Is There Really Such A Thing As A Fair Tax?

Money and politics. The issue of taxes has them both covered. And itís a favorite scapegoat for all our ills. We canít pay our bills on time? Itís those damn taxes. The economy isnít doing so well? Lower our taxes. The stock market is down? Taxes must be too high.

Some say the system isnít fair and then they use statistics to prove their side is right while the other side uses the same statistics to prove their point.

I have to admit Iíve liked the idea of quite a few proposals to radically change the way we pay and collect taxes in the United States. First there was the flat tax where everyone paid the same amount of tax and all deductions were eliminated. Then there was the idea of a national sales tax that would replace income taxes. This proposal has been given a new name straight out of the public relations industry to convince us that itís a good idea. The new name is the fair tax and who doesnít want taxes to be fair. (I was going to include a link but would prefer that you read this article first).

The biggest selling point of the ďfair taxĒ is that it eliminates all other taxes, not just the income tax. Weíll no longer have to pay payroll taxes like social security or medicaid. Imagine instead of getting a check every week with deductions, you got the whole thing. The other benefit is that there would be no corporate taxes either so prices would stay the same even when you include the new sales tax since companies can lower prices because they arenít passing their tax bill onto the consumer.

If you want to pay less taxes simply donít spend as much. Youíll save the money on whatever you were going to buy as well as the taxes you would have paid. Rich people would pay a lot more taxes than the average person because they buy more expensive products. And finally in this brief discription, there would be no taxes up to the poverty level so the poor would pay no taxes at all.

The idea sounds pretty good and a book called ďThe Fair Tax BookĒ written by Congressman John Linder, Republican of Georgia, and Neal Boortz a conservative Republican radio host is at the top of the New York Times best sellers list. But it turns out that the entire book, and therefore the entire premise of the ďfair tax,Ē is based on an incorrect assumption.

Money magazine discovered a big flaw in the selling point of the fair tax. This article is a great example of why reading magazines such as Money is so important, they have the time and expertise to find the truth to claims such as this. (They also hype things that will sell magazines but it's up to you to separate junk from the good stuff).

Boortz and Linder argue that individuals would be better off following a switch from an income-tax structure to a national sales tax in part because they would pocket 100 percent of their paychecks.

While consumers would pay a federal sales tax on purchased items, the authors argue that prices at the store would stay the same. The reason: everyone involved in the process of production would no longer be paying taxes, so they could charge less for their goods and labor.

If true, that would mean a dramatic increase in Americans' purchasing power.

But, according to the MONEY report, the book fails to make clear that, in order for pre-tax prices to fall so sharply, companies would also have to cut wages they pay.

ďSure, you'd get to 'keep 100 percent of your paycheck,' as Boortz and Linder repeatedly write, but it would be a smaller paycheck," MONEY senior editor Pat Regnier writes. "That's kind of a big thing to leave out.

Yeah that sure is a big thing to leave out. Itís like answering no when someone asks if your dog bites and not mentioning that the dog at your feet isnít yours.

Being a more liberal leaning person, my conservative father thinks I love taxes, the higher the better. But no one in their right mind wants to pay taxes. Iím just as intrigued by the idea of the fair tax or the flat tax as the next guy. Since my income is high I pay a lot more in taxes than someone with less income and so why wouldnít I want to reduce that amount. At the same time however I also keep a lot more money than someone who makes less than I do.

As I outlined in my post titled ďrole of governmentĒ there is a price to pay for the services we expect from our government. We all want the fire department to save our lives and protect our homes. We want to drive on smooth roads cleared of snow and debris. We all want the police to protect us from criminals and sometimes even ourselves. And yes even liberals want a strong military to defend the values of a great nation. But it seems most people donít want to pay for it.

The basic motivation behind the various tax plans is fairness. It seems everyone thinks theyíre paying too much while someone else is getting a free ride. But if they, the ones you think have it so good, really are getting a free ride would you switch places with them? Probably not since they are more likely than not to be poor. For those of you who think the rich are getting a free ride then by all means switch places with them if you can.

Since the Bush tax cuts have become law, the top tax rate is 35% and that only applies to those making more than $313,000 a year. So lets assume that Mr. X, after taking all his deductions makes exactly that amount. His tax bill is a whopping $109,550 Ė thatís a big check to write. But look at it the other way, Mr. X still got to keep $203,450. Itís kind of hard to feel sorry for him isnít it?

Are taxes ever going to be completely fair? Probably not Ė there will always be someone unhappy about the taxes they pay. Should we stop trying to make it as fair as possible? No, I donít think so. But stop complaining, blaming something or someone else for your problems. Taxes arenít the reason youíre having trouble making ends meet. Thereís more to it than that and you know it.