Sunday, August 05, 2007

Fair Tax -- Would it Rid Us of the IRS?

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.

Thursday, August 02, 2007

Three Cheers for Rangel -- Comprehensive AMT Reform

It appears that Charles Rangel (D-NY) is still working to keep his word regarding reforming the dreadful Alternative Minimum Tax. Although Senate Finance Committee Chairman Sen. Max Baucus (D-MT) is pushing for another one year patch, Congressional leaders Rangel and Neal are pushing for and AMT exemption for couples with income up to $250,000. There are a few other notable tax changes that Rangel and Neal are pushing for among those include, an increase the standard deduction, and possibly expand the EITC and child tax credit. In order to remain Revenue neutral Rangel and Neal propose to raise taxes on those with incomes above 500,000 dollars, the Congressmen do not expound on how high they would raise taxes.

Although I am hesitant to give a full unqualified thumbs up to the Rangel proposal (due to the vague explanation of the 500k + tax hike). I applaud the efforts to continue lessening the tax burden of the poor and middle class families. The push to reform the AMT is a breathe of fresh air to the "sweep it under the rug" approach to AMT reform that Congress has taken for the past several years. For a Democrat Congressman Rangel isn't that bad.