Radiofree West Hartford - THE FAIREST TAX WE'LL NEVER HAVE by Tim Siggia

THE FAIREST TAX WE'LL NEVER HAVE

By Tim Siggia

January 16, 2007

"I heartily accept the motto, 'That government is best which governs least,' and I should like to see it acted up to more rapidly and systematically. Carried out, it finally amounts to this, which I also believe -- 'That government is best which governs not at all,' and when men are prepared for it, that is the kind of government which they will have." Henry David Thoreau, from Civil Disobedience.

Civil Disobedience was perhaps the most revolutionary piece of work ever published by a man who, even today, is perceived as a radical, and was definitely considered so in his own time. Some have interpreted the work as a call to anarchy, others see it as a rather grudging acceptance of government as a necessary evil. The incident that spawned Civil Disobedience was Thoreau's arrest for non-payment of taxes which Thoreau in his heart believed he did not owe and shouldn't have had to pay. It tends to be a recurring theme among Americans, whose own revolution came about primarily as the result of unfair taxation by the British monarchy. The real guts of Thoreau's statement lies in the phrase, "and when men are prepared for it, that is the kind of government they will have." (Emphasis mine.) In other words, men -- and yes, women too -- will never be prepared for a society without government for so long as the world remains imperfect, which it always will be. So as long as civilization exists, so must government, and if any kind of government exists, there will of necessity be taxes.

It is a subject which tends to rear its head about this time each year, after the eggnog is drunk, the presents are unwrapped, and the Big Ball has descended upon Times Square. Almost immediately after these things all happen, the W-2 forms start arriving in the mail, and America breathes a collective sigh and a groan of, "Here we go again." Time once again to start collecting the various W forms and making those appointments with H & R Block, or whoever prepares our taxes for us -- unless, of course, we number ourselves among the brave and hardy breed of do-it-yourself-ers who are either in the accounting profession or whose particular tax situation is simple enough to allow them to exercise this option. But whether we prepare our taxes ourselves or pay professionals to do it for us, it seems the only ones among us who get it right are those who do so by accident. Even the Internal Revenue Service itself is right only about half the time, and no other preparer seems to be doing the job any better. Our tax code is so convoluted that hardly anybody seems to truly understand it.

There not only must be a better way, but better ways do in fact exist. So why aren't they implemented? Well, first it might be prudent to see what some of the alternatives to the present system are. There are two, in fact, which merit particular attention since they have both been proposed in the past and are still garnering attention in serious circles. One is the option of a national sales tax, called the Fair Tax, and the other is the Flat Tax.

The Fair Tax would not only eliminate the I.R.S., but the federal income tax as well. In its place, a federal tax would be placed on goods and services, which would pay for the federal government, its agencies, the armed forces, and all federal functions. Its beauty, say its proponents, is there would be no "tax time" as we currently know it, and consequently no tax deadlines. They call it the Fair Tax because it would be totally non-discriminatory and have no exemptions. People would pay the tax every time they make a purchase. Since it would eliminate an entire federal agency, namely the Internal Revenue Service, it would consequently generate immediate tax savings. There would be no forms to prepare, and no federal withholding from wages and salaries.

There are, however, two serious drawbacks to the Fair Tax. First of all, before it could even be enacted, the Sixteenth Amendment to the Constitution -- that which enacted the federal income tax -- would first have to be repealed, and this would require a two-thirds majority vote in both houses of Congress, plus ratification by the individual states. Were this not done, and the Sixteenth Amendment allowed to stand, what was intended to be a "fair" tax would end up simply being an additional tax supplementing rather than eliminating the income tax. Second, assuming that we actually could get the Sixteenth Amendment repealed, passage of the Fair Tax would have a detrimental effect on the economy. It doesn't require the brains of a Milton Friedman to figure out that when goods and services cost more, as they of course will once an additional tax is levied upon them, the natural reaction among consumers is to buy less. This would result in less money being poured into the economy, which consequently means less revenue for the federal coffers. The natural reaction among lawmakers in such a situation might be to simply increase the national sales tax, and therefore aggravate the economic decline, or, if they are particularly farsighted, to pronounce the Fair Tax a failure, repeal the measure, and go back to Square One.

The Flat Tax is another option that has been batted about for more than a few years. One of its first proponents was also one of those most unlikely to propose a measure that actually made sense: former California governor Edmund G. "Jerry" Brown, now mayor of Oakland, Calif. Few took the idea seriously in those days, the Seventies, considering it yet another crack-brained scheme of the much-derided "Governor Moonbeam." Some years later, Representative Dick Armey offered his version of a flat tax, and magazine publisher Steve Forbes made the measure a primary ingredient of his 2000 run for the Republican presidential nomination. Under the Steve Forbes plan, the Flat Tax, like the Fair Tax, would do away with the I.R.S. For a family of four, there would be no tax at all on the first $35,000 of income. Everything over and above that figure would be taxed at a rate of 15 percent. There would be no mortgage interest deduction, no deduction for charitable contributions, no loopholes catering to special interests. Everybody, rich and poor, would pay the same percentage, and if a family of four had an income of $35,000 or less, they would pay nothing at all. Tax preparation would be so simple that anyone with even an elementary education could do it. Let's say, for example, that a married father of four has an income of $75,000 for the year in question. He simply subtracts $35,000 from $75,000 and has $40,000 as his taxable income. He then multiplies that by .15, for a result of $6,000, which is the tax he owes. From that point, it's the same as under the current system. Whatever the difference is between that figure and what was withheld throughout the year is either what he owes or what his refund will be, depending on which figure is greater. Anyone of average intelligence can do this within a matter of minutes, and there is no need for a professional tax preparer. And, unlike the Fair Tax, there is no need to repeal any constitutional amendments. It's the fairest tax we'll never see.

Why? Simply because there are too many constituencies with vested interests in keeping the current system exactly as it is. First of these is the I.R.S. itself, which is not only a federal agency, but also an employer. Add to this accountants, tax attorneys and companies like H & R Block, for all of whom the current tax system is bread and butter, and the elements of resistance become legion. The Flat Tax, if enacted, would put them all out of business, and they all know it -- and they all have lobbyists on Capitol Hill who would work strenuously to defeat any proposal for a Flat Tax, a Fair Tax, or any other alternative which would simplify and demystify the system of taxation we currently have.

So, preferable as these or any other alternatives to the current system may be, don't be looking for any changes to take place, especially with a Democratic Congress in place. It ain't gonna happen, folks. Pope Benedict will be married and have children before America ever adopts a Flat Tax or a Fair Tax. As my own Democratic congressman might put it, "Look, Tim, like it or not, the I.R.S. is here to stay. Period. Get used to the idea."