Tag: Fair Tax

How to Never Need to Keep Tax Records Again

by smallivy, posted in Commentary, taxes

So today is tax day in America yet again.  Sometime in the last few months you probably had to gather your receipts, W-2 forms, and 1099’s.  You had to buy some tax software or set up a meeting with an accountant.  Either way, you were out at least $100 because the forms are too complicated to someone to just fill out.  You then spent several hours away from your family filling in information.  You probably also had to call various places for receipts, send money or letters of authorization to transfer money into IRAs and HSAs before the deadline.  You then needed to go to the post office and stand in line to send in your forms, or sent them in electronically despite warnings from the IRS that many tax returns are being stolen each year when filed electronically and the information used for identity theft.  You do all this because the law says you need to in order to pay your taxes.

If you’re like most people, you probably also got a big refund check back.  You may look forward to receiving that check, and maybe you use it to pay down a credit card bill or just blow it on something, but realize that is your money that the government had all year-long without paying you a dime of interest.  Maybe you paid credit card interest all year because Uncle Sam was holding onto that money.  At 15% per year, that’s $600 per year you are losing if your refund is $4,000.  Even at $2000 per year, that’s $300 you are losing.


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There is a better way and it’s called the Fair Tax.    With the Fair Tax you would receive your entire paycheck each month with no deductions taken out so your paycheck would be at least 20% bigger.  You wouldn’t pay a dime in taxes until you bought a new item, at which point you would pay a sales tax.  That would be the end of your obligation as far as taxes went.  You wouldn’t need to save any receipts.  You wouldn’t need to file anything.  You would pay at the cash register and then go on with your life.

One argument against a sales tax is that it is regressive since people who make less spend a higher percentage of their income.  This is also addressed in the Fair Tax with a prefund.  Each year (or each month) everyone who works would get a deposit in their accounts from the government to cover a portion of the sales tax they pay.  For example, if the Fair Tax is 20% and you wanted to make sure no one who made less that $30,000 paid anything in taxes, you would issue a prefund of $600 per year to everyone.  Then the prefund would cover the taxes on the first $30,000 you spent.  Only those spending more than $30,000 per year would then be paying taxes.  You could set the prefund as high or as low as you wished depending on how much you needed to collect in taxes and at what income threshold you wished people to start paying taxes.


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Another argument is that people don’t want to be paying a 20% sales tax (an estimate for the sales tax that would be needed to raise the same amount of money as is currently raised through the payroll taxes and income tax).  Realize first of all that you are already paying 12% or more of your income out before you get your check.  Including the employer match for Social Security and Medicare, you are paying around 20%.  This is not just on the money you spend, but also on the money you save.  It is also expected that because retailers will no longer need to spend as much money on tax planning, and because they would no longer pay income tax on their earnings, that prices would fall, perhaps by enough to cover most, if not all, of the sales tax.  It is very likely that the government will be raising the same amount in taxes while you are paying a lower percentage of your (increased) income in taxes.

If this sounds great to you, go to www.fairtax.org. learn more, and learn how you can help get the Fair Tax passed.  Let’s have 2016 be the last year you need to spend time away from your family filling out forms.

What do you think?  Don’t like the Fair Tax?  Why not?  What do you think is the best way to collect taxes? Please leave a comment.


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To ask a question, email vtsioriginal@yahoo.com or leave the question in a comment.

Follow on Twitter to get news about new articles. @SmallIvy_SI

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.

How to Never File Taxes Again

by smallivy, posted in Commentary, taxes

"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.

Got and investing question? Please send it to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @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.

Why Would You Not Want the Fair Tax

by smallivy, posted in Commentary

cropped-smallivy_1x1.jpg

Under my bed is a cardboard box that is bulging at the seams.  It contains my stock purchase/sales slips and my tax returns for the last 25 years or so.  I keep these because my accountant advises me to keep my tax returns forever, just in case the tax man wants to see them.  You would think he’d have a copy, along with hundreds of nefarious people who have broken into his database or intercepted my return out of the ether and stolen my information.

The sad thing is, there is no reason to live like this.  We could fund the government without needing to keep all of these records to prove that we are following the tax laws.  (Note also that a lot of people are cheating on their taxes anyway since there are only so many tax investigators to go around.  Per usual, those of us who follow the laws are made to suffer because of others who don’t.)  The way this could happen would be for us to enact the Fair Tax.

Details on the Fair Tax can be found here:

https://fairtax.org/about/how-fairtax-works

Read it now and forward the link to five of your closest friends, three acquaintances, and four people you really don’t like all that much.

In a nut shell, with the Fair Tax you would replace the income taxes, Social Security taxes, and the rest of those things with a sales tax that is paid on spending beyond what is needed for basic necessities.  (Spending on necessities would be tax-free because you would receive a check from the government that covers any taxes you pay below a specified amount each year.)   It would be collected when you buy things just as you pay sales taxes now.  Simple – no forms, no tracking spending, no special, tax-free accounts to manage.  Nothing.

Things that the Fair Tax would do:

1.  Fund the government without anyone needing to file a tax return, keep a receipt, make a contribution to a tax deferred account, or lift a finger.

2. Reduce business tax compliance costs, which means prices would drop (probably by enough to cover the sales tax that would be created).  You’d fund the government using the money you’re now paying for tax compliance.

3.  Take away the power from the IRS to inflict fear in taxpayers.  It would also eliminate the ability to use the IRS as a political weapon (are you reading this, Ms. Lehrner?).

4.  Make drug dealers, pimps, the Russian Mafia, and everyone else pay taxes like everyone else.

5.  Improve the economy as people focus on doing important work rather than going through machinations to save on taxes.

6.  Reward people for saving and investing (good for you) and punish people for spending frivolously (bad for you).

So what’s wrong with the Fair Tax?  Why isn’t everyone out there demanding that it be passed first thing next week?  Do you like the IRS?  Do you like filling out forms?  Do you like the challenge of figuring out how to take advantage of the most deductions?  Do you think that using TurboTax is more fun than playing Doom or World of Warcraft?  Do you think that your accountant is cute and like spending a few hours with him/her every year even if it costs you a couple of hundred bucks?  Anyone?

If you like the Fair Tax, tell your representative and senators.  Then, post a comment to this post letting me know you did.  We can do this if enough people ask.

Investing questions?  Something to share?  Please send to vtsioriginal@yahoo.com or leave in a comment.

Follow on Twitter to get news about new articles. @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.