As tax day approaches, millions of Americans scramble to make sense of yet another income tax return. In the process, many discover the ridiculous complexity and unfairness of America’s income tax system. Some 66,000 pages of tax rules govern the system, rules that even professionals do not always understand. As a result, most tax returns are inaccurate, meaning people are paying too much or too little tax. The bottom line is America’s income tax system is broken and needs repair.Politicians, talk show hosts and private citizens alike have proposed numerous solutions to America’s taxation problem. Of all the propositions, the FairTax, proposed by Georgia Congressman John Linder, is perhaps the best and most feasible option. As described in Neal Boortz’s “The FairTax Book,” the FairTax is a comprehensive reform plan that would abolish every form of federal taxation, shut down the Internal Revenue Service, repeal the 16th Amendment and replace all of this with a simple, federal sales tax. Thus, instead of paying taxes based on earnings, everyone would pay taxes based on spending. The rich spend more, so they pay more tax, and the poor spend less, so they pay less tax. There would be no tracking of income, the tax code would be only 132 pages long, and nobody would have to file a confusing income tax return.
If implemented, how exactly would this so-called FairTax system work? Consider the following example: A college student works 20 hours a week at $10 per hour. At the end of the week, he receives a paycheck for the entire amount of $200, because under the FairTax, there is no withholding of earnings. Perhaps he decides to save $100 of this check. This untaxed $100 could grow tax-free, earning the student more interest than he would have otherwise earned under the income tax system. Then he spends the other $100 at the mall. At the mall, a 23 percent federal tax is included in the cost of all new goods. Even with this 23 percent, however, the overall cost of goods is not significantly different from prices under today’s income tax system. This is because without an income tax, economists expect the average price of goods to drop about 22 percent (visit fairtax.org or read The FairTax Book for further explanation). In the end, the college student would have more money saved and more money to spend than he would under the current income tax system.
The world’s 10th largest economy uses a similar sales tax system to generate the majority of its revenue. In this economy, residents pay no income tax, while a 6.25 percent sales tax generates enough revenue to successfully fund the government. The whole system is extremely simple and successful. So, where is this booming economy? It is actually the state of Texas.
Overall, the FairTax is the best way to solve the complexity and fairness issues associated with America’s income tax system. This sales-based tax would result in every individual having more spending money, the option to save earnings tax-free and the ability to control how much tax he pays through how much he purchases. Ultimately, the FairTax is a just, efficient, transparent and intelligent solution to the frustration and inequity of America’s broken income tax system.
Caleb Slavin is a freshman entrepreneurial management major from Flower Mound.