The current US tax system requires that corporate be taxed 35 percent, though most corporate manage to go around this figure by maximizing on the international tax loopholes. This may not be a bad thing, since such high rates of tax could stifle the US economic growth. Since most corporate seek minimal corporate taxes, their income is shifted to countries with minimal or no corporate tax like Bermuda, which implies that lowering the US corporate tax is unlikely to make them change their tactics. This should not stop the US from changing the income tax and pay-roll system, which destroy jobs. The current tax system encourages high tax rates and provides small incentives for individuals and companies to produce income by reducing the tax base through exemptions, deductions, exceptions and special provisions. This system favors the rich, and it should be changed to a more progressive tax system, like the FAIR Tax system (Salvato).
The FAIR Tax Bill
The bill proposed by congressman Linder is dubbed the FAIR Tax Bill. This bill proposes a replacement of the income tax system in place with a revenue-neutral personal consumption tax. Implementation of the bill would see the elimination of the IRS, since there would be no need for audits or tax deadlines. The proposed bill appears to be the right move since it portrays an equitable tax system, where everybody including the American citizens, businesses and corporate stand to benefit. The bill is especially appealing to the public since it allows them to retain 100 percent of their paychecks (Salvato).
Implementation of the FAIR Tax Bill would observe a 23% consumer tax on all items purchased. This is a better alternative to the current system that observes a 15% tax in addition to the 7.65% payroll tax and other taxes on goods and services.
Arguments in favor of changing the Income tax system
The FAIR Tax system is ideal since it allows taxation to a level that I proportional to the spending habits of people. Ideally, the people who make more money spend a little more on themselves, which implies that they would pay higher taxes. The FAIR Tax system also favors those below the poverty line, since no American would pay taxes on necessities, courtesy of the rebate payment issued to America households as a replacement. The FAIR Tax revenue generating system is also more stable than the income tax since income sales have minimal fluctuations as compared to individual income (Salvato).
This system is ideal for businesses since the tax is reflected only to the consumer, implying that business transactions would not be taxed. This would in turn increase the spending power of the consumers due to the reduced consumer prices. The IRS comprises highly trained auditors who are highly paid by the government. Eliminating the IRS body would save the tax payer an annual figure of $250 billion. These professionals would then be assimilated by firms and corporate for internal auditing. The FAIR Tax system is also likely to support the government entirely, leading to the abolishment of social Security and Medicare (Salvato).
While the FAIR Tax system appears to be the right way forward, the legislation may not be implemented due to the politicians’ fear of change. The legislation would make the budget process transparent, and their inadequacies would become visible to the public. Adoption of the proposed tax system will promote efficiency and fairness to all Americans by “abolishing all federal, personal, gift, estate, capital gains, alternative minimum, social security, Medicare, self-employment and corporate taxes and replacing them with a simple federal retail sales tax, collected by existing state sales tax authorities” (Salvato).
Salvato, Frank. An incredible opportunity for Congress and America. 2005. Web.