NEW "FAIR TAX" COULD CORRECT A LOT OF PROBLEMS

I prepared my first IRS 1040 income tax form back when I was in my early 20's, and it really hasn't changed too much over the years. Back then, the form looked innocent enough, but the instruction booklet was a bit overwhelming. Nonetheless, I patiently persevered and was able to complete the form, deductions and all. It was quite an experience and I still prepare my own taxes to this day. Over the years I have tried tax preparation software, but frankly I didn't see what it was saving me. Aside from accountants, the 1040 form is a labyrinth of head scratching instructions. If you study the tax tables closely, you can readily see how the more income you take in, the more taxes you have to pay. It's no small wonder why people keep receipts and look for any type of deduction imaginable, regardless how minuscule it is. It is overtly complicated and casts a shadow of doubt as to its fairness. This is compounded by stories we hear whereby 50% of U.S. households pay no federal income tax whatsoever. This is probably why we dread the thought of April 15th, Tax Day.

There have been alternatives proposed over the years, particularly the "Flat Tax" concept where everyone pays a single standard rate regardless of your economic standing. Although the concept is certainly "fair and equitable," there are a lot of people who would find a way to avoid it based on some sort of exemption.

More recently, the concept of a "Fair Tax" has been introduced and is currently being studied by Congress. The first thing you have to understand about the "Fair Tax" is that it represents a complete replacement of the current tax system, meaning there would be no more payroll deductions, no more income taxes, no more deductions from pensions, all loopholes would be closed, no more IRS, thereby no more audits, and April 15th becomes a meaningless date in this country. Sounds great, right? Now here's the catch; instead, revenues will be collected as an additional sales tax (or "consumption tax"), in other words, payable at checkout by EVERYONE (what could be more "fair and equitable"?).

According to FairTax.org, a web site endorsing the proposal, "The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax."

Won't this be hard on the poor? Not really. As FairTax.org explains, "All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services' poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc."

The "Fair Tax" is just that, FAIR, and could finally help us do away with the petty squabbling between classes as it is an equitable solution. The only people who will object to it are the makers of income tax preparation software, tax attorneys and accountants, and the IRS who will have to look for something else to do.

Implementing the "Fair Tax" act as has been reintroduced in Congress ultimately means repealing the 16th Amendment to the U.S. Constitution which allows the Congress to levy an income tax. The Amendment was ratified on February 3, 1913, and I, for one, would like to see it repealed before its 100th anniversary. As an aside, the "Fair Tax" act is referred to as H.R.25 in the House and S.296 in the Senate. Be sure to study this legislation carefully as it affects all of us. For more information on it, please see:

FairTax.org

National Taxpayers Union

To sign a petition in support of the Act, click HERE.

Should this legislation pass, look for a flurry of sales activity on products just before the law goes into effect thereby avoiding the tax. Talk about stimulating the economy. Wow!

Keep the Faith!

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Tim Bryce is a writer and the Managing Director of M. Bryce & Associates (MBA) of Palm Harbor, Florida and has over 30 years of experience in the management consulting field. He can be reached at timb001@phmainstreet.com

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