"The entire American tax process is a farce. I have no idea how anything works. It's absurd."
"I just got destroyed on my personal income taxes."
"I don't ever want to pay taxes again - ever, anywhere."
These are just a few of the many expressions of similar sentiment I heard from my clients this tax season. I'm sure such feelings are a big surprise to nobody. But what may surprise you is that the comments above came from people not given to doing a lot of complaining - they are Founders and CEOs of Silicon Valley high-tech start-up companies. They have top college degrees, stellar work experience and MBAs from some of the world's most elite universities.
But here's the thing - you don't need a Stanford MBA to realize the United States income tax law is a load of crap.
According to the Internal Revenue Service, or the "IRS" (the federal agency under the Department of the Treasury empowered to collect income taxes), the number one most serious problem, or "MSP" as they call it (they love acronyms), with our nation's income tax law is described as follows:
"The largest source of compliance burdens for taxpayers - and the IRS - is the overwhelming complexity of the tax code." (http://www.irs.gov/pub/irs-utl/08_tas_arc_msp_1.pdf)
Well now - that was generous of them to let us know.
How big is the Internal Revenue Code (the "IRC" or the "Tax Code")? It's so big that nobody seems to actually know how big it is. And it's growing all the time. The official income tax code - the law enacted by Congress - contains over 3 million words. With the compliance regulations of the IRS added, the size of the body of federal income tax rules grows to about 10 million words. (And that doesn't even include the rulings of the Tax Court!) To put that in perspective, the English Standard Version of the Bible - both the Old and New Testaments - contains less than 1 million words.
Our nation's tax law is insanely and obscenely complex.
But even worse, it's filled with arbitrariness and political favoritism. It was bought and paid for by lobbyists and special interest groups, written by D.C. staffers and enacted by corrupt politicians. Does that sound good to anybody?
"Don't bring problems; bring solutions." That was instilled into me by my first employer out of college. (I"m still grateful for that.)
Okay, here's the solution: The Fair Tax.
Under The Fair Tax, the income tax would be eliminated. That' right - no more income tax. The Internal Revenue Code and the accompanying IRS regulations would be abolished - all 10 million words deleted. The IRS would be put out of business (for the most part).
Under The Fair Tax, the income tax would be replaced with a national sales tax. People, as well as businesses, would be taxed on their purchases - no more off-shoring of corporate profits by big U.S. corporations to avoid U.S. income tax! Purchasers of goods and services would be taxed a percentage of their purchases at the time of purchase.
To protect the poor, staple items like milk, bread and eggs could be exempt from the sales tax. Furthermore, the government could send a monthly "pre-bate" - a check in advance - to the poor to cover their estimated sales tax burden.
The Fair Tax is fair. Loopholes, political favoritism and corporate gaming would be eliminated. People and businesses would know exactly how they would be taxed on each purchase, and they could make purchase decisions accordingly. As already noted, the poor can be protected from a regressive sales tax structure that would be overly burdensome to them. Furthermore, a higher tax rate could be applied to luxury items, so that the rich would bear a relatively greater tax burden. By way of illustrative example only, automobile purchases could be taxed at 10%, but purchases of yachts could be taxed at 20% A stay at Marriott or Embassy Suites could be taxed at 10%, while a stay at the Waldorf Astoria could be taxed at 20%.
The Fair Tax is simple. With relatively minor adjustments for sustenance items as well as luxury items, the same rule would be applied to all purchases by everyone - both individuals and corporations.
The Fair Tax is good policy. With the income tax eliminated, people would have greater amounts of disposable income either to spend or to save. To the extent they were to choose to save rather than spend, they could avoid taxation. Thus, "consumers" would be given an incentive to become "savers." That would be a very good result for our nation.
Are you ready for some Fair Tax?