There’s been a lot of negative talk about the income tax. Some people would like to see it abolished. They would like to see a new source of government income. One where everyone, citizen or not, legal or illegal, would pay taxes to the Federal government. But is it really that simple? Let’s take a look at the different proposals and judge their advantages and disadvantages.
The income tax today is quite complicated. It slowly became complicated over the years primarily because the government used tax incentives to stimulate targeted sectors of the economy and to put more money into circulation. It has been the primary, if not the only, economic tool the Republican party has used. The income tax is vulnerable to recession and depression. But is it really the worst of the three forms of taxation? Today, the taxable income is less than the total income because of exemptions and deductions. If people know the income tax law, they could significantly reduce their taxes as a percentage of their taxable income by taking advantage of the credits and loop holes in the current income tax law. We must also remember that abolishing the income tax would hurt small business. It would kill the tax accountant and tax consultant professions causing the unemployment rate to rise. I think it would injure the accounting profession in general.
Getting rid of the income tax would definitely make life easier; Especially around April 15th. But is it the wisest action to take? Will the people benefit from a different type of tax?
The Fair Tax is a possible replacement of the income tax that has been talked about in and out of the US Congress. There are currently two fair tax bills. The House bill is HR 25 and the Senate bill is S 296. Both are very similar. They both impose a 23% national sales tax on all taxable properties and services. Think about that. If you want to purchase something at the store, you would have to pay a 23% national sales tax on top of your local and state sales taxes. If you invested in city or municipal bands, this type of tax might affect the bond rating. But let’s consider the effect of this tax on a young couple shopping for appliances and furniture for a new home. Everything they buy would have a 23% national tax and local and state sales taxes. That effectively increases the cost of getting started in a new home by 23%. If I am correct and no credits are added to the bill, 10000 dollars of furniture would cost 10230 dollars. How would that not hurt the ailing economy? And as more and more credits are given to people and more and more products are exempted from the tax in order to boost an ailing economy, wouldn’t it become as complicated as the income tax? Also, the tax exemptions would not help unless retail had a record of it. Otherwise, the customer would still have to pay the stiff tax. Furthermore, would it affect business and retail since the higher sales tax would result in less purchases and consequently loss of jobs starting with retail and working it’s way back through the manufacturing centers; thus leading to even more layoffs. This is especially true if we fail to repeal the income tax amendment before the fair tax is implemented. What about imports? The Fair Tax must be applied to imports if we expect to hold on to the jobs that still exist in this country. Otherwise, more companies will move overseas.
The last form of tax that was once considered but has been defeated temporarily by a Senate resolution is the Value Added Tax. A value added tax is different from a fair tax. The value added tax is not solely based on the selling price of the item. The cost of production and many other costs are taken into consideration when estimating the value added tax.The value added tax was estimated to be the same amount: 23%. It would be an additional tax for the consumers and have all the advantages and disadvantages of the Fair tax. But there is one addition that would benefit the U.S. We would be charging a 23% value added tax to all imports from countries that charge a 23% value added tax on our exports.
And that brings me around to the topic that angers me most: the free trade policy.
I say it’s about time our country takes steps to make free trade fair. We’ve been giving away our industrial and technical lead to other nations for far too long and it is high time we started protecting industry that wants to stay in the US but is forced to move out due to unfair trade policies implemented by other nations. Let’s start protecting our own industrial status, our own jobs and our status as a world leader in almost every area of manufacturing and technology. It’s high time we turned the situation around and told other nations that we will treat their exports the same as they treat ours. If our exports don’t get fair market access in their nation, then their exports should not get fair market access in our nation!