The IRS Scandal – Another Reason for the Fair Tax.

The details are still a little foggy, what with the managers pleading the fifth or using the Clintonesque response – “I don’t recall” in the hearings before Congress, but it appears that there was a systematic targeting of Conservative groups filing for tax exempt status.  No applications had been approved for more than two years, while those for Liberal groups sailed through in a matter of a few weeks.  Groups with things like “Tea Party” or “Patriot” in their names were asked things like “How much money do you have in your wallets?”  “What do you discuss at your meetings?”  “Will your board of directors swear under oath to not protest Planned Parenthood?”  “Can you provide your donor list?”  And, the best one of all, “What does your bard of directors pray about?”  There also appears to be targeting of Conservative individuals such as talk show hosts for audits, although that part of the scandal has not yet hit the front pages.

All I can ask is why would anyone want to leave that much power with an agency that could be used in such a fashion?  The IRS has enormous amounts of power to make individuals and groups’ lives miserable.  Even if the agency is run in an ethical fashion, it is necessary to keep receipts, record mileage, spend hours searching the internet to get values for donated items, track any and all income, calculate estimated taxes and minimal withdrawals from retirement accounts, send checks to IRAs and children’s educational IRAs before specific dates, and either spend hours each year filing out returns or paying hundreds of dollars for professional to do so for you.  Get it wrong and you can plan on a fine and paying interest.  Overpay and don’t plan on getting any interest back.  And then save the returns and receipts for years in case the IRS decides to audit you and you need to prove your income and expenses.

Why do this when it is so unnecessary?  The Fair Tax doesn’t reduce taxes (although it could, if desired, just by lowering the rate).  All it does is make it easy to calculate and pay taxes, both for individuals and businesses.

With the Fair Tax, a national sales tax is levied on the sale of new goods and services to consumers.  To keep the tax from being regressive, each citizen would receive a check (or an electronic deposit) from the Government to cover a portion of the taxes.  Those who spent little, perhaps just enough for basic necessities, would therefore pay no taxes, while those who spent a lot, perhaps on a lot of luxuries, would pay more taxes.  This would not penalize production, as the income tax does, but instead penalize  spending.  Making money means that people are providing for the needs of others and doing something useful – which should be rewarded.  Spending means that things are being consumed.  Too much spending leads to debt, broken marriages, and homeless kittens, which should be discouraged.  The Fair Tax does not penalize earning – it penalizes spending.

Just as it is easy to pay state sales taxes (you just go to the register and the clerk tells you how much it is and you pay it), paying your Federal taxes could be just as easy.  You would not need to keep receipts.  You would not need to lock money away in special accounts or perform fiscal gymnastics when transferring retirement assets from a 401k to an IRA anymore.  The businesses would need to collect the taxes and send them in, but this would be an easy calculation.  Even the IRS commissioner, when testifying this week, complained that they don’t have enough money for enforcement.  With the Fair tax, we could cut the IRS staff and budget by 90% because they would only need to verify that merchants were collecting and sending in taxes on the items they sold.  There are a lot fewer merchants than citizens, and the amount of paperwork would be a lot less, so this would require a lot fewer agents and auditors.

Advantages to the Fair Tax:

1.  Costs of good would go down because the cost of tax compliance for businesses would also drop.  This would offset some of the tax, meaning you would get the same government services for less money.

2.  Everyone would get about a 25% raise in their take-home pay since taxes would not be taken out.  Stick 15% of pay in stocks, which would be easier with the extra income, and you could be a millionaire before you were forty, probably without cutting your lifestyle from what it is now.

3.  There would be no more fear of the IRS, and a lot of the workers in the IRS could go find something more productive to do.

4.  No individuals would need to fill out tax returns.  Returns for businesses would be simple – just the total of sales on one line, the tax on another, and maybe an address.

5.  We could do away with Social Security numbers.  You wouldn’t need to spend tens of hours cleaning up your credit because your doctor’s office or employer had a rogue employee who stole your number and sold it on the internet.

6.  April 15th would be just another day in spring.

7.  Everyone, including drug dealers, prostitutes, illegal aliens, and venture capitalists would pay taxes.

The political will has never been better for implementing the Fair Tax.  This won’t happen, however, unless people start to demand it.  Don’t wait for your audit to come.  Read more about the Fair Tax (don’t take my word for how great it would be).   Then call or write to your congressman today and demand they pass the Fair Tax.  If you do, please comment here or write me a note ( to let me know.

Share this post with your friends on Facebook.  Tweet and retweet, or just let a friend know about the Fair Tax at work.  Let’s see if we can get 100,000 calls or emails before the month is out and cancel the 2013 tax season.  Let’s not spend another year keeping receipts and having FICA keep our money.

Please contact me via or leave a comment.

Follow me on Twitter to get news about new articles and find out what I’m investing in.  @SmallIvy_SI

Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


    • It would not replace state taxes, but there are states like Texas that don’t have income taxes either. It would replace social security and medicare taxes, so you would get your entire paycheck with no Federal deductions, so it would be 20-30% bigger than it is now. You would need to talk to your state legislature to get rid of the state tax, or move to Texas or Florida.

Comments appreciated! What are your thoughts? Questions?

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.