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It's Tax Time Again (Part 2)


As we told you in part one of this blog, tax preparation is about the calculation of income!  I'm not sure that any politician has figured that out.

Here’s where the FairTax really takes over the argument about tax reform.  Under the FairTax, income calculation is irrelevant.  Only spending counts, and that is up to the taxpayer.  The IRS is not involved.  In fact, the IRS would not exist!  And gone with the IRS is the ability of one government agency to place the burden of proof on the accused.

Since the income calculation is irrelevant with the FairTax, there is no 1040EZ, 1040, W-2, Schedules A, B, C, D, 1120S, or any other IRS form.  There are no retirement plans, no IRAs, no Roth IRAs, no 403(b) Plans, no 457 Plans.  April 15 is a spring day.  There is less incarceration of Americans, we all have more take-home pay, and CPAs get to exercise a whole range of skills that can help businesses do better competing in the global economy.  And perhaps best of all, the government gets significantly smaller!

  • Arguments and misunderstanding surround the FairTax, and I am reasonably adept at debunking them.  An exhaustive list is not warranted here, but the following receive honorable mention:The FairTax is regressive – false, as the prebate eliminates lower income people from paying any taxes, including Social Security tax and gasoline taxes
  • It favors the rich – false, as the more someone makes, the more they tend to spend, so the more tax they pay
  • Prices will rise by 23% because of the tax on new goods – false, as the imbedded taxes in everything we currently buy will be gone, lowering the pre-FairTax cost; results would be approximately the same prices as today, but we’d have more money to spend
  • Congress is greedy and will have both the FairTax and the income tax – false, as the FairTax includes repeal of the 15th Amendment, which authorizes the income tax
  • We still would need an IRS – false, the States collect the FairTax (and are paid for doing so), and remit the money to the Treasury Department
  • The Flat Tax proposals eliminate the IRS – false, as the computation of income is still required, along with all the complexity of the depreciation and amortization schedules, and on and on and on.

For all the reasons I discussed herein, and for many other reasons, I support only one tax proposal.  I have no confidence in the ability of a divided Congress to go through 2 steps on the way to FairTax, which is what would happen if the Flat Tax is passed.  We have a rare opportunity with the upcoming election cycle to implement the FairTax, so get out and vote!