Are Your Taxes Fair?

Whether you felt disgust or vindication after reading , one thing is abundantly clear: everyone hates our current tax laws.

As demonstrated through hundreds of comments and emails, no one – wealthy or otherwise -- believes that their neighbors are paying what they should. Folks from far away towns scorned the “let them eat cake” complaints of higher-earning neighbors who depend on proximity to Manhattan to earn their lofty livings. But those who live closer to NYC observed that even a very modest home cost double or sometimes triple what the same home would cost elsewhere.

Yet through every debate and every email, which I personally monitor, no one – not one person – defended the tax code as fair.

(For the record, yes, I understand how the 250k cutoff works. And while I won’t reveal our income – as one reader insisted I should -- I will state that our family’s decision to live in lower Fairfield County came about by necessity after we were transferred here six years ago for professional reasons. We had to stay close to Manhattan, and we wanted great schools. Our income is more modest than one might assume for a “young Republican woman from Weston,” as one commenter put it.)

As the days passed and the comments rolled in, it became increasingly apparent that we are all in the same leaky rowboat, regardless of tax bracket. Our homes are worth less. Our jobs are less secure. If we have investments, they may not be worth what they once were. Taxes are going up, and so is college tuition, food prices and everything else. And while some are lucky enough to take advantage of the current economy – a nice refinancing perhaps, or maybe a second home? – most are just muddling along, grateful for employment, and waiting for easier times.

Here is the impasse at which we stand as a nation: some insist that only through a reduction in government spending and not an increase in the tax rolls will America find its way back to a federal budget surplus and economic growth. Others replied that Congress should eliminate tax loopholes bought by the wealthy so that they could pay their fair share, thus balancing the budget. 

The good news? Everyone agrees the current system stinks. With our current tax laws in place, this time- and energy-wasting class warfare battle will never end. And the clock is ticking, because our government is running out of money!

That is why the time has come to repeal our income tax laws, eliminate the IRS, and institute a system that ensures that every resident of this country not only pays their fair share, but also has a stake in the operation of the federal government, an operation in which we are all invested, like it or not.

Many readers debated the merits of the value added tax (commonly called the VAT), the flat tax and the FairTax.  The value added tax – which taxes a good gradually, as it’s created – seemed, to me, convoluted, complicated and ripe for fraud.

Steve Forbes put forth the idea of the flat tax years ago when he ran his own presidential campaign. And while the flat tax is better than our current system, it still requires sending paperwork to the IRS – yuck.

A more interesting idea, suggested by many readers, is the FairTax. Commonly known as the national sales tax, it would add a tax-inclusive 23 percent to every new purchase. Don’t judge -- yet. Please read on:

 Pros

• The FairTax replaces federal taxes, Social Security and Medicare taxes, alternative minimum taxes, capital gains taxes, estate taxes, gift taxes, personal taxes, corporate taxes and self-employment taxes – in other words, say goodbye to icky paycheck deductions, quarterly payments and the 1040.
• The FairTax eliminates the IRS, along with tax avoidance loopholes set up by the wealthy, for the wealthy.
• The FairTax eliminates taxes on unemployment benefits.
• The FairTax is only collected on a NEW good, not a USED good.
• The FairTax does not tax job-creating or for-the-greater-good activities such as building a factory, financing research or charitable outreach.
• The FairTax collects tax revenue from those who do not currently pay income taxes into the system, but often earn federal benefits anyway. This includes undocumented workers and criminals who earn ill-gotten gains.
• The FairTax offers a universal “prebate” that helps every adult offset the new, higher sales tax.
• The FairTax is border adjustable and makes our homemade goods more price competitive in overseas markets.
• Best of all, the FairTax taxes the most who spend the most. Those who spend less (and, presumably, earn less), pay less in taxes. 

Cons

• It’s not perfect. A healthy amount of skepticism lives – as it should. Although the analysis is old, visit FactCheck.org for further information
• Very few understand the "tax-inclusive" versus "tax-exclusive" tenet, which is complicated but central to the FairTax.
• There are no FairTax exemptions, excepting education. This includes food and medicine (although, for low-income families, the prebate may cover the entirety of what they would spend on necessities).
• The FairTax would put thousands of accountants and attorneys out of work, although advocates suggest that their skills would translate to other types of employment, and that the resulting economic expansion would increase job opportunities for these displaced workers.
• Advocates suggest that the FairTax is revenue neutral in the first year only. That means that it doesn’t raise more money in the first year than the current system. In subsequent years, advocates believe, tax revenue would rise as a result of economic expansion – but as we all know, a rigorous questioning of federal spending estimates is always wise and appropriate.
• The FairTax does not address conservative concerns regarding government spending.
• We won't know how the FairTax affects the economy until it may be too late to change it. 

The FairTax is not perfect, and a lot of questions remain. But before things get worse, we need to explore an alternate solution.

Any ideas?