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Changing the Tax Code

CHANGING THE TAX CODE ORIGINAL PROGRESSIVE, FLAT, FAIR, VAT, Originally the country collected its revenue through fees, tariffs, and fines, etc; a system that worked well for over a hundred years. In 1913 that changed with the ratification of the XVI Amendment which instituted the progressive income tax. Most Americans and even most politicians will admit that our current tax code is a monstrosity and is too complicated to understand, interpret and follow. Recently, noted economist Arthur Laffer’s group announced in the Wall Street Journal that the cost of compliance and compiling the tax and collecting the tax exceeds $431 billion! Let us be realistic, any real reform of the code is a political process so no matter how brilliant, simple, or effective a new proposed method of laying and collecting taxes faces the gauntlet of special interests, 535 men and women with their own agenda. Also, you have more than 330,000 CPAs, Public accountants, Enrolled Agents, and Attorney’s whose income would be dramatically impacted by the simplification of the IRC. The current IRC or system, the Progressive tax, was established by Title 26 of the United States Code. It is comprised of more than 9,000 sections, thousands of regulations, hundreds of bulletins, and revenue rulings, plus settled Federal Tax Court precedents. Was this by design or has it become burdensome over the years as various sections were added and edited to accommodate a new idea from some member of Congress. There hundreds of sections that provide tax credits or tax payer subsidies if a tax payer behaves in certain ways or purchases certain goods. There is little doubt that understanding the code and being able to comply with it can be a daunting task requiring top professionals to prepare an individual’s tax return. Most experts agree that this current system must be reformed; the debate centers on an adequate alternative that is politically acceptable to our leaders and the people. The Fair Tax was first conceived in the 1990’s and has recently gained support amongst some members of the Tea Party Movement. The basic idea is to eliminate the 16th Amendment (a HUGE obstacle, and very costly process that could take YEARS) and replace it with a tax on all consumption: including day-to-day purchase of food, sundries, and large items like homes and cars. The proponents believe that the taxes accrued in manufacturing products will magically disappear and thereby reduce the overall cost of goods sold. That is simply a major flaw in their idea. There are few if any taxes accrued during manufacturing until the end unit. Fair tax is flawed for a number of reasons: 1. In manufacturing a company or entity large or small does not manufacture the entire product at one site, in one process, or without outside parts and supplies. Taking manufacturing a computer: There are manufactured parts on site that are fabricated from other parts, then parts are assembled, plus there are purchase parts outside of the corporation such as microchips, memory chips, wire harnesses, etc. These purchased items from outside suppliers will have the Fair tax applied. At Raytheon the average product line is comprised of 70% purchase parts. So the theory, which is the entire foundation of the Fair tax, is violated. (Not to mention dealing with other nations including Indian Reservations). 2. It is anti-Consumption. Modern economies are very complex but rest on capital formation, allocation various resources and consumption of goods and services from inside the country and...