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Replacing Our Highly Regressive Income Tax

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We commonly hear our federal income tax described as a "progressive" tax. This is a false description.

The federal income tax, in fact, is highly regressive. It only appears to be progressive, and appearances can be deceiving. In the case of the federal income tax, deception is the name of the game.

Like the other nine planks of the Communist Manifesto, the concept of a progressive income tax is well-intended. And on principle, it's justifiable. The concept of "those who have more pay more" sounds equitable. But the federal income tax shares something with an iceberg. You don't see what lies beneath the surface.

What we see on the surface is this. The federal income tax has tiers of rates and you pay more when you make more. But the portion that lurks below the surface is several times larger than what's on top.

The vast, hidden part of the federal income tax

Let's look below the surface to get an idea of what the federal income tax really costs. Remember, everything below the surface is unaffected by those progressive rates.

  • The federal income tax pulls money from businesses. This results in what's called an embedded tax. It's a significant component of the cost of every good and service you buy. That embedded tax is, de facto, a sales tax. And it's a very high tax at that. The sales tax component of the federal income tax is a larger tax for most Americans than the income component.
     
  • Filing costs (embedded). Businesses spend more on figuring out how much income tax to pay than they do on paying the tax. You can look online for the actual numbers, which are huge. Look for the number of hours businesses and individuals spend as indentured servants calculating and filing federal income taxes, and look for the dollar figures also. And remember, you are paying for this one way or another.
     
  • Filing costs (personal). Similar to what gets passed on to you by businesses, except it's your direct labor that's stolen. How many hours do you spend as an unpaid federal worker preparing federal income tax documents? Count the record-keeping you do all year long, too.
     
  • Compliance costs. The filing costs just mentioned are actually components of the compliance costs. There are also the costs of endless audits, illegal property seizures (even the legal ones would not be necessary if we had a proper tax system), due process violations, tax dispute resolution, and other expenses that would be eliminated by a proper tax system. Every consumer pays for these costs in every product and service we buy. The compliance costs are much greater than the amount paid directly for income tax, and the compliance costs add up to yet another hugely regressive tax.

    These costs don't raise revenue for the government. They are 100% waste. Further, these costs remove capital from the economy and in so doing eliminate jobs. Lots of jobs. The Fair Tax would eliminate these costs. And save those jobs.
     
  • IRS behavior costs. Anyone who has been in the maw of this agency knows why it's so deeply hated by so many millions of people. The reasons go beyond mere corruption (see GAO reports), incompetence, and rampant abuse. The reasons go beyond the fact that these people run scams such as the Hoyt Fiasco and the Amcor Mess to personally enrich themselves while destroying the lives of thousands of innocent Americans to cover up their crimes. The reasons go beyond the fact these people steal 4300 computers from their own offices in one year (source: GAO) and then sit in judgment on us with unbridled power and zero accountability for their actions. The organization is simply incompatible with the concept of civilization.
     
  • IRS payroll costs. Funding these pointless jobs is hugely expensive, and the cost is borne by us in every product and service we buy. The Fair Tax would eliminate paying for salaries, benefits, and offices for people to accomplish zero. The money thus saved could be put back into the economy to provide real jobs doing things that provide value. Several studies show that every government job destroys X number of jobs in the private sector. What X is depends on the study. As a rule of thumb, say it's 50.

    So, eliminate the 115,000 IRS jobs and you gain nearly 6 million new jobs. What's not to like? If IRS employees are worried about job loss personally, they shouldn't be. They would be likely to take one of the 6 million jobs provided by eliminating the pointless jobs they now hold. They could become useful members of society rather than a blight on it, and that alone is reason enough for them, also, to embrace the dissolution of the IRS.

    But the job bonus gets better. The number of new jobs would be far more than the 6 million, because eliminating the IRS would also relieve US companies of a huge cost their foreign counterparts don't bear. Think "economic boom."

What's the best solution to this hugely regressive federal income tax? The two most viable are taxation by apportionment (which we had, pre-1913) and the Fair Tax. I've mentioned the Fair Tax a few times, and will discuss it a bit more. But first, the other solution.

Taxation by apportionment

Taxation by apportionment means the 50 states are taxed by the federal government and individual citizens are not. You need a whole lot fewer people to review 52 tax returns (Puerto Rico and Washington, DC, would also file) than you do to review 100 million or so personal and corporate tax returns. Right off the bat, you eliminate several major cost components by eliminating a redundant and burdensome layer of taxation. States can tax however they want, as long as they meet their tax bill. There are two problems with this method:

  1. The Constitution was amended in 1913 to change our bicameral system to a unicameral one. States used to have representation, because state legislatures elected senators to represent their respective states. In 1913, states were deprived of representation. Since that time, senators have been seated by the handful of power brokers who control ballot access in the general "elections." So, this would be taxation without representation.

    We actually have taxation without representation with the current income tax, so this method wouldn't make that problem a new thing. It's why we have pork barrel spending, and it's how the Obama misadministration got by with passing a porkulus package at a time when the economy is staggering and people are out of work (kick 'em when they're down is the motto there). It's also how the Bush misadministration got by with more than doubling our national debt in eight years after the Clinton misadministration ran it up to a record $5 trillion.
     
  2. It reduces federal control. The federal government gets control because it takes the money from the citizens of the states, and then makes the states bend to its will or not get back their own money. To many people, eliminating this extortionary arrangement is a good thing. But if you are a lobbyist who is used to controlling billions of dollars of pork barrel spending, you wet your pants at the mention of apportionment. So, the major lobbyists will never permit going back to taxation by apportionment. The current arrangement makes it much easier to bilk the taxpayer out of billions of dollars, so the major lobbyists prefer it.

The Fair Tax

Details are at www.fairtax.org. We won't repeat them here, but just sum it up. This is a consumption tax. Generally (but not always), you pay more when you consume more and pay less when you consume less. A consumption tax tax can be constructed to be regressive or to be progressive. The Fair Tax is constructed to be progressive. No consumption tax can ever be as regressive as the federal income tax is now, no matter how you construct it.

The Fair Tax accomplishes progressivity by excluding certain things from being taxed. These are the essentials that "the poor" are heavily taxed on (via embedded taxes) under the current income tax. Funny how the opponents of the Fair Tax keep forgetting to mention this, isn't it?

The Fair Tax gets rid of the porkulus problem by putting the taxes right out where we can see them. This concept is called "transparency."

Transparency is a foundational element of ethical business conduct. Our current federal income tax eliminates transparency. Consequently, Congress has become the poster child for unethical conduct.

Not all of us are capable of understanding the gravity of an $11 million million (a trillion is a million million) debt, because after all the numbers are too huge to be meaningful. But if you have to pay an extra $34 in tax at the cash register for a pair of shoes, that gets real very fast (this is actually be less than the hidden taxes you now pay on those shoes). And federal spending will subsequently come down. We would no longer tolerate the Pentagon Acquisitions Program, which burns $21 million an hour while less than 5% of its projects are ever completed (95% of that money is wasted).

If we all agree that money does not grow on trees, we then agree that federal spending is taxation. This spending has to be paid for, one way or another. The transparency benefit of the Fair Tax is justification enough for adopting the Fair Tax.

The most common objections to the Fair Tax are baseless, because they ascribe to the Fair Tax things that aren't true. Rather than let someone manipulate you with disinformation, read what the Fair Tax actually is. You can do that at www.fairtax.org. Then you can evaluate the Fair Tax for what it is, rather than what some ignorant or lying person tells you it is.

If you have been basing your opinion of the Fair Tax on the fiction spewed by the "news" papers or by television "news" shows (the mudstream media), you are the victim of a deliberate disinformation campaign. These sources of disinformation conveniently ignore the "under the water" part of the income tax iceberg. Such ignorance is what sank the Titanic. It can also sink a national economy.

There are many other proposed solutions to the problem that is our federal income tax. For example, the national flat tax. One problem with that solution is we already have this tax. It's called Social Security. It has been made regressive by putting a ceiling on it.

The SS tax allegedly funds the Ponzi scheme known as Social Security. But the Social Security fund is empty, except for some IOUs. So, it's a 15% flat tax on income below a very high level (thus favoring people with very high incomes--the same people who pay corporate lobbyists, imagine that).

Since the Social Security Tax doesn't fund Social Security, it can be replaced at the same time as the federal income tax. If this is done with the Fair Tax, the total tax bite would vastly reduced and there would be money available to actually fund the currently unfunded Social Security fund.

There is not a single valid reason to continue with our existing federal income tax. The reasons to replace it are numerous and compelling. The people who want the federal income tax to remain have an agenda that is in conflict with the public good and the best interests of most citizens. Which is why they lie about the Fair Tax.

Visit the Websites of your senators and (mis)Representative in Congress (you can find them via MSN search, Yahoo, or Google). Let them know you want the federal income tax abolished, because it's regressive and laden with problems that the Fair Tax would solve.

Note also, the federal government would receive more revenue than it now does by simply abolishing the 1040 tax scam and eliminating the IRS. That's because the IRS is the single largest drag on our economy; not taxes per se, but the brutal and destructive behavior of the IRS itself, combined with totally asinine reporting and compliance burdens.

 

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