The deadline for filing your state and federal income taxes is looming. Sure it’s spring and you need to do some spring cleaning, plant your garden, paint your windows, break out your yard furniture, and do a thousand other things, but you’ll face a big penalty if you don’t spend several hours in a dark room in front of a computer filling in minutia of your finances into TurboTax. At least the advertisements for the software make it seem exciting, like your writing an autobiography of your life instead of doing mind-numbing fill-in-the-blank for hours on end.
It doesn’t have to be this way next year. If we were to pass the Fair Tax, there would be no need to fill in any forms. You would just pay a sales tax when you bought a new item to the store you bought it from. You wouldn’t need to keep any receipts. You wouldn’t need to remember to send a check to an IRA or an HSA before December 31 or April 15th. You wouldn’t need to calculate your income, figure out if you could deduct a child or a home improvement, or segregate a part of your home as a home office. April 15th would just be another beautiful spring day.
Better yet, you would get a check from the government instead of sending a check to the government. You see, the Fair Tax, in order to prevent it from being regressive, meaning to prevent people at low-income levels from paying a greater portion of their income in taxes than wealthy individuals, would include a provision by which everyone would receive checks from the government, probably once a month, to cover a portion of the taxes paid at the register. If everyone received $10,000 per year and the tax rate were 20%, no one making less than $50,000 per year would be paying a dime of taxes even if they spent their whole income.
And don’t let that 20% number scare you. Remember that you would receive your whole paycheck, instead of the portion that is left over after FICA and Federal withholding, so your check would be bigger to start with. Stores would also not need to spend a lot of time doing tax accounting and tax planning, so they could lower their prices. Some predictions are that the entire 20% would be erased since prices would fall by 20% due to the savings.
The Fair Tax would also encourage saving. If you spent less than $50,000 per year, you would get to pocket a portion of that $10,000 the government sent you. Compare this with current tax policies that encourage people to overspend on houses so they can deduct the interest or buy new windows and electric cars so they can get a tax deductions. Wouldn’t it be better if people were saving so they would have money available to take care of themselves when they lose a job or need to go to the hospital instead of these costs falling on society since everyone spends every dime they get?
Want to make it even better? How about collecting the Fair Tax at the state level and then having the states decide what functions they want the Federal Government to do and what functions they want to do for themselves. If they decide they’d like the Federal Government to take care of interstates, they’d send a portion of their money to the Feds. If they found the feds were wasting the money, they could hold back and do the roads themselves instead. If the Federal Government had less money, and if they had state legislatures, who are made up of people you can actually find at the grocery store and question about a dubious vote, you wouldn’t see these pork barrel projects in individual states to buy votes or spending hundreds of millions of dollars on vacations for senior government officials. Of course the states could decide this is needed and send the money for it, but I’m thinking they would be inclined to hold onto it instead of sending the President and 100 of his closest friends to Europe.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. 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. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.