The Evolution of the Tax System
The tax system in the United States has evolved and has been expanded over the years since its creation in 1861. At that time, the Congress passed a 3% tax on all net income above $600 a year, which would equate to about $10,000 dollars in 2007 terms. This was an interesting new concept that was successful in raising money for the war. It is amazing how much this system has evolved in the past 145 years and how many people have raised their voices in defiance of the current system. The main reason why this system was adopted was to pay for certain government programs that needed funding, but the complications inherent in this system have raised many questions about its relevancy and ability to carry out its original intention. There are many critics who call the taxation system governed by the IRS flawed due to the complexity of code developed for filing and the system has been deemed "unfair" and discouraging toward the saving of money. Many different groups have developed taxation concepts that streamline the system and allow for easy filing, such as the flat tax concept, where everyone pays the same percentage of their income to taxes. The fair tax concept eliminates filing completely and taxes are paid by individuals on new consumer goods as a flat sales tax. All have pluses and minuses and are quite controversial.The idea of a "fair tax" is indeed controversial since it will all but eliminate the IRS and the accountants that work for that branch of the federal government, which equates to more than 100,000 jobs. It will also eliminate many accounting jobs in the private sector as income tax will be completely eliminated and the need to file will no longer exist. The fair tax bill allows for a sales tax on all new goods that are purchased in this country including rent and new car purchases. The rate is 23%, so a new car costing $20,000 would cost 23% more and the money generated would go toward government aid and the programs that need funding. Used goods would not be taxed by this bill, but the value of these used goods would be different due to the fact that at one time, the tax was paid, changing the value that particular product on the market. Used cars would be more money and although the tax would not be there, it may sway consumers to buy new.
The flip side of this case is that since companies producing goods would pay fewer taxes, the cost of production would decrease by as much as 30%, in which the savings would be passed on to the consumer. Although many studies have supported this theory, there are also contradicting studies that allude to a savings of only about 15%, which would certainly offset some of the fair tax, but not as much as other studies. It is interesting to note that this savings would be voluntary and would be up to each individual company. The savings gained by companies through the decrease in the cost of production would help stimulate our economy and make the United States more competitive against foreign goods, as most goods imported from overseas cost quite a bit less than goods produced in the US due to the cost of production.
One major advantage of the fair tax bill is the fact that people who do not pay any taxes currently, such as companies who pay employees under the table or those who are working illegally in the United States, would now pay their fair share of taxes through the purchase of taxed goods and services. The new fair tax bill would raise quite a large sum of money from those who previously had not been taxed, which would most certainly help offset the tax burden of hard-working people in this country. It is amazing to know that there are many people, like those who are involved in illegal activities and those who are illegal aliens in our country, who do not pay any taxes at all. Under the fair tax bill, these people would have no choice and would be contributing to society as intended. That is a very profitable proposition for the government as although these people may illegally purchase goods in an underground economy, someone will be paying the initial tax for these goods. It seems as there are many sides to the story concerning the fair tax bill that must be examined before it is put into place. There is research available that supports the bill and other research that exposes the bills weaknesses.
The fair tax bill is one that elicits much controversy as many see it as flawed in many ways. Some believe that the underground economy that may exist will seriously impact the sale of new consumer goods and that any tax plan can and will be evaded by many. Although the market for used goods will increase, proponents claim that the cost of such goods will not allow these goods to overtake the consumption of new, taxable goods. The gap between non taxed used goods and taxed new goods would have to be somewhat controlled so that new goods stay a viable option for consumers so that the fair tax raises enough money for government programs. It is important to many that our current system is revamped as there are many loopholes for the wealthy and it seems as though the middle class pays a disproportionate share of the tax burden. There are many who believe that by eliminating or making the tax filing process easier, many more citizens would be inclined to pay their taxes as the intimidation factor would be eliminated or significantly decreased. Hopefully, a compromise can be reached and a fair system can be put in place so that taxes get paid fairly by all and revenue can be raised to help better society through increased amounts of government programs to help the needy and less fortunate citizens who would like to be contributing, productive members of this society.
Other articles of interest: