FairTax Blogburst #33

by TD of The Right Track

As I see it, the main problem with the Income Tax is that it is virtually impossible to enforce completely and fairly. Compliance with the Income Tax depends on taxpayer truthfulness, which generally is motivated either by a) good character, or b) fear of an IRS audit. With the FairTax, the tax is collected when the money is spent, from everyone, with greatly reduced opportunities for non-compliance by the public.

For instance, what about the criminal element in our country? Have you ever heard of the Mafia? Or the drug dealer? Do you think that these people report 100% of their income? Of course not! They get out of paying a huge percentage of their actual tax bill by the simple expedient of not reporting all of their income. But these same individuals still have to pay utility bills, purchase prescription drugs, visit doctors, and buy food. And if they believe in the "high life" of new cars, fancy clothes and jewelry, and new homes, they're going to pay more than "Joe Six-pack" who chooses to drive a used car, or purchase a home that's not brand new.

And it's not just individuals who are managing to avoid paying taxes these days. Everyone in America has heard of the rush to move American companies "offshore", whether in whole or in part. Think about it — have you ever seen an American-flagged commercial vessel? Oh sure, we've got our warships, but what about commercial boats that carry cargo or cruise passengers? Most of these are flying the flag of Liberia or Panama — low-tax nations.

In the mid-1950s, about 33% of all income taxes collected were paid by American corporations. Today that number is down to approximately 10%. From "The FairTax Book" by Boortz and Linder:

"That plunge is a major factor in our recent soaring deficits. Indeed, international corporations are essentially "voluntary" taxpayers today, paying only that amount in taxes that they believe will avoid attracting embarrassing news coverage. These corporations believe that our draconian tax structures make their actions necessary. The OFCs [offshore financial centers, or banks - TD] make their plans feasible" [Emphasis added - TD]

Boortz and Linder make the point that if we eliminated all taxes on capital and labor, (which the FairTax does), the United States would become the world's tax haven.

We have the most stable economy, the most liquid and trusted markets, and the highest rates of labor productivity in the world — and the trillions of dollars in those OFCs would flow back home to the United States for the very reason they found themselves offshore to start with.

And we're not just talking about American businesses coming home, we're talking about wooing corporations based in other countries into America. Think of the economic benefits! More productivity, lower unemployment, higher wages, and all occurring within a tax system that allows you at least partly to choose whether to pay taxes! Buy it new, pay a tax, buy it used and don't!

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TD