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Wednesday, April 18, 2007
John Stossel :: Townhall.com Columnist
Springtime for Taxes
by John Stossel
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Will the Dems' health care Christmas Present to America be an improvement or detriment to our health care system?


Spring is here, but you may have been too busy filling out tax forms to enjoy it. The unpaid job of gathering W-2 and 1099s, sorting through receipts, and tabulating deductions, credits, and exemptions takes a lot of time.

Americans spent 6.4 billion hours complying with the tax code in 2005 -- a chunk of time worth $265 billion, according to the Tax Foundation. That's more than the 2006 federal budget deficit.

Those of you who do your taxes yourselves spend an average of eight to 27 hours toiling for the U.S. government.

What a waste.

Other countries have made their citizens' lives better by simplifying and lowering taxes. Estonians need an average 10 to 15 minutes to file their income taxes. Most do it without leaving their desk: 84 percent file online.

Twelve years ago, Estonia became the first country to tax everyone -- companies and individuals -- at the same flat rate. It started at 26 percent, dropped to 22, and will go to 20 in 2009. There are a few deductions for things like mortgage interest, educational expenses, and charitable donations. Very low incomes are exempt.

Unsurprisingly, Estonia is booming. The former Soviet republic used to be poor, with an average income 65 percent below its European neighbors. Today, Estonians are almost as rich as their neighbors, and their economy is growing more than 11 percent a year.

Corporations like a tax system that is low and simple, too, and that leads them to do more business in flat-tax countries. American companies such as Microsoft, Colgate, 3M, Bristol-Meyers Squibb, and Johnson & Johnson opened businesses in Estonia after the flat tax was adopted. Twelve years ago, foreign investment in Estonia made up only 5 percent of GDP, but today, it's up to 20 percent. That means there's more money in the Estonian economy to tax. So while the tax rate dropped, government revenues actually increased.

So why can't we do that here?

Some Americans want to get rid of the income tax altogether and replace it with a national sales tax called the "Fair Tax." It would tax people on what they spend, while poor Americans who can't afford the taxes would get monthly rebates. You'd never have to file another individual tax return again. Of course, there's a danger our venal politicians might end up just adding the sales tax to our existing income tax. But the Fair Tax is certainly worth talking about.

But here's a problem: Many in Congress don't really want to reform the tax code. They like things just the way they are. So what if it makes paying taxes a headache for you? It gives them the awesome power to dispense privileges, which helps curry favor with lobbyists.

Congressmen bicker over who gets to hand out these special treats. In 2004, Sen. Olympia Snowe deplored the "financial burden on shipbuilders," many of whom happen to operate in her home state of Maine, and got them a $310 million tax break. Alaskan Sen. Lisa Murkowski got her state a tax break on contributions for "charitable" whaling activities (whatever that means). And Sen. Saxby Chambliss demanded tax relief for the timber industry in Georgia.

So while business gets its tax breaks and congressmen get their campaign contributions, your spring weekend is devoted to wading through Form 1040 instructions.

Next year, you'll have to wade though even more pages. Each new tax break and every little favor adds to the complexity. The code and its explanations now total more than 66,000 pages. In the last six years, the IRS has created over 100 new tax forms.

This isn't good for America. Or you.

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About The Author
John Stossel blogs at http://blogs.abcnews.com/johnstossel/ is an award-winning news correspondent and author of Myths, Lies, and Downright Stupidity: Get Out the Shovel--Why Everything You Know is Wrong.
 
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Thank You Mister Stossel
I'm sure you'll discover over the next few hours that there are plenty of supportors of the Fair Tax, and plenty of others with their "better"alternatives. What none of us seems to have at the moment is the big stick we need to convince our representatives to enact the Fair Tax or some other tax overhaul. Fairtax.org has organized a petition campaign that claims to have faxed over 100K please to our congress people, and is looking at doing another round. But I don't know how many times I can repeat this message to my liberal representative before I am relagated to the whacko list (probably already there). So what do we do to force congress to take us and tax reform seriously?

Taxes
John, I have admired your point of view for many years. I also agree with the premise of the article. I have a suggestion however that may be of even more interest. The burden of taxes in the "fair tax" falls rather heavily upon the poor and then adjustments must be made. This adds to cost and complexity tremendously.

The APT tax eliminates that unfairness. Go to APTTAX.com and review the process. To get the IRS out of our lives TOTALLY and eliminating tax lawyers, accountants and their ilk is a very controversial idea. Some would be out of work and I cannot argue that away however, the amount of money that would be put BACK INTO the economy would supercharge it AND provide ample opportunity to gain employment for the displaced persons.

Head up our butt
The problem with our country is we have our head up our butt. We refuse to look at what other countries do and see how we can incorpate what they do into our country and see if we can make it better. The only thing that our politicians would like to import is the idea of national healthcare. What empty headed fools we elect.

Thanks
And this year, my wife and I were wrongly accused of not paying enough taxes 2 years ago. Never made a mistake in 45 years, but you know the IRS can never trust someone like us. It was a case of we did nothing wrong, but had to go through the agony of proving an accidental error. IRS going after honest people with a vengance. Never a word of "we're sorry...and by the way, thank you for paying your taxes".

Anyway...thank you for letting me vent!

Flat Tax or Fair tax...something has got to be done!

It my money...I certainly work harder for it then most politicians!

Political Insanity
Our politicians have somehow adopted the idea that chaos is good, complicated is sophisticated, and the productive are cash cows bred for milking.

Do they realize that these are traits for which many people seek therapy? Even more, these pathologies are common among those remanded for therapy by the courts, or simply jailed.

Each day in Washington D.C., common sense dies just a little more.

Great essay -- again, Mr. Stossel.

Fair Tax is not fair
Fair tax sucks. It will drive people out of the country to spend their money, especially wealthy people who have the means. It will BOOM the economy of Canada and Mexico.

Flat tax is the ONLY way to go. It is fair, simple, and proven effective. In fact it is the only ethical and reasonable tax to give.

PLUS
...after THAT waste, the gvmnt spends HALF of the income tax monies to collect it.... :(
SALES TAX - it IS there, so only raise it and use it better.

The real reason for taxes
Taxes do three things.

Stossel mentioned one thing, breaks for special interests and lobbys.

Another thing taxes do is pay for government. The more government you have the more taxes have to be collected. That's why libs like taxes, they love lots of government. Certain parts of government are necessary. We need roads and highways, we need national defense. National parks are really nice to have also. Most of the rest of government spending is vote buying and influence pedeling.

The third purpose of taxes is social engineering. Politicians like to appear to bring down the evil rich and help the down troden. If you put that in real words it translates to take from the producers and give to the non producers. Most of the tax and spend politicians are socialists at heart and socialism serves only those in power.

jcdean1978
You're partially right. During the Carter administration a punishing tax was placed on luxury items and people who could afford high dollar luxuries purchased them from outside the country. The boat/yacht building industry took a big hit because of this.

When you combine all the taxes you pay, those you can see and the hidden taxes, you end up paying much more than you can imagine.

Read the fair tax book.

Issues of discord allow this to happen
While I believe the vast majority of Americans would support the necessary repairs to the way taxes are collected other issues that create a great divide in our country have become as much of the problem. Instead of joining together to push these wise and agreeable changes we are instead busy taking shots at each other for reasons beyond this. In the confusion, we are being taken advantaged of by those who claim to speak for us.

JC-
Canada has a fairly stiff VAT. And if the economy of Mexico boomed, perhaps the flow of illegals could be stemmed- just a thought.
Something, however, needs to be done. The proof that social architecture is the main goal is right in front of us. At the point we are at now, lowering taxes raises revenue- it works every time it's tried- Kennedy, Reagan, W, for instance. It would be possible to make them too low, however. Somewhere in between, there is an optimal tax rate- one that maximizes revenue by minimizing the stifling effect of taxation. It would probably vary with ecomonic conditions, but my guess would be not by more than a percentage point or two either way. If liberal politicians really wanted the highest revenue to do their "good works", they should be clamoring to find this optimal tax rate. Don't see much activity on this, do you?

Big Stick
Taliesin writes:
"What none of us seems to have at the moment is the big stick we need to convince our representatives to enact the Fair Tax or some other tax overhaul."

Here's your big stick, Tal. Read the Sixteenth Amendment. This is the only constitutional justification for the Federal Income Tax. Yet it gives CONGRESS the power to collect it. Is IRS part of the legislative branch? No, it's part of the Executive Branch, i.e., the President. So you have one branch of government exercising a power that was specifically given to another branch of government. Even the liberal judges on the Supreme Court today would be forced to agree that, no matter how outrageously you interpret the Constitution, "separation of powers" was one of the over-riding themes, and the original framers would roll over in their graves to see one branch so clearly usurping the powers bestowed on another branch.

Though the Federal Income Tax is (by the Sixteenth Amendment) constitutional, the way it is COLLECTED is (by the same Amendment) UNconstitutional. Someone should file a lawsuit demanding a full refund of all income taxes ever collected by the Executive Branch. Of course, the refund could never be made, BUT, if all we're looking for is a "big stick" to force the representatives to go to a fair tax, I think this will suffice.

Regards,
Trevor

Fair Tax Detractors
I recommend that you read the book before you decide that the Fair Tax is unfair. Enacting the Fair Tax will do several things:

First, it reduces the cost of goods and services in the USA by removing the embedded taxes. This in turn will automatically drive down prices to the consumer. This will especially benefit the poor, because their purchasing power will increase.

Second, the Fair Tax will abolish corporate taxes, which in turn will stimulate start up businesses and attract foreign producers and investors. This will lower interest rates and increase the number of jobs available. This, in turn, will lead to higher wages for the poor, because their labor will be in higher demand.

Third, because the Fair Tax is assessed on new goods (and services), those who choose to purchase used goods will avoid paying the tax. That's another break for the poor (if they're smart enough to figure that out and take advantage of it).

Fourth, because congress will no longer be able to give tax breaks to special interests or levy taxes against special targets, the citizen just might have more influence with his elected official and won't be financing stupid ideas like paying farmers NOT to grow something.

Finally (although the list is much longer - read the book for more), the Fair Tax will provide a pre-bate to everyone to cover the taxes placed on the necessities. The pre-bate is intended to reimburse the poor for the taxes they would pay on the necessities that they don't pay under the current system. I suspect that the rich will put the pre-bate in the bank and the poor will spend it on beer and cigarettes, but there's a reason that most lottery winners are more broke three years down the road than they were before they won.

As a society we have been trying to protect the poor from themselves and raise them out of their plight for at least 70 years. We've spent TRILLIONS in the process. And still there they are. If we delay enacting a perfectly good tax system that replaces the broken one we have now in order to protect the poor from themselves we will NEVER move forward.

We need the Fair Tax, or a similar system, so that the rest of us can keep and control more our hard-earned money. If we're allowed to do that, the economy will grow, and the poor will actually have a better chance at getting out of poverty. But there will always be indolent people who will not fend for themselves. The rest of us should not be held back in deference to them.

jcdean1978
jcdean1978 writes: Wednesday, April, 18, 2007 8:45 AM

Fair Tax is not fair

Fair tax sucks. It will drive people out of the country to spend their money, especially wealthy people who have the means. It will BOOM the economy of Canada and Mexico.

Flat tax is the ONLY way to go. It is fair, simple, and proven effective. In fact it is the only ethical and reasonable tax to give.
===============================================

I challenge you to explain how you feel the fair tax will drive people out of the country to spend their money.

What exactly does Mexico produce (besides good Tequila) which wealthy people would want?

Why would someone go to Canada where the embedded taxes and VAT taxes would make their products cost more than US products under the "Fair Tax".

The tax rate now is worse than it would be under either the flat tax or "Fair Tax", but yet there is no mass exodus you describe.


Here is the problem with the flat tax. It still taxes income. It leaves the power to take our hard earned income from us before we see it in the hands of politicians who in the words of Hillary Clinton wants to "take those profits".

The "Fair Tax" returns us to the concept of our founding fathers. Taxes are only collected at the time money is spent. Many local, and state governments in this country already operate on consumption taxes (aka sales taxes) alone.

Texas is one stated that doesn't tax income, and it has quite a large annual budget I might add. The sales taxes are a bit higher than surrounding states, yet as a resident of Kansas I see many Kansans who go to Texas to buy big ticket items like cars. Why? Because they get a better deal than they do locally.

That is the opposite of what you say will happen under the "Fair Tax".

A Drastic Change is Needed in Tax Policy
While I like the Fair-Tax Idea in general, I think that the proposed rate is too high. I don't think that anybody should have to pay more than 10-15% of their gross income to the Feds. Let's think about this, a ten-to-fifteen percent Federal flat income or sales tax; states taxes set at ten percent of the Federal rate and City or County tax at ten percent the State rate. No exemptions or deductions allowed other than a minimum income under which no taxes would be levied so the poorest among us would be exemted. Also all income, no matter how earned would be taxed identically no special rates for centain types of income(i.e. no Capital Gains, Luxery, Estate, Alternative Minimum or other Special levies) Under this plan, nobody would ever pay more than 17% of their income...ever. You'd be able to file your taxes on a postcard, assuming filing wouls still be necessary. Of course the accountants, tax lawyers and their lobbyists would fight it to the death. But nothing worthwhile is ever easy to obtain.

TERM LIMITS!!!!
As Stossel pointed out, any tax reform in the U.S. is pie in the sky that will never occur, for the simple reason that the political class NEEDS the tax code to maintain its own power. (Same with the Social Security Ponzi scheme, by the way). The people of this country need to demand via the constitutional amendment process that ALL elected politicians be mandatorily terminated after a set number of terms, no exceptions (say, two terms for senators, five terms for representatives). Lifer apparatchiks such as Ted Kennedy, John Kerry, Robert Byrd, and yes, Republicans such as Trent Lott, Dennis Hastert, etc frankly contribute nothing to the well being of this nation and in fact harm it with their attitude and air of personal privilege. Only when the politicians are forced to become public servants, as short term breaks from their private sector employment, as envisioned by the Founding Fathers will reasonable and beneficial legislation become a priority. But then, this is all pie in the sky too. No politician will ever vote against his self interest, which is greed for power. The trend for an increasingly authoritarian, socialist government seems to be inevitable in any system of democracy or democratic republic.

NICK
As was pointed out in the article above Estonia started out at a 26% rate and has dropped that rate in subsequent years.

The same can be done with the "Fair Tax".

The idea behind the initial high rate is to not short the government on needed operational revenue (aka revenue neutral). Combining the income tax individuals pay and the embedded taxes in products, you and I are already paying about 20% to 30% in taxes. With today's crop of high spending politicians a 10% to 15% tax rate will not pay the bills.

I higher rate at first is also needed to pay down the debt that has built up over the decades.

The process needs to be done in stages;

1. Change the tax system
2. Change the spending habits of the politicians by voting the high spenders out of office
3. Lower the tax rates as spending drops and tax revenue increases

I'd love a 0% tax rate, but trying to cut the tax rate AND the tax code at the same time will kill the change at getting any change at all.

Flat Tax vs Consumption Tax
A flat tax will tax all of your income at some level (10 to 20 percent). A consumption tax, such as the Fair Tax, even if the rate is higher, only taxes what you spend. In the case of the Fair Tax, what you spend on new goods (and services). So, unless you spend every cent you earn on new goods (and services), you will be paying less than you otherwise would on a flat tax of a lower rate.

This is a good thing; it encourages saving, something a lot of us don't do too well, in no small part because the current tax code taxes interest income, which is a disincentive to save.

Get our Government Back
To return to the ideas that the founders advocated we must begin to return the power to the people of this country. The Constitution and the Bill of Rights are full of LIMITATIONS to Government, not to the people. We must return to this idea. This will take three steps.

1) Term Limits. Buzzkat is right. We must return to the Citizen Senator. Or actually the Citizen Representative. Term limits for Senators may not be necessary if we enact Number 2, below.

2) Repeal the 17th Amendment. The States no longer have any representation in the U.S. Government. They are being trampled over by those that could care less about their home state, or state’s rights, and only care about getting elected to power.

3) Fair Tax. This will not only create a tax system for the federal government that is more fair, encourages savings, and benefits the economy, it will return much more power to the people. Much, if not most, of the lobbying that goes on in Congress is for changes in the tax code. Under the fair tax, there would be no lobbying for tax breaks for one lobby group, or lobbying for tax increases for another group.

Stossel, National Treasure
I hope conservatives realize what a national treasure we have in John Stossel. He continually asks a critical question: what is it that we know is true . . . isn't true. (Mark Twain said it.)

If we truly want to do anything about taxes, we have to elect people who recognize that low taxes mean high economic growth. I've written recently about supposedly "conservative" Democrat Jason Altmire (PA 4th CD) who continually support policies that will raise taxes dramatically. You can find today's piece and others by clicking on the "Steve" above. Thanks.

steve

More to the point ---
"Galltegfa writes: Wednesday, April, 18, 2007 11:14 AM Flat Tax vs Consumption Tax
A flat tax will tax all of your income at some level (10 to 20 percent). A consumption tax, such as the Fair Tax, even if the rate is higher, only taxes what you spend. In the case of the Fair Tax, what you spend on new goods (and services). So, unless you spend every cent you earn on new goods (and services), you will be paying less than you otherwise would on a flat tax of a lower rate.

This is a good thing; it encourages saving, something a lot of us don't do too well, in no small part because the current tax code taxes interest income, which is a disincentive to save."

Well put - but, more to the point, an income tax is simply (morally) wrong and can never be made fair. It takes (confiscates)yourlabor, without your choice. You work for the government for about 6 months in the year just to pay the income taxes.

The Fair tax gives you a choice - you can decide to spend (except with respect to necessities of life) and thus to pay the taxes one what you buy. It is your choice.

In fact, I would suggest that most of the tinkering with today's tax code is to make it a gross approximation to a consumption tax. Its progressivity is designed based on disposable income. It taxes those with higher incomes at higher rates because those with higher incomes, after necessities, will probably consume more.

So let's drop all the pretenses and adopt the Fair Tax. If the 16th A is not repealed after such a tax is adopted, then the Fair Tax dies. Those are the terms of the agreement.



Here's an Excerpt
If you’re a Democrat in Pennsylvania, how do you get elected to federal office? If you’re a Bob Casey running against Rick Santorum, you tie the “Bush” tin-can around your opponent’s tail. You talk ceaselessly about the “tax cuts upon tax cuts, all for the wealthiest Americans.” If you’re Jason Altmire running for Congress, you vilify your opponent for backing “all the Bush tax cuts.” Taking a populist approach, you imply darkly that “working class Pennsylvania families” are paying higher and higher taxes, while the “rich,” whoever exactly they are, are sending less and less to the IRS. You rub raw the sores of discontent always present in union members and others in the lower middle class. You never back up your charges with statistics, mainly because they don’t exist. You use class envy as a major source of electoral leverage – and it works!





What is it that Bob Casey and Jason Altmire will never tell you? They’ll never reveal that the hated “Bush tax cuts” have led to a situation where 41 American households – poor people and those of modest incomes – pay NO federal income taxes.



Admittedly, it’s hard to cut income taxes for people who don’t pay any. Those people who are essentially "tax-free" are a major constituency for Democrats.



Also, they’ll never tell you that the bottom 50% of households pay less than 4% of federal taxes. They’ll never tell you that the top 1% of households pay nearly 36% of federal revenues, a number that’s GONE UP during the Bush Administration.


FairTax Prebate Info
I have read the FairTax book and the actual Fairtax bill, nowhere in either of these sources does it say only the poor will get the prebate. According to both sources every household in America will get it after they fill out the registration for it. Whether that househould is rich, poor, or middle class they all get the prebate.

I dare somebody to show me in the FairTax bill that it says only the poor will be eligible for the prebate, b/c it is not there.

Taxes
Probably the best way to cut taxes would be to get rid of the politicians whose careers are built on "pork." Term limits would be a start.

A consumtion tax of 15% should be instituted: 10 % for the federal gov't and 5% for the state where one resides.

On the local level, a real estate tax of 1% of the purchase price each year as long as one owns the property.

Social Security should be privatized with contributions going into managed funds, similar to an IRA

Wealth Tax
George writes:

Probably the best way to cut taxes would be to get rid of the politicians whose careers are built on "pork." Term limits would be a start.

A consumtion tax of 15% should be instituted: 10 % for the federal gov't and 5% for the state where one resides.

On the local level, a real estate tax of 1% of the purchase price each year as long as one owns the property.

Social Security should be privatized with contributions going into managed funds, similar to an IRA

______
I have a major problem with the 1% tax on real estate. This is a wealth tax - and I oppose wealth taxes - whether they include a tax on real estate, personal property, or one's estate after death.

Wealth taxes are simply wrong. You paid a tax to obtain the item of wealth - why should you have to pay to keep it?


fair tax is dumb
I read the fair tax website for 30 seconds and found a fatal flaw... it still has loopholes. These loopholes are called tax credits. What makes anyone think the Repubs and Dems won't have all sorts of special interest crap messing up that system within a short time?

The only tax system I like has a flat rate, and ZERO exemptions, deductions, or credits. This can be done via a national sales tax, or income tax (I prefer the sales tax).

The key problem we have with the current tax system is that it leaves room for politicians to play games in the attempt to buy votes from special interest.



Simplifying taxes is a must
Simplifying taxes is a must.
However we will also have to break our addiction to big government spending right along with changing taxes over to a national or flat tax.

With 9 trillion in debt and rising we must do something and something immediately.

FairTax Prebate
The prebate is intended to mitigte the consumption tax which everyone would be paying to acquire the "necessities of life". Since everyone needs those basic necessities, all (poor, middle class and rich) would recieve the prebate. This is eminently fair. Thereafter, under the FairTax, the rich would pay far more in taxes than the poor or middle class, because they are always buying/consuming more, and better quality stuff, than the poor and middle class.

Johnny P and jcdean1978
Both posts very well done! That Fair Tax, if implented would be monkeyed with by the lawyers we have elected to Congress to no end. You know, lower tax on milk, higher tax on booze, etcetera, etcetera. etcetera. It is ripe for abuse. But if you had a flat tax on income, and by that I mean ANY income earned by an Individual or Corporation, NO matter where it was earned(like overseas), any monkey business by Congressional slime would be patently obvious to the citizens. And NO, I repeat, NO deductions allowed. That would be truly fair.
And by Godfrey Daniels, it probably would work!

Know your enemy
Bravo Mr. Stossel. However, we won't win the fight until we understand our enemy. It is not about money, it is about control. The Left KNOWS that lower tax rates bring in more money, they just don't care. They want the control that the current tax code brings over other peoples lives, and they want the enormous bureaucracy needed to administer it. Arguing with them from the point of fiscal common sense is pointless.

JOHNNY P & CHOWDA MELON
JOHNNY P

Please take more than 30 seconds to look something over before passing judgment. And please point to the tax credits you say you found in the "Fair Tax" plan.

CHOWDA MELON

The fundamental flaw in your idea for a flat tax is making it an income tax. The current system was made a tax on income because it takes the money from us before we see it and that helps hide the manipulation of the tax system. The only way to tax and make it transparent when the tax is messed with is to tax spending or consumption, not income. When your gas or electric bill goes up or down you notice because you have to pay it with the money in your pocket.

Opposing any tax change because the politicians can try to misuse it and alter it is like refusing to leave your home because the outside world is dangerous. It is a cop out.

We as voters need to remove people from office who mess with the tax system and over spend the revenue the government collects.

eliminate the payroll tax
The only way to achieve tax reform is to eliminate the payroll taxes and have the citizens write a quarterly check to the government. Then, and only then, will the people stand up and fight. Otherwise, we are wasting our time.

Real Tax Reform Can Not Happen
Sorry to be cynical -- but it just ain't gonna happen. Too many people have a vested interest in the Status Quo.

Too many people do NOT want to lose their favorite deductions -- telling them that one reform or another will reduce their bottom line w/o their favorite deduction will change very few people's mind. Most people do not have the mathematical abilities to make that connection. (Thank you, Public School System).

Too many politicians use the tax code to micromanage their favorite social advocacies. Removing that is eliminating much of their coveted Power.

Too many "H&R Block" etc. base their livelihood on the tax code complexities.

The only way to get "Tax Reform" is to do it such that the Public still has their favorite "gimme's", and politicians still have the Power to micromanage -- which is generally what happens with most "Tax Reform" bills that actually pass. I.e., the "New System" is always going to be fundamentally the same as the "Old System".

)-:>

New the Same as the Old
-- only worse --

I sure wish I could edit old postings!
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