The Red and Black

Issue date: 11/21/08 Section: Opinions

PAUL BARNHILL

I know I have a better shot of getting into Yale for law school than seeing the new administration in Washington enact this policy, but I'll give it a shot anyhow. Our federal tax system is broken and out of control.

The amount of time it takes to earn enough money to pay your entire federal tax burden has steadily come later and later each year. For the year 2008, it was April 23 for most taxpayers.

The code is complicated, long and confusing. Couple that with the fact that the current design punishes individuals who work hard and encourages outsourcing of American jobs. Since many of us will join the workforce soon, payroll taxes are going to be a major annoyance. I support a solution that has stagnated when brought forth in Congress due to misrepresentation or ignorance of the program.

The National Retail Sales Tax, commonly called the Fair Tax, is a simple way to collect federal taxes through a 23 percent sales tax placed on all new goods sold in the United States. In short, it calls for the abolition of federal income taxes, capital gains taxes, and corporate taxes.

Simple so far, right?Every household in the country will be given a pre-bate check each month that is designed to pay for necessities for living (such as food), and it covers for the lowest income brackets that currently pay no federal income taxes.

Won't this make all of our goods much more expensive, since the taxes are adding 23 percent to the cost of everything?

Actually, the elimination of the corporate taxes makes any increases in price negligible. Though it varies from item to item depending on the type of good it is, an average of around 22 percent of the cost of the items you purchase everyday is what is known as embedded tax. In short, companies pass the buck to customers when it comes to paying corporate taxes. With the elimination of corporate taxes (and embedded tax), overall prices will drop when corporations no longer need to pay them. Once the Fair Tax is added into the equation, there will be minimal change to overall prices.

Will companies actually forgo the extra profit and decrease base prices if their corporate taxes are eliminated? One recent example suggests that they would.

A federal airline tax passed under the Clinton Administration expired in 1995 while Congress was out of session. Many airlines were thrilled, because this vastly increased their profits and they didn't need to increase prices.

However, a medium-sized regional carrier realized it could undersell the competition by cutting prices to earn the same profit before the tax expired. Within days, the major airlines followed suit, and the overall prices were reduced by the amount of the tax "cut." When Congress came back in session, the tax was renewed and the airline prices rose back to the old level.

What else is good about the Fair Tax system? For starters, the elimination of corporate taxes will encourage companies to keep their employees in the United States. It encourages responsible spending and allows those who save their money to be rewarded. After all, they earned it. Why should the government take it away before the workers can see the results of their labor?

It eliminates a complex tax code and replaces it with a simple concept. Tax evasion becomes harder to commit, and tax loopholes are permanently closed. Funneling money to offshore banks in Switzerland or the Cayman Islands becomes pointless, and, as a result, more wealth will be kept in U.S. banks.

To clarify, this is not designed to be a tax cut or a tax hike. Rather, it changes the method of collection to a much more simplified one that is, well, fair to taxpayers. Perhaps if we write our congressmen and let them know we support a system that makes more sense and rewards Americans for hard work, it may eventually be implemented.

- Paul Barnhill is a senior from Kennesaw majoring in history.

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