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.

Trends in 2010 - Markets That Are Supposed to Do WELL

According to Entrepreneur magazine, all isn't bad.  It just depends on where you are in the marketplace.  They've got an interesting online article where they have checked with Those In The Know (presumably, people like Faith Popcorn) and learned the Top 10 Markets that are thriving in this bad economy
Some aren't any big surprise:  Going Green, Boomer Business, these things aren't new.  But I was a tad surprised at Parental Outsourcing and the fact that Texas is so darn trendy.  Who knew? 

What a Dollar Buys Now and Then: Cool Online Tool Showing Decline of Dollar's Power

Over at CoinNews.net, they have a cool online gadget that is based upon the federal government's Consumer Price Index. You input YEAR, PRICE OF ITEM, and SECOND YEAR, and the gizmo tells you how much the same item would cost in the second year, compared to the first -- and it gives you the rate of inflation.  They call it their "Inflation Calculator."  

Examples:

If you bought a book for $18.00 in 1990, today it would cost $29.95, for an inflation rate of 65.8%.

If you bought a car for 20,000 in 1985, today it would cost $40,286.43, for an inflation rate of 101.4%.

For those of us that have been around awhile, this sounds about right.  The price I paid for a Lexus in the 1980s isn't gonna get me in the dealership door.  What I paid around $25K for back then, I'd have to walk into North Park Lexus with around $50K today. 

And, I think back to McDonald's visits growing up. I remember the little hamburger costing only 25 cents.  You could get one for a quarter, and maybe some pennies for tax.  I think the little basic burger is now 89 cents, but I'll have to double check this and get back to you, Dear Reader, the next time I drive thru McD's (which is rare, so bear with me.) 

For the detailed report on the Consumer Price Index by the Bureau of Labor Statistics, you can read their periodic reports in .pdf format.

Image: US Twenty Dollar Bills, Wikimedia Commons Public Domain.