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Gifts for all occasions in the Galleria! The "What is the Deal?" Deal-of-the-Week: Netflix is your personal movie service. NO LATE FEES. Try FREE! December 5, 2004 What is the Deal with Tax Reform? By Jan A. Larson One of the stated goals of President Bush's second term is tax reform. The President stated that tax reform should make our tax system simpler, fairer and more conducive to economic growth. There are several proposals and variations thereof being bandied about. Of course, simple tinkering with the current monstrosity of a tax code is still a possibility given the proclivities of Congress. More bandages on an already terminal patient are not the answer. The income tax code doesn't need to be modified, adjusted, renovated or updated. It needs to be eliminated. A proposal that is rapidly gaining traction calls for the elimination of the income, payroll, estate and gift taxes that would be replaced with a national sales tax. The Fair Tax has been introduced in the House as H.R. 25 and in the Senate as S. 1493 and would tax all new goods and services for personal consumption and would repeal the 16th Amendment. (The text of these bills may be found by entering the respective bill number on the Thomas website, http://thomas.loc.gov/ ). A consumption tax such as the Fair Tax would accomplish the President's tax reform goals. It would be far simpler than the present income tax and would not require businesses and individuals to collectively spend upwards of $250 billion every year in compliance costs. No more hours wasted filing tax returns every April. Instead of policing millions of taxpayers, the IRS would be dramatically scaled back. The Fair Tax is, indeed, fair. There are no more loopholes available only to some and not others. There are no more preferences based on family makeup or size. There are no more tax deductions, tax credits or other preferences that benefit some, but not all, taxpayers. The Fair Tax also would capture taxes on illegal income (when it is spent) that presently escapes taxation. The Fair Tax would be a tremendous boost to the economy. The cost of tax compliance and payroll taxes is included in the price of every good and service currently purchased. The elimination of these costs would reduce the production costs of U. S. products by an estimated 22%. This would dramatically increase the demand for U. S. exports. In addition, foreign goods for sale in the U. S. would be similarly taxed making U. S. produced goods more competitive at home. The Fair Tax would fundamentally change the way Americans pay for government. First, workers would take home 100% of their paychecks. All workers, even those making minimum wage, pay 7.65% of their wages in payroll tax that is matched by their employer, effectively sending 15.3% of your pay to the government, never to be seen again. No more. No more withholding either. If you earn $4000 per month, you'll take home $4000 per month. Second, you would see how much government costs. The estimated Fair Tax rate is 30%, exclusive, meaning the rate applied to the base price of the good or service being purchased. We will all have the opportunity to judge whether we are getting what we pay for, not simply getting the government we secretly pay for. Now before you throw a hissy fit and scream, "THIRTY PERCENT!" let's take a look at how this really works. Let us assume that after the Fair Tax is enacted, you want to buy something that might cost $10 today. If the embedded tax and compliance costs of that item were removed, its post-Fair Tax price would be around $7.80. Add 30% and you get a final price of $10.14. Not that much different than $10, right? You may still say that you wouldn't want to pay the extra 14 cents. Remember, however, that the amount on your paycheck is now a lot bigger - way more than 1.4% bigger. We would all come out ahead under the Fair Tax. The Fair Tax bills provide for a monthly rebate that would be paid at the beginning of every month to valid Social Security cardholders. The amount paid would be equal to the amount of tax paid for essential goods and services. In this way, the Fair Tax would effectively exempt from taxation families living at or below the poverty level. There has been and will continue to be a lot of misinformation tossed around about a national sales tax in general and the Fair Tax in particular. Don't be fooled. Take the time to educate yourself. Most people favor the Fair Tax when they understand the Fair Tax. To be sure, such a change is big and there are many obstacles to major reform such as this. There are entrenched special interests that profit from the status quo and there are career politicians that love to use the tax code to reward their friends and benefactors. Almost every lobbyist in Washington is seeking tax favors of one kind or another. This is likely the last opportunity for major tax reform for a generation. You, Mr. and Mrs. America, can make this happen. But it will take more than sitting there and saying, "Hey, that sounds like a good idea." YOU have to take the time to spread the word to friends, family and colleagues. There are a number of Fair Tax discussion groups (http://groups.yahoo.com, enter "Fair Tax" in the search box) where you can learn more and meet like-minded individuals. More importantly, you must make your voice heard in Washington. Why not take the time RIGHT NOW to contact your Congressman and Senators, express your support and ask for their support for the serious, sweeping and fundamentally necessary overhaul of the American tax system This isn't just a question of what is best now, but what is best for future generations. If not now, when? If not by you, by whom? -- Send feedback to the author. The "What is the Deal?" column will appears weekly on the Pie of Knowledge website. Guest submissions are welcome and encouraged. To submit an article to "What is the Deal?" click here. To subscribe to the "What is the Deal?" mailing list and receive early notification when a new column is available, click here. The Pie of Knowledge will never, ever divulge email addresses to any third party for any reason unless so ordered by a court of law. Contributions to the Pie of Knowledge are greatly appreciated. 
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