FAIR TAX BLOGBURST 05-17-06

The Curse of the Tax Refund
by Jordan LeDoux of The Politicker

Tax refunds are perhaps the worst things I have ever conceived a government doing. I'm sure you're asking "why", wondering what could possess me to deride your check that bought you the iPod in your hands, or the new TV in your entertainment room. Perhaps you are wondering what this has to do with the FairTax. Well allow me to explain.

What exactly is a tax refund? Well, a tax refund is a check that the government sends you for overpaid taxes. Overpaid, eh? Do you ever remember sending them a check for those overpaid taxes? I'm pretty sure that you wouldn't have overpaid them if you had written them a check. No, the overpayment comes from the concept of withholding. Withholding is how most income taxes are collected. You get your check, and it has gross pay, then some deductions, right? Those deductions are taxes that you are paying. Or, in other words, the government is taking your money from you before you ever get it, and before they even know how much to take.

Many people don't get this fundamental principal. In fact, you'll hear people say things like "I didn't pay any taxes this year! In fact, I got money back!" That the government has been able to convince the public of this is disturbing. Government spending would not be as hog-wild as it is, were it not for the fact that average Americans just aren't outraged. And the primary reason they aren't outraged, is that they don't see taxes as ever being their money. They never get that money, so why should they see it as theirs? This creates the illusion that government has an inherent right to take your money... to levy a tax. This is not true at all. Government is granted to right to levy a tax by the people because the people feel that the service provided by the government is worth the money paid.

But most people never understand this concept. Taxes are simply there. They just exist. You don't know your tax rate on each check... payroll takes care of that for you. I'm sure that many Americans would be shocked at the revelation that they make 15-30% more money than they think they do.

This creates a dangerous indifference to tax changes. If people never have possession of the money, they put don't put up a fight when you steal more of it. Since withholding has been enacted, taxes have increased at an unheard of rate. Because people never see this money, there is also less money to invest. I was looking at investing about $500 this month. In reality, my $500 is about $700... but about $200 was taken out before I even received it. Then, once I invest it, they will take out another 18% in Capital gains taxes if I liquidate my assets. In other words, in order to compensate for the tax money I have lost, I need to turn my $500 into $871, or I need to earn nearly 75% on my investment.

But taxes aren't an expense, you say. They cannot be counted against investments as an expense, because they are not an expense of investing. Oh really? Enter the FairTax. Because there are no Capital gains taxes in a FairTax government, I no longer have to return that 18%. Further, because there are no more business taxes, the money I am investing to is no longer taxed. And yet further, because I receive 100% of my paycheck, I'll have my full $700 to invest, avoiding triple taxation.

The FairTax will create wealth by providing an enormous amount of investment capital for the economy, and will turn nearly every American into an investor. Many claim that the FairTax would create a larger disparity between the rich and poor. But as this average middle class college student will attest to, the FairTax makes middle class investing exactly what it should be: Fair.

The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to join us, please e-mail Terry or Jonathan. You will be added to our mailing list and blogroll.