Tax Reform: Now or Never

by Jan Larson
Tax Reform: Now or Never
August 08, 2005 07:40 AM EST


As with the weather, a lot of people complain about the U. S. Tax Code, but few do anything about it. The reality is that the opportunity to do something about the tax code doesn't come around very often; maybe once per generation but now, in the year 2005, we have that opportunity.
For the sake of all Americans and future generations of Americans, we must not squander this chance.

The President made tax reform one of the main objectives for his second term. He has vowed to reform the tax code, to make it "pro-growth, simple and easy to understand, and fair to all."

To this end, the President appointed a bipartisan panel to study the current outdated and unfair tax system and recommend changes. Change doesn't come easily in Washington and people are generally frightened by change, but in this case, change is absolutely necessary.

The current U. S. Tax Code is incomprehensible. No one understands every aspect of the code and even experienced tax professionals do not arrive at the same amount of tax due for any but the most basic of tax returns.

It is estimated that compliance costs drain over $200 billion per year from the economy and still millions of dollars of taxes due are never collected.

The granting of favors via the tax code is one of the major "duties" of Congress. A tax break here means a campaign contribution there. Some feel-good social engineering via the tax code today means votes tomorrow. Give special interest groups, their lobbyists and members of Congress enough time and their incestuous relationships produce the monstrosity of a tax code that we have today.

There is a better and fairer way for the government to collect taxes that will not only pay for government services but also promote economic growth and eliminate Washington tax engineering - the Fair Tax.

There is not enough space here to present all of the details of the Fair Tax, but briefly, the Fair Tax is a national sales tax that applies to the retail sale of goods and services. The income (both personal and corporate), payroll and inheritance taxes would be eliminated under the Fair Tax.

The first thing that comes from the mouths of the opponents of any sort of tax reform is that any change will hurt the poor and benefit the rich. In this case, they are half right. The Fair Tax would, with few exceptions, benefit everyone - rich and poor alike. The exceptions? Congressmen, lobbyists, tax attorneys and accountants.

Low-income families would be protected in two very important ways. First, everyone would receive a payment each month equal to the tax that would be paid on goods and services up to the poverty level. This payment would be made much as Social Security payments are made to retirees today. Low-income families would effectively not be taxed on the necessities of life.

Second, the highly regressive payroll tax would be eliminated. Currently, every working person is taxed 6.2% of his or her wages or salary with their employer paying an equal amount, up to an income threshold (presently $90,000 per year) and an additional 1.45% by both the employer and employee with no income limit. Those earning $90,000 or less per year are effectively paying 15.3% (counting the employer's portion which could otherwise go to the employee) right off the top. When income tax advocates talk about eliminating low-income people from the tax rolls, they never talk about the 15.3% haircut that low-income earners receive every payday. The Fair Tax puts that hard-earned money in the pocket of every worker.

The second thing that those that are uneducated on the Fair Tax screech is that prices for goods and services would skyrocket if a national sales tax were added to the sales taxes already collected in 45 states. It is very important to understand that upwards of twenty percent of the cost of retail goods and services under the present system represents the embedded taxes in the production chain. That is, the corporate income taxes and payroll taxes paid along every step of production are reflected in retail prices. When these taxes are eliminated, the final cost to the consumer of goods and services will remain essentially unchanged under the Fair Tax.

The Fair Tax would dramatically increase the competitiveness of American products in international markets thereby fueling economic growth. The Fair Tax would put 100% of your paycheck in your pocket. The Fair Tax would broaden the tax base - visitors to the United States would pay and the millions of dollars if ill gotten gains that escape the income tax in the underground economy would be taxed. The Fair Tax is, most of all, fair! No preferences. No loopholes. No tax breaks for some but not others. No paperwork to file.

The Fair Tax is not some pie-in-the-sky dream. The Fair Tax has been introduced in both the House (H. R. 25) and Senate (S. 25). The Fair Tax could be the most important piece of tax legislation since the Boston Tea Party, but it will NOT happen without citizen education and input.

Radio talk show host Neal Boortz and Congressman John Linder (R-GA) have recently written a book, The FairTax Book, which describes the details of the Fair Tax. The book is available on the Americans for Fair Taxation website [1].

Learn about the Fair Tax and then make your voice heard in Washington. Every voice counts. The Fair Tax can become a reality but only if every American that believes that there is a better way calls or writes their senators and congressman and make it abundantly clear that the status quo is no longer acceptable. Take the time to make that call or write that letter in support of the Fair Tax. It is now or never.


[1] http://www.fairtax.org/

Jan A. Larson is currently employed in private industry in Texas. He holds a Bachelor of Science degree from the University of Nebraska, a Master of Science degree from the University of Kansas and an MBA from Colorado State University. He is also a contributing columnist on a number of websites including The Conservative Voice.