Is the fair tax a realistic replacement for the income tax?

Is the fair tax a realistic replacement for the income tax?

OCALA, Fla., February 13, 2014 — If the question were put on a national ballot, most Americans would probably vote to do away with income taxes.

While professional politicians, accountants, and certain partisan activists might disagree, it is difficult to imagine the average Jack or Jane standing in favor of our current tax system.

America is then left with a question: How should the federal government raise funds? Uncle Sam has to live somehow, and while reintroducing protective tariffs is a wonderful idea, they can only go so far.

This is where the fair tax comes in. It would be levied on purchases made within the United States, much in the same way that state and local sales taxes work. There is far more to the fair tax than this simple definition, though.

If a fair tax system were instituted, would the federal government realistically be able to ensure that all due taxes are collected and reported?

“Given that the current tax code is complicated beyond comprehension and rife with loopholes, subsidies and potential abuse, compliance with a simple consumption tax will be significantly easier, less costly and more reliable than what we have today,” former New Mexico Governor Gary Johnson explains to Communities Digital News.

One of America’s foremost libertarian voices, he stood as a candidate for the 2012 Republican presidential nomination. He ultimately left the GOP to run as the Libertarian Party’s standard-bearer. Today, Gov. Johnson continues his advocacy for individualist public policy. 

He continues: “In fact, the Fair Tax will allow us to abolish the IRS.  State and local governments across the country have been collecting and administering sales taxes for decades.  They know how to do it, as do businesses.  In short, I am confident that reporting and collection will improve a great deal under such a simple and transparent system.”

Dan Mastromarco is an Annapolis-based attorney who has been leading the charge for years on fair tax-related matters. He tells CDN that “(a)fter examining approximately 1.4 million returns, it is evident that despite heavy-handed enforcement, an estimated $353 billion in taxes is not paid, and this “tax gap” is growing due to complexity, taxpayer volume, evasion opportunities, the lack of visibility and high marginal tax rates. The gap represents about 3.5 percent of the economy – a year of economic growth that could have headlined the State of the Union.

“The FT addresses this unsustainable tax gap by inspiring greater compliance with fewer resources. Mistakes would vanish, as one cannot feign mistake or confusion under a system that creates no exemptions, and asks only one question of retailers, ‘How much did you sell?’ In contrast, nearly 20 million calls to IRS ‘customer service representatives’ went unanswered in 2013. Non-filers would nearly vanish, and willful noncompliance or evasion diminishes because the reward (the tax rate) and the opportunities (number of audit points) decline.  Indeed, state sales taxes are enforced at a higher compliance rate than the income tax with lower overall administrative and compliance cost.”

Right now, is there much support on Capitol Hill for the fair tax?

“A version of the Fair Tax was first introduced more than 20 years ago,” Johnson says. “Today, the Fair Tax has more cosponsors in Congress than ever before.  Obviously, such a dramatic reform takes time and does not happen overnight. However, with growing awareness of IRS abuses, the inherent unfairness of a tax code that designates winners and losers, and the dampening effect of the current system on the economy, the idea of a simple, fair tax is gaining more support every day.”

Mastromarco claims that “(t)he FT is the nation’s leading tax reform plan. Rep. Rob Woodall is the sponsor in the House (HR 25), – there are 73 co-sponsors. Sen. Saxby Chambliss is the sponsor in the Senate (S 122) there are 8 co-sponsors. Per Rep. Woodall, the Committee on Ways and Means will vote on HR 25 during their tax reform deliberations. Additionally, there are a significant number of Members who have stated privately that if the legislation comes up for a vote, they will support it.

“The real challenge is convincing the American people who are supposed to sit as Congress’ board of directors to impose their will upon those Members who have become part of the problem.”

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