Fair Tax Act sounds great – and unlikely
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Dear Mr. Berko:
Please explain, in simple terms, what is the fair tax or the Fair Tax Act? I travel a lot all over the Southwest and Northwest, and I can tell you that all the people I talk to are very much in favor of the fair tax. It would save little folks like us from days of preparing tax receipts and putting everything together for the accountant. And because everybody would pay this tax, it would also reduce my total taxes. What do you think?
E.P., Moline, Ill.
Dear E.P.:
During the past few months many readers have asked me to explain how the Fair Tax Act (HR 25, S 1025), or the national sales tax, as most folks know it, would work. The fair tax legislation plan would replace all federal income and payroll taxes with a progressive national sales tax and repeal the 16th Amendment.
The Fair Tax Act is nonpartisan legislation that would eliminate all federal (not county or state) taxes on personal and corporate income. It would do away with taxes on capital gains, personal estates, taxes on gifts, Social Security, Medicare, trusts, gambling winnings, short-term gains and the like. In return, the FTA would replace the current tax structure with a federal retail sales tax that taxed us on what we spend for goods or services rather than on what we earn.
If you make $50,000 a year, nothing is taken from your paycheck. But if you spend $30,000 a year on goods and services, you might pay a 25 percent tax, or $7,500, on what you purchased. Basic necessities like medicines and food would not be taxed. I like that.
The FTA also allows Peter, Paul and Mary to keep 100 percent of their Social Security and pension income. I like that, too. And supposedly it closes all tax loopholes and eliminates the need for the Internal Revenue Service. I like that, too. April 15 would just be another day on the calendar, and we could burn and bury all those federal tax forms. I love it!
However, the probability of building a four-lane bridge from Florida to Hawaii is greater by orders of magnitude than the probability that Congress will approve the FTA. You have no idea of the enormous power of vested interests involved, but I guess false hope is better than no hope at all.
Do you know that the Internal Revenue Service employs 123,000 persons whose jobs would be lost with the passage of the FTA? Do you have any idea how much influence they have with Congress? The answer is, enormous.
Do you realize how many accountants are involved in preparing tax returns? There are 694,000 CPAs and well over 2.7 million accountants, most of whom prepare tax returns for a living. They, too, have enormous influence with Congress. And do you know that there are 1.6 million lawyers in the United States, many of whom make huge incomes providing tax advice to large and small businesses, public corporations, and wealthy and moderately wealthy individuals, designing various tax-avoidance trusts, preparing clever retirement plans, contriving tax shelters and defending clients in tax court. A Fair Tax Act wouldn’t have a chance against these titans of justice.
And then the FTA has to contend with lobbyists from the insurance industry and the formidable influence of the mighty brokerage industry and powerful municipal bond lobby. These folks wield significant clout with Congress, as do the universities that teach tax law, the publishers of tax texts and the publishers of tax forms. This combined vested interest in the status quo is an iron curtain and impossible to penetrate.
I really like the FTA concept, but those promoting it know they are only tilting at windmills.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service