The Case for Overhauling a U.S. Tax System Even Congress Doesn't Understand

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What do you really owe?

After two years, the IRS informed me that I forgot to include some income from two sources (two years ago). So, I paid the amount plus interest.

Now I see that the new head of tax system did the same thing in past years.

If the IRS knows what I owe, why not just send me the bill. I'll pay it and be done.

Both of us have saved 480 billion dollars over some period of time.

And I have saved a lot of my own money and time trying to figure out what "I owe!"

abolish income tax--go to a sales tax--see www.Fairtax.org

As long as there is an income tax, there will be a complex set of rules about what is income and what isn't, what is deductible and what isn't, and lobbyists trying to get tax breaks, and Congressmen seeking power by manipulating tax breaks. The only way to really simplify the tax code is to abolish the income tax.

Besides the huge drag on the economy and the increased cost of goods and services caused by the effort it takes to comply with our present tax code, we are taxing things we want to encourage, namely work, income, savings, investment, and job creation. To encourage those desirable activities, we need to stop penalizing them with taxes and instead tax consumption.

The proposal described in detail at www.fairtax.org calls for a 30% sales tax (23% tax-inclusive rate, explained on the web site) on all new retail goods and services (used goods, educational services, and inputs into retail products are excluded) that would replace all personal and business income taxes, social security, medicare, and self-employment payroll taxes, estate and gift taxes, and capital gains taxes. It would be (close to) revenue neutral at the start, but would increase government revenue over time due to the greater economic growth it would unleash. The poor would automatically be sheltered from the tax by a monthly check sent to every registered household equal to the monthly federal poverty level for the size of the household times the tax-inclusive tax rate.

Sure, a 30% sales tax on top of state and local sales taxes seems hard to swallow, but businesses could lower prices due to reduced costs from no business income taxes, no payroll taxes, and no costs to comply with an income tax. You and I would take home 100% of our paychecks. Interest rates would fall because banks would not owe taxes on the interest payments they receive (look at the lower interest rates on municipal bonds verses AAA corporate bonds). This and the large increase in personal income would make homes more affordable (and reduce the current foreclosure crisis). Imports would get the national sales tax, while our exports would be cheaper due to the reduces business costs mentioned above. This would increase manufacturing jobs in this country instead of driving them overseas. Foreign capital would flood in because it wouldn't be taxed. Charitable giving would increase because of greater personal incomes. Only 30% of people itemize their deductions to take advantage of the tax break for charitable giving, now. The underground economy would be taxed when they spend their illegal income at established businesses. Tax enforcement would be simpler because the tax collection points would be much fewer--just businesses instead of every household and business in America.

Hey Sam, your blog would be a great forum for discussing this idea. It will take a massive grassroots campaign to dislodge entrenched interests in Washington and get this passed.