Why The Flat/Fair Tax Will Never Work
Proposition: the IRC is an unwieldy behema
Proposition: the IRS has too much power
Proposition: the tax code is distorting the economic life of regular citizens
Proposition: the IRC must be simplified
Proposition: the flat/fair tax will accomplish same
Proposition: the previous proposition is false
I wonder if the supporters of the flat/fair tax have truly thought through what “tax simplification” really would entail. The following would disappear: IRA, 401K, home mortgage deduction, medical expense deduction, EITC, electric vehicle tax credit, exemptions for families with many children. Social Security checks will be taxable from the first $1, even if you are poor and that check is your only source of money. If you sell anything (stocks, bonds, house), you will be taxed on the gross receipts, no fancy calculations as to the “capital gain”. Ditto for any small business owner filing under subchapter S.
See, just compressing 5 or 6 tax brackets into 2 or 1 ain't gonna simplify nothun'. The reason the IRC, when the hardcovers are stacked up on the floor, is taller than a man, is because it has to define what is “income”. The tax bracket part takes up only 2 pages. The rest of the IRC gives taxpayers all those favorite “gimmies”. The only way to simplify is to eliminate all the gimmies. Even with the fair/flat tax, everyone will still have to hire a tax preparer to their 1040s every April, unless they are willing to give up all distinctions between different income sources.
OK, smarty pants, how would you fix the IRC?
Easy. I have always thought that taxing consumption is a more fair way to raise $$$ than taxing labor. Totally eliminate the income tax (including payroll tax). Instead, all federal funds will come from a national sales tax.
This will capture the underground economy, rich people with expensive accountants who are good at evading taxes, illegal immigrants who work for wages in cash under the table, etc. In addition, you will not have to mess with W-2 or W-4 or financial records, or even filing tax returns and hiring a tax service. Every time you go to the store to buy something, you are paying your federal tax.
Even better, the IRS (and its shenanigans under “BO”) will no longer exist.