Posted: May 25, 2005 By: Michael G Dickson

Subject: Tinkering with the Tax Code

Comment: There is a problem with the Bush tax cut. It makes the tax code more complex. Over 50% of all income tax filers pay someone to prepare their tax return. That cost in itself is an additional tax.

There is a simple solution. A bi-partisan bill called the FairTax has been introduced in the 108th Congress by congressmen John Linder (R-GA) and Collin Peterson (D-MN). The FairTax replaces all individual and corporate income taxes, payroll taxes, self-employment taxes, capital gains taxes, estate and gift taxes with a single-rate national retail sales tax of 23%. This means that you would take home your entire paycheck – there would be no more withholding.

Critics of a national retail sales tax say that it is not fair to the poor because the poor must pay a larger percentage of their income to cover basic necessities. The FairTax bill answers this concern by including a monthly tax rebate that all families will receive. The amount of the rebate is based upon your family's size and what the government determines is the poverty level of income. Essentially, the rebate lowers the tax burden on families earning above the poverty line and eliminates the tax burden on families earning at or below the poverty line.

Another positive affect of the FairTax is that it removes the cost of hidden taxes from all products and services. Although businesses pay income taxes on paper, it is actually you and I who bear this burden through higher prices and lower wages. Harvard economist Dale Jorgenson estimates that hidden taxes may comprise anywhere from 20 to 30 percent of the price of a product or service.

The FairTax presents a win-win situation. The only problem with it is that it makes too much sense.