Progressive, Flat and Fair Taxes.
The self-evident truth of the Declaration of Independence was that “…all men are created equal…”
Today that noble concept has been twisted to mean equality of outcomes or equality in fact.
Equality as embraced by our founding documents is actually equality under the law; that is, the concept that all of us will be treated equally by our government in the writing and enforcing of our laws. We utter the phrase “…and justice for all…” in the pledge to the flag. That concept has been lost in a sea of victimization and entitlement. Our tax code reflects that lack of “justice for all”.
Our current 70,000 page tax code is a model of “progressivity”; of liberal ideology. It is based on the premise that those who make more should pay more.
It has not given us equality. It has given special privilege to those who are politically connected. It has been very unfair those who make modest incomes because by taking that “marginal dollar” away through taxation it has prevented savings and investment in anything other than government directed sources.
The Fair Tax
So some smart people have come up with a national sales tax called the “Fair Tax”. Here is their website: https://fairtax.org/about/how-fairtax-works.
Their basic argument is that this is fair because everyone is treated equally. Really?
We are very familiar with sales taxes because we pay them every day where we live when we purchase goods and maybe services (Hawaii for example). Sales taxes are the number one revenue generator for state governments.
The taxes would be extremely unfair in my opinion. It would be very susceptible to manipulation by special interests just like current systems. Some purchases are exempt, some are not. Some purchases have a higher rate than other purchases (such as lodging taxes).
The tax would also be extremely regressive; meaning that the percentage of income taken from below the median income earnings would be much higher than those with high incomes. As a result, the poor and middle class will again not be able to save and invest because their “marginal” dollars are being sent to the IRS.
In my opinion, the “Fair Tax” is not equal treatment under the law.
The Flat Tax
The Flat tax is also about equal treatment under the law and fairness. It proposes to tax everyone at the same rate. It was proposed by Steve Forbes in 1996 when he ran for President. Rand Paul has recently proposed a flat tax similar to Steve Forbes but with a lower rate and the elimination of the FICA tax for individuals.
In my opinion, simply on the basis of equality and fairness, this flat tax is much better than sales taxes or the progressive system of income taxes we currently have. The Flat Tax provides equality because it is not the amount of the tax that is equal but the rate of the tax that is equal. As a percentage of income the high income earner and the low income earner would pay the same rate.
The Flat Tax is of course subject to manipulation by special interests. As long as we have a big government and that government is involved in so many areas of our daily lives, there will be special interests. There is a special interest for every area of involvement of our government in the lives and activities of individuals and businesses.
Will the Flat Tax put me, a CPA out of business? Will it eliminate the IRS?
Absolutely not. As long as there are taxes there will be an IRS. And as long as there is an IRS you will need me.