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Tax Simplification - The Fix


Last week I addressed the current political issue of Tax Cuts and Tax Simplification. Republicans are touting the case for reducing tax rates and simplifying the existing U.S. Tax Code. The Trump Tax Plan reduces the number of tax brackets from seven to three. Proponents of the Flat Tax prefer a single tax rate. Either would be an improvement, but not much of an improvement!  And to be sure, reducing the number of brackets does not constitute tax simplification!

All current proposals are easily demonized as providing “tax cuts for the rich.”  This is patently absurd.  The notion that rich people should pay proportionately more taxes violates the fundamental American principle of Equal Treatment under the Law. That all money belongs to the government, and what we keep is through their kindness, is equally antithetical to our Constitutional rights.

The Flat Tax proposal, long heralded by Steve Forbes and others, does satisfy the problem of “progressive” rates.  But it remains complex and solves virtually nothing else.

To demonstrate the misguided attitude that “all money belongs to government,” simply consider the term “tax expenditure.”  This term is used in Washington, D.C. to mean money they do not collect from the public. Imagine any proposal that reduces the taxes collected by the government being called an “expenditure.”

“Words mean things” does not apply to government. They have no “truth in politics” rules or statutes. Consider, for example, the Affordable Care Act. Need I say more? Not really, but just in case, how about the term “tax loophole”? All taxpayers are subject to the U.S. Tax Code, which is over 73,000 pages long, and is changed, on average, once each day. Every tax return is prepared using the rules in the Code.  There can be no “loopholes; they are merely provisions of the Code, and they apply equally to everyone.

Last week that I promised to reveal the actual “fix” for the U.S. Tax Code.  But first, I must remind everyone that the complexity of the Code (and this is what you pay your tax preparer to do) is computing “Taxable Income.”  What income is taxed by payroll taxes?  What income is taxed at Capital Gains rates?  What income is tax-deferred?  What income is tax-free?  What income does not have to be reported?  What income is subject to a surtax? This is the complexity of the Code. Your Taxable Income is located on Page 2 of your 1040, and the tax calculation is based on that number. Doing the math is child’s play, regardless of the number of tax brackets in force at the time.

I have spent years studying the FairTax, which in its simplest explanation is a consumption tax that would replace all other forms of taxation of individuals and businesses. We already have consumption taxes, most visibly sales taxes levied on purchases (consumption).

It is not my purpose here today to attempt an explanation of the FairTax. I will do that at a later time. A recent check on Amazon.com located a wide variety of books about the FairTax, both in support and otherwise. I suggest starting with the original FairTax Book by Boortz and Lindner.

Would you prefer a USA in which there were no IRS, and April 15 were just another spring day? How would you like to have no payroll taxes, no excise taxes, no income taxes, no record-keeping, no audits, no U.S. Tax Court, and no branch of government placing the burden of proof on the accused? What if we had an America wherein the underground economy is subjected to the same tax as you were, everyone is treated equally in the generation of revenue by government, and in which the Treasury receives at least the same amount of revenue as they receive today? This is what the FairTax offers.

I hope you will take the time to learn about the FairTax.  It would be a game-changer for America.

Van Wie Financial is fee-only. For a reason.