Welcome to the August Green Business issue of NorthBay biz magazine. This month’s issue focuses on the world of green and emerging technology. In addition to all the stories, you’ll find more than a dozen local columns and special features—quality, original information about local business that’s unavailable anywhere else. As the region’s only locally owned business publication, we always welcome your input on how NorthBay biz can continue to best serve the local North Bay business community.
It’s hard to find anyone these days who doesn’t agree that the current federal tax system is a mess: highly inefficient, fraught with errors, inequities, abused by oversights and evasion and always anxious to create yet another loophole for special interest lobbyists. It’s so complex and open to different interpretations that even the IRS doesn’t understand the code—it gave out 8.5 million wrong answers to taxpayers seeking assistance and then made 5 million more “corrections” that also turned out to be incorrect. Simply put, the current federal tax code is a system broken—beyond repair—and needs to be replaced immediately with a system that’s both fair to citizens and infinitely better for the country.
There are tax bills languishing in the House that could provide an instant cure—simultaneously creating millions of jobs and reinvigorating the economy. One bill envisions a national sales tax and the other a flat tax to replace our current system. Either would work.
Here are highlights of the national sales tax plan, also known as the Fair Tax:
• Passage of legislation that repeals income tax, payroll tax, estate tax, gift tax, alternative minimum tax, self-employment tax, Social Security/Medicare deduction and corporate tax.
• Passage of legislation that installs a single-rate, national sales tax on all new goods and services at the point of final purchase for consumption, and that provides for a universal rebate in an amount equal to the sales tax on essential goods and services up to poverty level spending.
So what does this mean? Here’s a quote from Americans for Fair Taxation that works well as a top-line summary: “The Fair Tax allows Americans to keep 100 percent of their paychecks (minus any state income taxes), ends corporate taxes and compliance costs hidden in the retail cost of goods and services and fully funds the federal government while fulfilling the promise of Social Security and Medicare.” After I first read that statement, I had to read it again just to make sure I understood it correctly. My next thought was, how could any working person be against this idea? If it can accomplish all it purports to, it’s brilliant in its simplicity.
First of all, this new national sales tax is a tax on consumption, not income. It lets workers take home every dollar they earn. It provides for no federal tax to be paid up to the poverty level. That provision works like this: To ensure no one pays tax on necessities, the Fair Tax plan sends a monthly rebate to every registered household to cover the consumption tax spent on necessities. This is how this plan untaxes the poor, lowers the tax burden for most and makes the overall rate progressive based on lifestyle spending choices. Also, with a national sales tax, you’re only taxed once on any good or service. If you choose to purchase used goods—a car, home or appliance, for example, you pay no tax. Every time you decide what to buy and how much to spend, you’ll know how much you’re giving to the government with each purchase. A national sales tax ends corporate taxation, competition drives down prices, more Americans have jobs and pension fund performance improves. The current income tax exports our jobs, rather than our products. Want to stop the outsourcing of our jobs to foreign countries? This new national sales tax helps accomplish that goal.
Now let’s look at some of the benefits of the flat tax bill versus our present system. Dick Armey, one of the champions of the attempt to adopt a national flat tax, commented on an engraving on the IRS building in Washington that reads, “Taxes are what we pay for a civilized society,” by saying, “Unfortunately, paying taxes does not bring society a civilized tax code.” He’s right. When the average person spends 26 hours filling out a Form 1040 and more than 60 percent of Americans are forced to pay a tax professional for their help, something’s wrong. It’s not surprising professional help is needed when you begin to sort through the thousands of pages that comprise our tax code. According to Armey, more man-hours will be required to file our taxes this year than the time it takes to build every car, truck and van assembled in this country.
Nine countries currently employ and enjoy the benefits of a flat tax system. This approach allows personal deductions for everyone so families can feed, clothe and shelter themselves before paying a cent to the government. All income earned above that rate would be taxed at the same rate. No other exemptions. No loopholes. No special interests. No fuss. Annual taxes could be filed in minutes. A flat tax treats all income equally and eliminates double taxation. And in an ever more global economy, a flat tax makes America more attractive for investment and job creation.
There’s much more to this proposed tax system overhaul, but unfortunately I’m out of space. I’ll leave you with this thought from Rep. Gil Gutknecht (R-Minn.): “There is an old adage that if you want more of something you should subsidize it. If you want less of something you should tax it. And what do we do in America? We tax income. We tax investment. We tax savings. We tax productivity. We tax all the things we want more of.”
Doesn’t make much sense, does it?
That’s it for now. Enjoy this month’s magazine.
