How to Never File Taxes Again

"Come and Take It" Flag from Revolutionary War
“Come and Take It” Flag from Revolutionary War

How would you like to never need to file taxes again?  Never save a receipt.  Never worry about making a contribution to your IRA before April 15th again.  Never need to give your Social Security number to your employer, or even have a social security number at all.  How would this be possible?

The answer is the Fair Tax.  The Fair Tax would replace all federal income taxes and payroll taxes with a national sales tax on new goods sold.  This means that you would get your whole paycheck (there would be no withholding) and then only pay taxes when you buy things.  Any money you save and invest would not be taxed until you cashed in your investments and bought something.

But wouldn’t this be a regressive tax, hitting those at the bottom who needed to spend most of their income by necessity, while those who made a lot of money would pay very little?

The answer is “no,” because the Fair Tax also includes a prebate, by which everyone receives a check at the beginning of the year or the beginning of each month that covers the taxes for a certain level of income.  For example, if the Fair Tax was 20% and you got a prebate of $5,000 per year, you would not be paying any taxes until you spent $25,000 of income.  This mean that people making up to $25,000 per year would not pay any taxes even if they spent all of their money.  People making $10,000 per year would actually be getting more back than they paid since they would be paying at most $2,000 in taxes but receiving $6,000 in their prebate.  You could set the prebate at whatever level you wanted to exempt enough spending to cover basic necessities.

But 20% in taxes seems high.  Isn’t that a lot more than I pay now?

Probably not.  Even if you’re in the lowest tax bracket, you’re paying about 10% of your income in taxes plus 13% in payroll taxes (Social Security and Medicare).  This means that you’re paying 23% on all of your income even if you save it all.  The other factor is that corporations wouldn’t be paying taxes on income either, which means they could lower their prices because they wouldn’t need to spend so much money on tax planning and taxes.  Plus, you wouldn’t need to spend your time or your money preparing your taxes and keeping records, which represents another savings.  Think of all of the money wasted preparing tax returns and filing receipts.

Is that it?  Any other advantages?

The biggest advantage is that you would no longer need to keep records.  Just as you don’t need to keep records with state sales tax, you wouldn’t need to keep anything for federal taxes.  You’d just buy something, pay the tax, and be done.  The only ones the IRS would need to check on is the merchants, meaning there would be a lot fewer IRS agents needed.

So, we could fund the country but get rid of all of the paperwork.  We’d pay less since there would be a lot less money being spent on tax compliance, tax avoidance, and record keeping.

So where do I sign up?

Write to your representative and both senators at least once a year (how about April 15th) requesting they enact the Fair Tax.  You can email them from the government sites for the House and Senate.  Plus, tell a friend, or two or three.  Tweet about the Fair Tax.  Put a post on FaceBook.  People who hear about the Fair Tax generally like it – it is just a matter of educating people. It will take time (change is always difficult to create), but if enough people write and request it, it will happen.

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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.

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