Today I wish to explore some of the lesser known benefits of the Fair Tax. As we briefly mentioned in previous columns the Fair Tax would (as currently structured) eliminate all federal taxes on individuals and businesses except for excise taxes, extraction taxes (mining etc.) and fees. The AMT, the alternative minimum tax, is one that would be discarded under this proposal. The AMT is a noxious class-warfare, social-engineering device that was levied to capture tax dollars from high and middle income families who were/are entitled to deductions that, in effect, reduce their tax obligation to nothing or peanuts. In other words, even if you complied with the tax code and legally deducted expenses to which you were entitled, your government decided that you should pay taxes anyway—deductions be damned. This gem of equity was initiated in 1969 and updated in 1982 and is NOT indexed for inflation. So, in essence, some 18 years after the “update,” we find that middle income people are being pounded by this surcharge. This unethical tax that surprises so many citizens on April 15th will be tossed into the dustbin if the Fair Tax becomes law.
One of the engines of a vibrant economic system is capital (the others are freedom, creativity and effort). When you as a wage earner have paid your taxes, provided a living for your family and perhaps purchased a home, you may take whatever amount of money remaining and invest it. You have already paid taxes on it, remember. You may start a business, buy some land, a mutual fund or stock. When at a later time, you decide to sell your investment because you’ve retired or you have large expenses, then the government assesses you for your capital gain. These funds are, in effect, removed from the pool for business expansion and job creation. This job-killing, enterprise-choking tax will not exist under the Fair Tax.
Our present tax code is contained in more than 40,000 (yes, 40 thousand) pages. It is nightmarish in its complexity, and there is a multitude of anecdotal accounts of people calling the IRS for help and receiving conflicting information. In other words, the code is too difficult for the enforcers to understand. This phenomenon leads to an environment whereby it is nearly impossible for a long-form tax filer to be in total compliance. In a sense, even if you were diligent and patriotic, it might be possible to find you in violation of some obscure or vague regulation. Additionally, many wage earners and salaried people are unaware of the size of their federal tax bill. They live their lives based on the “net amount” in the paychecks without calculating the difference between gross and net. One of the beauties of the Fair Tax is its transparency. The employed individual receives the entire paycheck less VOLUNTARY deductions then is fully cognizant of the tax liability when a transaction occurs.
Earlier I discussed the complex maze that is the current tax code. There are two primary reasons for the existence of such an unintelligible mess: 1) special favors and exemptions (vote buying); and 2) stealth taxes. Members of Congress become nearly orgasmic when they can secure benefits in the tax code for well-heeled and politically generous sectors, corporations or individuals. Coincidentally, campaign contributions often correlate with the special benefits legislation. Hmmm, there’s a pattern developing here, Claudine. The Fair Tax will stop the protective backslapping buddy system that is our current tax code…if the amendment is written tightly enough to prevent “tweaking” for special interests. The “stealth” tax elements are those “minor” adjustments that appear to have little effect, but in the aggregate have a negative impact on taxpayers and the economy. The AMT is a prime example of a stealth tax that originally was targeted toward wealthy tax “avoiders” but has become just another broad-based “revenue enhancement.” Other stealth taxes could be the “tweaking” of the “progressive” brackets or altering the brackets on any number of tax schemes or schedules. The openness of the Fair Tax would minimize political opportunities for reaching into our purses and wallets.
One more benefit that I wish to discuss is the impact of the Fair Tax on non-profits. Presently many organizations operate under the umbrella of a non-profit, but actually promote political agendas. These so-called non-profits are exempt from federal corporate taxes. A couple of the more prominent examples of such entities are ACORN and NPR. NPR, for example, is a money swallowing shell game with its nearly incessant fund raising meanwhile it avoids paying federal taxes while the commercial sector must comply. The Fair Tax would eliminate this inequity without eroding the purchasing power of the public broadcast property. I should note here that I am adamantly opposed to “public broadcasting,” but until Congress sees fits to cease funding it, we can level the playing field as much as possible. Churches that function as non-profits would realize a massive advantage with the Fair Tax. Under the current system they operate as if their First Amendment rights for political speech have been sacrificed upon the altar of “tax free” status. With no appreciable differential in cash flow requirements, the Fair Tax would relieve churches of the fear that their status could be changed by the IRS if it were decided that they were “political.” Political speech is the most protected of all speech, and it seems to me that churches should speak without fear of retribution from the government. In my view, every church member with a conscience should support the Fair Tax for this reason alone.
More tomorrow. Comment: email@example.com or firstname.lastname@example.org