Fair, Flat, and Current Tax

Over the entire weekend and during most of my free moments at work today, I spent time reviewing the proposed bills for Fair and Flat taxes. I had a general understanding beforehand, but now feel overwhelmed and stupefied by the amount of information that I took in. One thing that I am certain of after reading these documents is that the current tax system is a joke. Take for instance the now well know picture of Rep John Linder (R-GA) shown below:

In this picture, Rep Linder is posing with a code of the current tax code (the bound books lying down) and a copy of his bill (Fair Tax) held in his hands. Obviously, no one in their right mind has read through every page of the current tax code (and why would you) but the fair tax bill (current version is only 131 pages) I just finished reading through. Now I wouldn’t exactly recommend anyone directly read the Fair tax bill, but after finishing reading it, I found a much simpler (i.e. non-lawyer jargon) version that looks accurate enough at http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf

This version (only 36 pages long) will give your average person a good understand of the bill and only take a small portion of your time to do so. The Flat tax bill by comparison is 17 pages long and infinitely easier to read, but does not do away completely with the stack of books shown in the picture above.

Here is a little bit about the two contenders for your new tax code broken down to the simplest explanation.

Flat Tax:

Flat Tax is actually somewhat similar to our current tax system in the fact that it is still an income tax, but it is very different in the fact that those pesky Form 1040s that you have been filling out since you made your first real dollar will be a thing of the past. There will be a new, simple way to figure out your tax. Take the amount of money you made, multiple it by 19% (for the first 2 years and 17% after that) and that is the amount of money you will pay in taxes. The beauty of this is that everyone will pay the same percentage regardless of the amount of money they make. The wealthy pay the most but they still only pay 19% like everyone else. That seems pretty simple and very fair to me, but like most good bills, there is a down side to this idea. Most people may not realize it but at one time flat tax existed. The very first income tax was a flat tax. The problem is that liberals (or maybe more properly, socialists) believed in the “distribution of wealth” (much like our current President) consequently you started to get a tiered system of taxes so that the wealthy had to pay a larger percentage and you got deductions for everything you could possibly imagine as a way to encourage growth in one sector of the economy or the other. This eventually led to the stack of books you see in the picture. So the down side to Flat Tax is that while we are rewinding the system to an earlier period when things were more fair, but in the end, it will likely just wind up right back where we are today.

If you decide to read it like I did you can find a pdf version of the bill at:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=109_cong_bills&docid=f:h1040ih.txt.pdf

Fair Tax:

Fair Tax is a completely new angle on how to bring in revenue to the Federal government. It builds on a form of taxation that is already present and working in most states. You guessed it, sales tax. This contender gets rid of income taxes, gets rid of the IRS, and gets rid of most tax filing (all of it for your average person). Now I know what you are thinking. You are probably celebrating thinking about all the money you will be able to keep that the government now takes from you but don’t celebrate too soon. Now instead of that income tax, everything that you purchase at the store and ever service rendered to you will include a 23% sale tax on it. The good part is that there are no more loopholes (or at least none that you would want to use). It also encourages saving your money (since you won’t pay taxes on the interest you earn). On a grander scheme, it encourages growth in our country by getting rid of all those pesky taxes that companies have to pay just to do business. This will encourage them to set up shop here (or at least discourage them from moving their company to a foreign country). This means more work and lower unemployment ect. Now for the bad side. This tax while meaning well does have some hints of socialism in it. This is in the form of a rebate. This rebate basically pays everyone a refund (in advance) of the amount of taxes someone right at the poverty line would pay. While I do believe that this tax has its heart in the right place (i.e. taking care of the poor), it is a little socialist in nature in that it seeks to equalize the poor with everyone else by giving them more then they are deserving of. It in effect gives this same money to people who do not add to the GDP (i.e we are paying them not to work). However, the worst part of this bill is the feasibility of it. It is an uphill battle because it requires that the 16th amendment be repealed. For those of you who have forgotten what you learned in your American Government class you took in high school (or earlier) I will give you a quick run down of that process. In order for an amendment to pass you first have to have a two-thirds vote in both houses of Congress (good luck with that). If the proposed amendment actually makes it through that process, it still has to be approved by three-fourths of the states (again good luck with that). There is a reason we only had 27 amendments. Therefore if you really want to see this passed, you better get to work and get the word out because I can tell you right now (based on an informal polling of my co-workers) that word is not out yet.

If you decide to read it like I did you can find a pdf version of the bill at:

http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h25ih.txt.pdf

I also highly recommend the website:

http://www.fairtax.org/

and

http://www.pafairtax.org/resrcs/FlatTaxFairTaxComparison.pdf

(thank you FairTaxNancy)
Okay, now for the moment you have all been waiting for, which one did I like best… Yeah right like it is that easy. As I have stated to many people recently there are benefits and drawbacks to both the fair and flat taxes but what I do know is that both are better than the current tax code. If I was forced to choose I guess I would go with fair tax, but don’t let me influence your decision, read the bill yourself and make an informed decision. If either of these bills has a chance they have my support.