Tuesday, October 16, 2012

Fair Tax Transition

Overhauling the current tax system and converting it to a Fair Tax/Flat Tax/NRST system needs to be done. Sooner than later. Yesterday, or the day before, works for me.

You'll hear pundits, politicians, accountants and the corner hot dog vendor tell you it can't be done because the current system is so solidly entrenched in the fabric of our lives, converting to something else would just cause chaos and take too long.

Thats what they said about the automobile.

I have an idea to make the transtion as simple and effortless as possible and the citizens get the benefits of the transtion immediately.

The first thing that needs to happen is the elimination of the payroll deduction for Federal taxes. BAM!!! American workers get to keep 15 to 18% of their earned income. No muss no fuss. Don't touch SS, Medicare or state taxes. They have to stay, but there should be an option for self-directed SS accounts for new workers.

Second, the IRS needs to be downsized and employees re-trained as field representatives for the new tax collection system. They will go out and assist retail outlets in upgrading the software to start collecting an increased percentage at the Point of Sale.

Once that is done, the government starts getting General Fund revenue. Note, the NRST has exemptions for certain scenarios. Bulders wouldn't pay a sales tax on building materials, the end user would pay the tax when they purchased the finished product, whether it's a house or a chair. Second sales of used autos and trucks is exempt because theoretically, the original purchaser would have paid the tax. I don't like either of those. 2nd sales of used cars/trucks shouldn't be taxed. Resale of items purchased wouldn't be taxed. The tax would only be paid at the point of purchase for the new product by the original purchaser.If we're going to try to convert to a simple plan, we need to start out by making it simple. Less paperwork is more simple.

If the system is a flat tax on earned income, then we need to decide how to pay it and how frequently. We should have options for paying taxes. Monthly, quarterly, bi-yearly, yearly, pre-pay.
Credit card or written check. No debit cards, no ACH transfers, although that could be done.

The ideal system would only tax profits on income. Wages are not profit. It's a result of your efforts as a worker. Earning a living requires an investement on the part of the earner. It requires that you make daily investments to generate that income. You have to live somewhere. You have to get to work. You have to feed yourself and your family. You need clothes, electricity, water, sewage. All of those costs are money you spend to make it possible for you to make a wage. The wages generated from those expenses is gross profit. The amount you have left could be considered profit, but we call it disposable income. Fun money. Thats the part that should be taxed.

I am a staunch supporter of the Flat Tax. A 10% across the board tax on every cent you earn, no matter where it comes from, with no deductions, no exemptions, no paperwork, no refunds of overpaid taxes.. Everyone pays 10% of their earnings to the government and if the government pays you, 10% of that gets held back unless it is a Social Security check, a veterans benefit or retirement account.. Those would be untaxed. If you recieve SS or VB, you can work if you're able. If you choose to work, it will not affect your benefits, but you'll pay 10% of your earnings just like everybody else. You will also be expected to pay 10% on the return from investments NOT tied to a retirement account.

It's good enough for God. It should be good enough for the government.

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