Today was the Republican Debate's, and with three kids running around I wasn't able to listen to much of the debate. One part I was able to listen to was regarding the idea of a fair tax. Under the fair tax, we would pay a national sales/consumption tax of 23% and there would be no more income tax, Social Security tax withholding and we would all live in a magical world where there would be no IRS. Although there are many issues with the fair tax that I dislike (the propensity for this tax being a tool of special interests and lobbyists just to name one) one issue that is easily clarified is the fair tax will not rid the nation of the IRS.
It is true that, individual wage earners would be rid of any dealings with the IRS, but small business owners would have a much more powerful and demanding partner in their businesses'. Their are certain state and Federal taxes that are called trust fund taxes (Social Security, Federal Withholding, Medicare tax, and sales tax are a few of them) these taxes carry a powerful punch for those who fail to fully comply with the legal requirements of these laws. The penalty can amount to as much as 100% of the tax that was owed, add on interest and these types of taxes have been the death of many a business enterprise. Another problem with trust fund taxes are the propensity for misappropriation of trust funds -- entrusting 100% of the nation's tax funds to struggling small business owners creates a huge opportunity for fraud. Another problem is the vagueness of most states sales tax laws (after which I assume the national fair tax would be modeled). For example, Utah's sales tax rules (as far as I have experienced) are some of the most vague tax rules I have ever come across I have detailed the vagueness of Utah sales tax at least once or twice in the contents of this blog, and I don't feel like going through it again.
Although a large percentage of the nation would be rid of dealing with IRS, small business owners would find a much more ruthless and powerful IRS reaching its hand into their daily business dealings. This tax would raise the taxes of the poor and the middle class by raising the cost of living, it would be extremely costly to implement, and it would raise the cost of doing business and have a discouraging effect on entrepreneurship in this country. I don't believe the fair tax would be a wise choice for the tax policy of this country.
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5 comments:
Like any other form of taxation, a national consumption tax had its pluses and minuses.
Plus:
Taxing consumption is better than taxing production in terms of economic competitiveness.
Minus:
It's regressive.
It's not very visible and is the easiest tax to increase.
Combined with local sales taxes, the total rate would approach 30%. This would create pressure for a black market.
I'm really interested in the details of taxation and i look forward to taking some classes on it in the future, can you expand on your comment that "the propensity for this tax being a tool of special interests and lobbyists just to name one" and maybe name some other issues.
the first comment says that this tax wouldn't be very visible, but I think it would be because businesses even now always always market the before tax price and when you get to the register it's more, and i think people would recognize it if it were way more. I know I would because in New Hampshire we don't have a sales tax. It is probably the easiest to increase though.
I can think of a tax that is even less visible: the inflation tax. Why doesn't anybody ever talk about that one?
I've been thinking about the inflation tax lately, and I need to brush up on it so that I can explain it to myself, let alone someone else. But I do remember how much a gallon of gas and a loaf of bread cost when I was a kid (roughly 10 times less than they do now).
I prefer a consumption tax (to income, SS, sales, and property taxes) with something of an "Consumption Tax Credit" for those that its regressive nature hurts the most.
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