April 15, 2010

Tax Day Arrives Today - What Are the Fair Tax and Flat Tax Alternatives to the Federal Income Tax?

It's April 15th once again, and I'm going to avoid that road over by the airport, where the main post office is located -- because we all know there's going to be a line of cars over there today, as folk are mailing their tax returns right on the deadline. 

Like it or not, the government has got to have revenue to keep things running for all of us -- but is there a better way to accomplish that?  We're hearing a lot these days about two options: the FAIR TAX and the FLAT TAX.  I got to wondering what they were, so I went and investigated, and thought I'd share what I found out:

Fair Tax

The Fair Tax is a tax that would be placed on all new goods and services you buy for personal consumption (use). You wouldn't pay the tax until you exceeded a "prebate," which is a monthly amount of personal purchases equal to those tallied to be "the poverty level," so the poor and indigent wouldn't have to pay any tax.

The fair tax would be 23%, which sounds like a lot until you hear the Fair Tax proponents tell you that this reflects the current ratio for federal income taxes -- we pay about that much in income taxes each year on our buying dollars.

Why the proponents say this is great: poor people don't get taxed, but all those folk that don't file income tax returns DO. Criminals (think drug dealers) and illegal immigrants automatically paid their fair share because they're buying stuff at the store just like the rest of us. Meanwhile, we get to keep our gross income. No withholding. No tax payments on April 15th. More cash in the citizens pocket means more purchasing power, which should sound good to everyone.

For more information on the Fair Tax, check out FairTax.org and Wikipedia.

Flat Tax

A Flat Tax is really just throwing out all those different tables on who goes into what tax bracket, and taxing everyone on the same percentage -- it's a Flat Rate Tax.

Households would be taxed at a set percentage of income. Companies would be taxed at another set rate.

Proponents argue that this makes it fair on everyone because everyone is paying the same percentage, or the same tax, and it would exempt those below a certain income level from any tax at all.

For more information, check out Wikipedia.

My Two Cents Worth

I'm no tax expert, not by any means, but it seems to me that either of these options offer a simpler alternative to the gathering of needed revenue for the government than the current Tax Code.  While the flat tax does seem to be popular with other countries, I'm thinking that the Fair Tax seems the better option of the two.  Why?  Easy to administer -- and it corrals all those dollars that aren't getting taxed.

Here in San Antonio, we're all too aware of drug money.  We're close to the Tex-Mex border, and our city hosts the intersection of two major interstates:  IH 10 takes you from the east coast to the west coast, and IH 35 takes you from the country's southern border to its Canadian one.  Drug revenue is huge in the U.S.A., and the Fair Tax means these dollars come into the pot.  I like that idea, seems smart.  And simple.
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