Fair tax better option than flat

A number of office seekers are touting the Flat Tax as a way to simplify the code and promote growth. But to pay the $229 billion yearly interest on our $18.5 trillion national debt, create jobs for the millions who dropped out of the workforce, convert part-time workers to full time and remedy the unfunded liabilities of Social Security and Medicare, we need at least double the growth rate we have had over the past seven years. I don’t see that happening with Flat Tax.

The following points compare Fair Tax and Flat Tax. The first statement describes what Fair Tax would do, the second what Flat Tax would do.

1. Fair Tax is revenue neutral with the current IRS code; it eliminates all federal taxes on income: income tax, Social Security tax, Medicare tax, self-employment tax, capital gains tax, corporate and business taxes, dividends, interest, alternative minimum tax, death tax, and gift tax. Flat Tax is not revenue neutral and it keeps the IRS and all federal taxes on income.

2. When all federal taxes on income are removed, that also eliminates the 23 percent embedded taxes present in all new goods and services. Fair Tax simply replaces the embedded federal taxes with a one-time only 23 percent inclusive national sales tax on all goods and services at the retail level. Used items have no federal sales tax. Prices remain the same and we only pay taxes when we buy things. Flat Tax retains all embedded taxes, prices remain the same and we continue paying all federal taxes on income.

3. With the IRS and the 70,000-page tax code eliminated in the Fair Tax, American businesses and taxpayers save over $400 billion in compliance costs each year and another $10 billion in IRS salaries and benefits. From now on all taxes will be collected at the point of sale and sent directly to the Treasury Department. Under the Flat Tax, compliance costs are reduced but not eliminated and government must rely on everyone to fully and correctly report true income for taxation purposes.

4. With the Fair Tax, the $2.5 trillion underground economy will at last yield tax revenue because every dollar spent on purchases sends 23 cents to the Treasury. In Flat Tax, the underground economy remains and tax evasion continues.

5. With Fair Tax we keep 100 percent of our paychecks because there’s no more income tax, Social Security tax, or Medicare tax. With the Flat Tax we still pay SS, Medicare, and income taxes. The typical paycheck has about 30 percent taken out.

6. For only those with valid SS numbers, all spending up to poverty level is tax free under Fair Tax. Poverty level for a family of four is $26,000; the sales tax is about $6,000. Treasury rebates that amount in 12 monthly payments. No valid number, no rebate. Flat Tax has no such provision.

7. Money held overseas to avoid income taxes can now return. With the Flat Tax, money stays overseas and business inversion continues.

8. Over 50 million tourists per year and 12 million illegal immigrants, who get no rebates as described in No. 6, send 23 percent of their spending to Treasury. With Flat Tax, no such money goes to Washington.

9. American companies do much better in the global economy because they no longer have to sell their goods with a 23 percent embedded tax in the final price. A $100 item can now sell for $77; the Flat Tax keeps the price at $100. 

There’s more, but the point is clear; the Flat Tax tinkers with the IRS code. Fair Tax is the necessary major overhaul.