hates the IRS. Even regular everyday government bureaucrats outside the Treasury department don't like the IRS. People have been proposing ways to get rid of it for a long time now. Two such proposals are the Fair Tax and the Flat Tax. The proponents of each blithely assert that their plan would allow abolition of the IRS. Color me unconvinced. The IRS is here to stay.

Yet the suspicion lingers that the current system of taxation may have subtle imperfections. Many people pay no income tax at all, and some non-payers even get money back in a system of pure wealth transference.

The Flat Tax proposals have been around the longest. There is a certain neatness to the idea of one flat rate, no deductions. Simple. Easily understood. Sounds like this: "thud".

The Fair Tax is a national sales tax. Right away, I'm suspicious of the words "Fair" and "Tax" put together, especially since the name is used to hide what the thing really is.

They call it "fair" because everyone would get a "prebate" based on the cost of living, presumably tied to ZIP code. The potential for waste, fraud, and abuse in that plan is truly mind boggling. And once people start demonstrating that they can't make their prebate check last out the month, we'll see a new loan sharking industry that will make "payday loan" thieves look like kids extorting lunch money.

The Fair Tax would give the politicians even more control over the economy. The ink would not be dry on the shiny new Fair Tax (which will be fair, since it's right there in the name "Fair Tax") before they'll start declaring some things luxuries, some things necessities, and some things harmful. They'll punish or reward with little tweaks to the tax rate whichever products they decide that day are good or bad. It would have the effect of making campaign contributions part of the cost of selling a product. That's fair, isn't it?

Fairly Flat Tax:
So here's my plan. Abolish the Federal Government.

In case that doesn't work for everyone, here's my other plan:

  • Give each ZIP Code a multiplier for the minimum cost of living nearby. OK, don't let your eyes glaze over.
  • Calculate business income and personal income separately.
  • Get rid of all personal deductions except for cost of living and dependent deductions, which will be multiplied by the cost of living in your area.
  • No tax for any income up to the cost of living, a flat rate above that.
People have told me that lets the lazy poor people off without paying anything, though they still can vote themselves whatever they want. But by the cost of living, I mean the cost just to exist: trailer rent, food, water, heat. No air conditioning, phone, TV, or vacations.

Thud.


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2 comments:

Ian said...

While many who are invested in the current income tax system seek to demagog the well-researched FairTax plan, its acceptance in the professional / academic community continues to grow. Renown economist Laurence Kotlikoff believes that failure to enact the FairTax - choosing instead to try to "flatten" what he deems to be a non-flattenable income tax system - will eventuate into an irrevocable economic meltdown, because of the hidden aspects of the current system that make political accountability impossible.

Here is why the FairTax MUST replace the income tax. It's:

• SIMPLE, easy to understand
• EFFICIENT, inexpensive to comply with and doesn't cause less-than-optimal business decisions for tax minimization purposes
• FAIR, loophole free and everyone pays their share
• LOW TAX RATE, achieved by broad base with no exclusions
• PREDICTABLE, doesn't change, so financial planning is possible
• UNINTRUSIVE, doesn't intrude into our personal affairs or limit our liberty
• VISIBLE, not hidden from the public in tax-inflated prices or otherwise
• PRODUCTIVE, rewards, rather than penalizes, work and productivity

Its benefits are as follows:

FOR INDIVIDUALS:
• No more tax on income - make as much as you wish
• You receive your full paycheck - no more deductions
• You pay the tax when you buy "at retail" - not "used"
• No more double taxation (e.g. like on current Capital Gains)
• Reduction of "pre-FairTaxed" retail prices by 20%-30%
• Adding back 29.9% FairTax maintains current price levels
• FairTax would constitute 23% portion of new prices
• Every household receives a monthly check, or "pre-bate"
• "Prebate" is "advance payback" for monthly consumption to poverty level
• FairTax's "prebate" ensures progressivity, poverty protection
• Finally, citizens are knowledgeable of what their tax IS
• Elimination of "parasitic" Income Tax industry
• NO MORE IRS. NO MORE FILING OF TAX RETURNS by individuals
• Those possessing illicit forms of income will ALSO pay the FairTax
• Households have more disposable income to purchase goods
• Savings is bolstered with reduction of interest rates

FOR BUSINESSES:
• Corporate income and payroll taxes revoked under FairTax
• Business compensated for collecting tax at "cash register"
• No more tax-related lawyers, lobbyists on company payrolls
• No more embedded (hidden) income/payroll taxes in prices
• Reduced costs. Competition - not tax policy - drives prices
• Off-shore "tax haven" headquarters can now return to U.S
• No more "favors" from politicians at expense of taxpayers
• Resources go to R&D and study of competition - not taxes
• Marketplace distortions eliminated for fair competition
• US exports increase their share of foreign markets

FOR THE COUNTRY:
• 7% - 13% economic growth projected in the first year of the FairTax
• Jobs return to the U.S.
• Foreign corporations "set up shop" in the U.S.
• Tax system trends are corrected to "enlarge the pie"
• Larger economic "pie," means thinner tax rate "slices"
• Initial 23% portion of price is pressured downward as "pie"
increases
• No more "closed door" tax deals by politicians and business
• FairTax sets new global standard. Other countries will follow


The time for sitting around, pontificating, is over. We have NO CHOICE but to demand Congress Scrap The Code - NOW!

Loren Heal said...

Thanks for the cut and paste of the talking points, ian. I don't know how I would ever have found that without your help.

Let's take those points in order:

Simple: for now.

Efficient: for whom, and for how long?

"Doesn't cause less-than-optimal business decisions for tax minimization purposes" is an appeal to ignorance: you don't know how people will respond to it, and to say that they won't make otherwise sub-optimal business decisions for tax purposes is simply false.

Loophole-free: for the first three seconds. Then Congress will start penalizing, rewarding, delaying and tinkering to win friends and punish enemies.

Doesn't change: yeah, right.

Unintrusive to individuals, but a monkey on the back of business.

Visible? Are you kidding? Like the gasoline tax?

Productive: no tax is productive. This is simply less punitive to individuals, while making it harder to sell things. It's a wash, in other words.

No more income tax, that's good. But it costs more to live.

No tax on 'used' things? For the first four seconds -- I thought you said there were no loopholes?

The rest of that garbage is a bunch of handwaving saying "There are some problems with this plan, but we promise not to tinker with it."

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