OCALA, Fla., February 17, 2014 — The United States federal income tax is perennially unpopular with taxpayers.
Since the tax was instituted over 100 years ago, countless schemes to drastically reduce it, confine it to a flat rate, or even abolish it in favor of a tariff on imported goods have been surfaced. None of these have found any meaningful success.
Enter the fair tax. 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 tax than this simple definition, though.
For instance, how does the fair tax compare to the flat tax?
“Both are broad-based consumption tax systems that achieve a singular, low rate by broadening the base but not taxing returns on capital twice, e.g., the capital gains and corporate income taxes,” says Annapolis-based tax attorney Dan Mastromarco. He has been leading the charge for years on fair tax-related matters.
“Under the flat tax, businesses deduct the cost of inputs from gross receipts and pay tax on the difference — the value added. It is basically a sales tax where the tax is collected in stages from each producer on the supply chain rather than all at once from retailers, as in the retail sales taxes that are common in the U.S. Since businesses are allowed a deduction for wages paid, employees pay the ‘flat tax’ on their wages directly. Both benefit by imposing a simpler system that will unleash economic growth.”
Mastromarco claims that the fair tax “has an edge over the flat tax” because “(t)he choice is not between earning income or leisure, but between spending beyond the necessities of life. The [fair tax] lets you keep your whole paycheck or pension until you decide to consume. That is an unmatched advantage. … While the flat tax makes tax filing simpler, like the current 1040EZ, the [fair tax] would end the IRS and all individual tax returns, audits and frustrations. April 15th would be just another day.”
Beyond this, “(t)he flat tax still hides taxes paid through corporations — the hidden taxes that has allowed taxes to reach their current high levels. … The flat tax preserves the IRS infrastructure to administer a system that is not structurally different from the income tax. This means the flat tax can more readily be converted into a graduated income. Only the [fair tax] can repeal the 16th Amendment, returning to what our Founding Fathers’ originally intended.”
Those who hold left-of-center views might be surprised to learn that, in Mastromarco’s words, the fair tax “‘untaxes’ the poor, while the flat tax raises their taxes since it abolishes the Earned Income Tax Credit, which currently offsets some of the payroll tax burden. The flat tax also retains the payroll tax, the most onerous tax for at least 8 of 10 low income Americans. … The flat tax taxes exports and exempts imports from tax. The [fair tax] taxes U.S. produced and foreign produced goods the same when sold at retail in the U.S. and forgives the tax on exports.
“These are a few of the differences, but I caution those who like making war between allies of a common enemy. The real enemy to both plans is the current system; Flat or Fair, either plan would be superior.”
So then, what makes the fair tax truly fair, as opposed to America’s current tax system?
Former New Mexico Governor Gary Johnson is one of America’s foremost libertarian voices. He stood as a candidate for the 2012 Republican presidential nomination and ultimately left the GOP to run as the Libertarian Party’s standard-bearer. Today, Gov. Johnson continues his advocacy for individualist public policy.
He explains that the fair tax “is simple, it is transparent, and it treats everyone equally. That is obviously the exact opposite of the current system.”
Mastromarco says the question of fairness is among “the most important and avoided” in politics.
“Congress shuns defining fairness so it doesn’t have to grade tax plans against known objectives. We need to define fairness for them,” he states. “A truly fair system is [one which] anyone can understand … vs. enabling two prior Chairmen of the Ways and Means Committee and a Treasury Secretary (collectively, the ‘tax writers’) to avoid paying taxes with the excuse ‘they couldn’t possibly understand it.’”
Mastromarco goes on to mention that a fair tax “does not tax the poor rather taxes us on what we choose to spend, does not unvest Americans but does allow for the maximum amount of upward mobility … does not impose monumental costs on the American taxpayer … imposes the least burden on economic growth as measured by savings, investment, productivity, and GDP, capital stock or compliance costs … does not punish exports — taxes imports same as U.S. produced goods,” and last, though certainly not least, “reveals the real costs of the Federal government now hidden from taxpayers.”
He adds, “Under these criteria, our present system is without any redeeming qualities.”