2012-04-19 / Sam Bari

Let’s talk taxes


It’s that wonderful time of year when the flowers bloom, the weather warms, and the taxman cometh. I am sure many of you are still reeling after writing that annual check to the dreaded Internal Revenue Service.

The consensus seems to be that, for all practical purposes, the U.S. federal income tax system is broken. Over the years, the program somehow got out of hand and developed into an industry employing approximately 90,000 people.

Employees of the IRS are worried about a bill that was introduced to Congress in 1999. Every year since, the bill has been reintroduced because it keeps getting stuck in committee for revisions. That bill is the Fair Tax Act, and it is gaining momentum.

If the bill ever passes, the IRS kingdom will come crashing down. The employees of the world’s largest collection agency will find themselves in the unemployment lines where they will assuredly be treated with utmost compassion. (Ha!)

The Fair Tax Act is a tax reform proposal that would replace all federal taxes on personal and corporate income with a single broad national consumption tax on retail sales. The tax would be applied at the point of purchase of all new goods and services for personal consumption.

The idea is to eliminate the federal income tax and replace it with a national sales tax. Strong opinions fuel both sides of the issue.

The Fair Tax Act is written in an easy-to-understand 132-page document that clearly explains the intricacies of the bill. The document differs dramatically from the 60,000 pages in the current IRS tax code that everyone is expected to follow, but nobody understands. I suspect it was designed for just that purpose.

According to the Census takers, the U.S. population is close to 307 million people. Of that number, approximately 144 million (47 percent) filed income tax returns. Note that I said “filed,” not “paid.” That is significant.

Those 144 million tax filers allegedly paid $1.8 trillion in federal income tax revenues last year. That works out to approximately $12,500 per person. However, of the 144 million people who filed, nearly 50 percent did not pay any actual taxes.

That means 72 million taxpayers shelled out around $25,000 apiece to make up the $1.8 trillion. That’s about 23 percent of the $51,000 median income, which is the percentage that the government uses to calculate our taxes.

Now we have 53 percent of the population, plus 72 million nonpaying tax filers not contributing so much as a dime into the system while they enjoy all the benefits. Hardly seems right, does it?

With the Fair Tax Act being a sales tax, everybody would contribute a fair share according to what they spend, and the government would no longer need to employ 90,000 tax collectors. Anyone illegally residing in this country, visiting this country, or earning cash by illicit means, would pay the equivalent of income tax every time they bought something.

Opponents of the Fair Tax Act say that the sales tax would have to be inordinately high to stay revenue neutral, i.e., bring in the same revenue for government as the current system. The bill that is currently in Congress is at 30 percent. Independent groups opposing the tax say that the number should be closer to 34 percent. That’s a large sum added to every retail purchase. This is especially true in regard to big-ticket items. A $20,000 car would cost $26,800.

However, those figures don’t make sense when the required sum of $1.8 trillion is divided between 307 million people. If the object is to make the tax “fair,” everybody should share the burden. Only 72 million people are paying the IRS. With the Fair Tax, 307 million residents, plus tourists, illegal immigrants, and anyone else making purchases in the USA will be contributing. That dilutes the 30 to 34 percent dramatically.

The opposition to the legislation comes from those who are not paying taxes. Those groups include the wealthy whose creative accountants use tax code loopholes to declare enormous deductions that do not apply to the average person, and people who work for cash and don’t even bother filing.

I am not an expert, but the Fair Tax Act in some form seems to make more sense than the current system enforced by the ignominious IRS. As always, instead of resolving the issue, an endless kerfuffle born of skewed political logic echoes through congressional halls and chambers, while the American people stand by, perplexed, hoping for a better day.

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