Fair Tax vs Flat Tax – You Choose

The following is from ClarkHoward.com with Clark discussing the need for Tax Reform.

Jan 22, 2009 — Flat tax one solution to our current tax code’s problems
You know there’s something grievously wrong with our tax code when an intelligent person like U.S. Treasury Secretary nominee Timothy Geithner can’t even do his own income taxes correctly.

Geithner used commercial tax prep software and messed up, then he used a preparer and the preparer messed up! Apparently he wasn’t trying to cheat on his taxes. The problem isn’t Geithner, his tax software or his choice of a preparer; it’s our inane tax code.

So what are the alternatives? Some people like the idea of a national sales tax (aka the Fair Tax), which Clark thinks is just fine. His personal preference, however, is for a flat income tax of somewhere around 15 percent for the average American.

The flat tax also has the additional benefit of eliminating markups in our tax code that give special treatment to large companies, often at the expense of small entrepreneurs.

In the end, the most compelling reason for a new tax code is this: If the Secretary of the Treasury can’t figure out how to do his taxes, how are you and I going to be able to do it?

What others are saying

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Fair and Flat are opposites
The “fair” tax has a huge flaw. At a certain income, generally people with an income over $250,000, the level of spending goes almost flat. That means someone making $250,000 is taxed essentially the same dollar amount as someone making $250,000,000. Who’s going to make up the difference? Obviously the working poor and middle class are spending a much larger percent of their income than the ultra rich and, therefore, they would be paying a much higher percent of their income to taxes. I have no idea how this idea got legs. For some reason, it seems widely supported by the people it would hurt the most I think the scare tactics of “it would force drug dealers, thieves and prostitutes pay taxes” has a charm that some people just can’t get over. Do you really think that’s going to make up for the billionaires’ huge tax cuts?

I like the flat tax but the fair tax would be a disaster.
By Gabe @ 01/24/09 04:27:43 PMreport abuse
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flat or fair tax
The flat tax idea is ok, but I have a problem with the fair tax (national sales tax). It would be double taxation
on after tax savings accounts and Roth IRA accounts already accumulated by many seniors.
By lgo @ 01/24/09 12:45:23 PMreport abuse
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fair tax
The fair(flat) tax would be a great answer for the economy.
By fmmr @ 01/24/09 08:05:20 AMreport abuse
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flat tax
I am all for flat tax.
By lee @ 01/23/09 06:02:48 PMreport abuse
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Tax
I read Neal’s book on the “Fair Tax” twice and could not agree more with the content. Why is it so hard for people to understand the proposal and realize that this would be the greatest step toward everyones prosperity? The only reason the Govt won’t accept it is because they would lose their grip on us.
By Brent @ 01/23/09 04:24:02 PMreport abuse
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How do you address the sudden loss of deductions?
If a flat tax is implemented how would we address contracts that have been entered into based on current tax deductions. Mortgage deductions or how about long term corporate decisions based on depreciating assets. Also, has anyone tallied up the amount of instant job losses in the accounting and tax service industries. I know they should never have been there in the first place but…..you can’t just lose millions of jobs over night. Any ideas on this?
By The Virginian @ 01/23/09 03:54:19 PMreport abuse
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flat tax
the flat tax is a bad idea, plus it puts the constitution at odd’s with itself.
now for all of you who say the sixteenth amendment change that.
you are wrong because you have not read the entire supreme court case Brushar vs the union pacific railroad.

the Court stated the sixteenth amendent did not give Congress any more taxing power nor did it over turn the two taxing clauses of the Constitution, the Court stated it would change our way of life, which is Unconstitutional.
Now if you check out Section7806-B in Title 26 of the Internal Revenue Code in the law section it states right there that this section nor any other section of this code( meaning title 26 )has any constructive form! This means title 26 is not positive law it is private.
You enter into a contract with the IRS when you filled out your W-4 form a contract and when you filed your first 1040 form a contract and signed under the penalty of prejury that you are a Federal tax payor!
You enter into contract law this is why, most people whined up convicted in administrative tax court,
Their are over 80 millon Americans Citiznes that have filed a Reliance statements with the IRS which proves they are not liable for the tax.

Now for you who say I am not paying my fair share, your have been dumb down and do not understand you live in A UNION NOT A COUNTRY AND ALL FEDERAL FORMS ARE CONTRACTS
By jr @ 01/23/09 02:42:35 PMreport abuse
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Until the spending problems are solved no tax system is going to work.
By Ned Puddleman @ 01/23/09 02:41:17 PMreport abuse
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Geithner
Oh Clark!
Please have a conversation with our buddy Neal Boortz and get some insight on this tax cheat who is about to rule over the IRS.
By Dennis @ 01/23/09 10:47:09 AMreport abuse
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Geitner
Come on Clark !
Geitner was actively and knowingly involved in tax FRAUD. You can’t possibly be so naive to believe otherwise. Even he knows the difference in reporting restrictions for 1099 employees vs. W-2 employees ! Shame on you for thinking otherwise !
By Bill @ 01/23/09 09:23:56 AMreport abuse
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Geithner
There is no possible way that this guy did not know he was doing wrong. I have used Turbo tax for years, so I know that he can’t put the blame on the software. The only other excuse he might use is that he is ignorant. If he is that ignorant, he has no place in Obama’s administration. If any of the rest of us made such a “mistake”, we would be paying penalties and interest galore!!! How does he get off?
By Patricia @ 01/22/09 09:46:45 PMreport abuse
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Flat tax is a great idea
I love the ease of a flat tax. I know how much I am spending to run the government. No tax booklets. No, if you add line 45 to line 56, then deduct lines 5-9 you will get the gross adjusted tax, etc.
By jason @ 01/22/09 09:20:30 PMreport abuse
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Flat Tax
A 15% flat tax would be great, across the board, you can do your taxes on a 3X5 card and thats that, No deductions, and no exemptions, no nothing, and you can be smarter than a fifth grader, maybe.
By Guy @ 01/22/09 09:18:08 PMreport abuse
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flat tax with brackets?
by definition a “flat tax” is a simple percentage without brackets. a tax with brackets is a graduated tax.

the problem with the top end paying heavy taxes is that their money is going to the government instead of employees.
By Joe @ 01/22/09 07:22:59 PMreport abuse
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Flat Tax Bad Idea
I think a flat tax with tax brackets would work fine. Your income falls in bracket A, you pay A’s percentage. There is nothing wrong with the top end paying more of the tax. The problem is with all th exceptionand deductions.
By Nessy @ 01/22/09 07:05:47 PMreport abuse
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Go to the Dollar Store and get Tax Act for one buck.
By Ed @ 01/22/09 04:22:48 PMreport abuse

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Income Taxation has to go! The 16th Amendent must be abolished! We all can agree with that. However as you can see most in the comments section above believe that a “Flat” tax is the way they want to go. It seems the idea that they see just the 15%, they go blind and fog up their minds.

1st-”Flat” tax would eliminate any deductions or tax returns, in other words you pay 15% tax out of your paycheck. Receiving nothing for paying your taxes. “Flat” Tax is still an “Income Tax” with the IRS still intact and the 16th Amendment still intact. All you are doing with the “Flat” tax is changing the Income Tax around but not removing it – so you will NOT bring home a GROSS paycheck that you earn. “Flat” tax is still a regressive taxation with the same old problem of taxes as of today. Your are only changing the amount of Income Tax from your paycheck without deductions and tax return.

2nd-”The flat tax also has the additional benefit of eliminating markups in our tax code that gives special treatment to large companies, often at the expense of small entrepreneurs.” Yes hurting the very backbone of our economy: the small entrepreneurs, small businesses and small businessmen. This does not change the current problem of our current Income Taxation on small businesses. Then Why change the taxation system if you can not help the very backbone of the economy and HELP the small businesses instead of hurting them? Just to help large companies?

3rd- You still have loopholes and if you do not work you will not be paying Income Tax or a “Flat” tax which is in principle of an Income Tax! Yes Flat Tax can be reverted back to the Income Tax if our elected officials choose to.  So is Flat Tax really any different than an Income Tax.  Not Really!

If they really took a look at what “FairTax” wants to do – it is a 23% consumption (retail sales tax) WITH a PREBATE program.

1st- The Fair Tax is a Progressive tax – increasing saving for all people, helping the poor, and most importantly, helping the very backbone of our economy the small businesses as well as the large companies.

2nd- The Fair Tax is a new consumption retail tax – not an Income tax. That means even if you are not a citizen with a social security number, on matter who you are, you will pays taxes. A Taxation NOT on anyone’s paycheck so everyone working can bring home their GROSS pay. If you are not working you WILL pay taxes. Taxes are paid for new commodities only.

3rd- The Fair Tax has a Prebate program to help everyone at the first of the month especially the poor. This will help our overall economy. Everyone will be able to pay their bill and the poor would not be relaying on government programs – which is a burden on all taxpayers.

How can anyone say FairTax is a disaster? Maybe they still work for the IRS!

Please don’t let anyone tell you that “Flat” tax is better than FairTax. They don’t have the facts and it is up to FairTax to educate. If you ‘invest’ , that is what you are doing to you country when you pay taxes, you expect to get a return on your investment. Either in service or in money, is what you expect for your return in investments. Flat Tax has no tax return or deduction that you are entitled to, no incentive when you pay in your taxes.

Charlie Prochaska
Volunteer Community Coordinator
FairTaxSOWEGA