Finally, a worthwhile and meaningful idea has been put before the President’s Tax Reform Panel. Federal Reserve Chairman Alan Greenspan told the panel “the tax system should be simplified, perhaps with some kind of consumption tax, to encourage national economic growth and personal savings.”
Do you realize that Americans spend 7 billion man-hours each year filling out IRS forms. We spend at least that much calculating the tax implications of a business decision. We lose 18 percent of our economy making “tax decisions” instead of “economic decisions.”
The Director of the Congressional Budget Office believes that it currently costs us about $500 billion to comply with the code to remit $2 trillion. Studies show that it costs the average small business $724 to comply with the code, collect and remit $100 to the federal government.
Mr. Greenspan is right: we need a simple, fair, consumption tax. However, this is not a new idea. There is already a bill in the House and Senate that will stop taxing income and start taxing consumption. It is HR25/25, the FairTax.
The FairTax repeals all taxes on income and abolishes the IRS. Gone are personal and corporate income taxes, payroll and self-employment taxes, capital gains, AMT, EITC, gift and estate taxes. They would be replaced by a single retail sales tax. Out of every dollar you spend on personal consumption, 23 cents goes to the federal government.
Talk about economic growth: the monies saved on compliance costs will immediately be put to efficient and profitable use. We will create millions of new jobs. Our GDP will grow by $180 billion per year because we would no longer make “tax decisions.”
Eliminating the income tax will bring long-term interest rates down to municipal bond rates, ultimately reducing interest rates by 30 percent. That is good for corporate profits and the market. If all the world’s investors could invest in our markets with no tax consequences, values would rise.
With no tax on capital or labor, foreign domiciled international firms would build their next plant in America. We would be the world’s “tax haven” and the $6 trillion offshore would come home, increasing values in our markets and creating jobs.
Further, there will be a 26 percent increase in exports in the first year, as well as a 78 percent increase in capital investment. Capital investment increases lead to increases in productivity and then increases in real wages. We also will have a 10.5 percent increase in economic growth in the first year.
You don’t have to take my word for all of this. These figures are supported by exhaustive studies, all of which are detailed on the website of the Americans for Fair Taxation, www.fairtax.org.
John A. Kozan