Changes in the American Tax System

[Ragoczy]

The Fair Tax Act of 2005 is H.R. 25 in the House (introduced on January 4) and the identical S. 25 in the Senate (introduced on January 24). FairTax proponents who complain about the complexity of the Internal Revenue Code are going to have a hard time convincing those of us who have actually read this bill (it came to 59 pages when I printed it out from my computer) that it will simplify the tax code when it contains language exactly like that which appears in the tax code:

Have you seen the current tax code? In one tax case, the defendant's attorney had the entirety of the printed IRS code and regulations placed on a table to demonstrate to the judge the absurdity of expecting anyone to be able to follow it without violation -- during his argument, the table collapsed. And you find it unacceptable to replace this with 59 pages?

FairTax advocates claim that their plan would repeal of the 16th Amendment. However, all H.R. 25 does is repeal Subtitle A of the Internal Revenue Code of 1986 that relates to income taxes and self-employment taxes and Subtitle C that relates to payroll taxes and the withholding of income taxes. The only mention of the 16th Amendment in H.R. 25 is when it says: "Congress further finds that the 16th amendment to the United States Constitution should be repealed."

Untrue. HR25 contains a sunset provision on the Fair Tax. If the 16th Amendment is not repealed by a particular date (dependent on the date of passage of the Fair Tax), the Fair Tax legislation sunsets and automatically ceases to be law. This was added expressly to address the issue of the 16th Amendment potentially causing both a Fair Tax and Income Tax to be in place.

Although the FairTax would eliminate the filing of all individual tax returns, the FairTax turns every business into a tax collector. Every small service business and every Internet business that does not currently collect state sales taxes will have to collect taxes for the federal government. Every doctor will now have to charge sales tax on his services. Where will this end? Will the neighborhood boy who mows lawns have to begin collecting federal sales tax on each lawn mowed? Will the neighborhood girl who baby sits have to do likewise?

Every business that currently collects sales tax for the State is already equipped to collect the Fair Tax. In return for the doctor having the <sarcasm>onerous burden</sarcasm> of collecting sales tax, something all point of sale software is perfectly capable of doing, we eliminate the entirety of payroll tax recording and remittance. In other words, we eliminate part of the current tax collection process and roll it into the other, already existing, process.

The national retail sales tax rate under the FairTax plan is 23 percent. That is on top of state sales taxes that are currently collected by forty-five states. That is on top of the sales tax that many cities and counties also collect. That is on top of the special taxes that exist on hotel rooms in most areas of the country. I suppose that a national retail sales tax would also apply to gasoline. There is no mention of the federal gas tax anywhere in the Fair Tax Act of 2005. No list of taxes that are supposed to be eliminated under the FairTax includes the federal gas tax. Does this mean that there will be an additional 23 percent tax on each gallon of gasoline?

Nice argument to target gasoline in these times, but you fail to mention that the entirety of the individual's paycheck is given to them, eliminating the Federal Withholding tax, FICA and Medicare taxes. You ignore the elimination of embedded taxes on every product sold in America.

The FairTax will make it easier for Congress to raise taxes. The initial rate of 23 percent is supposed to begin in 2007. For years after 2007, "the rate of tax is the combined Federal tax rate percentage." This combined percentage is the total of three things: the general revenue rate (stated to be 14.91 percent); the old-age, survivors and disability insurance rate; and the hospital insurance rate. This is all but saying that the rate will be adjusted every year. And it will be very easy for Congress to do so. To raise several billion dollars of additional revenue, all that will be necessary is for Congress to raise the tax rate by one percentage point by small adjustments in one or more of the three items that make up the combined percentage rate. It will be sold to the American people as "a penny for progress," or some other deceitful scheme.

Untrue. Right now, the tax code is so large and complex that people have no idea what they're being taxed on or how much. The Fair Tax places most taxes in a single place where people will know there's been a tax increase -- this is why so many lobbyists and special interests are opposed to the Fair Tax, because it will eliminate the tax breaks and loopholes they currently earn their living on. In the recent $700Billion financial bailout, there's a provision for a $2,000,000 tax break for a company in Oregon that makes wooden arrows -- the Fair Tax would eliminate that kind of absurdity.