ALBANY -- One of the messiest times of the year, figuratively speaking, is behind us, and those who have filed their federal and state income tax returns can breathe a sigh of relief.
Such filings may become a thing of the past if a Georgia senator has his way.
U.S. Sen. Saxby Chambliss, R-Moultrie, is sponsoring the Fair Tax Act, SB 13, a national tax on services and the sale of new items, which he says is a simpler, more equitable system for collecting revenue.
In a recent mailout, Chambliss urges Americans to embrace the act and thereafter "retain 100 percent of (their) earnings while maintaining the benefits of government-sponsored programs, and allowing them to flourish."
According to Chambliss, the Fair Tax Act would repeal individual income tax, corporate income tax, capital gains taxes, all payroll taxes, the self-employment tax and the estate and gift taxes. Because the country would no longer have a need for the Internal Revenue Service, it too would be abolished.
Under the plan, in their stead would be a 23 percent "consumption" tax on the final sale of all new goods and services. Social Security and Medicare would remain untouched, Chambliss said, and businesses would be except from taxation.
This proposed radical change to our revenue collection system is explained more fully at a comprehensive website, www.fairtax.org. Throughout the site, the percent of tax to the consumer is stated firmly to be 23 percent -- except in the frequently asked questions, where, because of a preference for terms, the actual rate is clarified to be 30 percent -- that is, a 30-cents tax to the consumer for every dollar spent for new goods or services.
Bruce Bartlett, former Treasury deputy assistant secretary for economic policy and executive director of the congressional Joint Economic Committee, is one of those who believes the seven-point spread between stated and actual tax rates to be intentionally misleading.
"Personally, I believe that this is subterfuge and is done for one reason only, to make the Fair Tax rate seem much lower than it actually is," Bartlett said.
The Bartlett statement is from an article in the Dec. 24, 2007 edition of Tax Notes, describing an essentially identical consumer tax plan supported by former Arkansas Gov. Mike Huckabee.
Tax rates notwithstanding, experts say sales taxes of any kind are inherently regressive; that is, they represent a larger percentage of cost to lower-income payers than to those who are more affluent. In answer to that criticism, Chambliss's Fair Tax plan includes the concept of prebates; monthly government checks to every person in America. The amount of each check would be based on the Census Bureau's calculation of poverty-level income for the year, adjusted for family size. For example, a couple with three children would receive $656.
The idea behind the prebates is to make an inherently regressive tax more progressive. According to Fair Tax supporters, "A person spending at the poverty level has a 0 percent effective tax rate, whereas someone spending at twice the poverty level has an effective tax rate of 11.5 percent, and so on."
Boyce Wright, an Albany CPA and former instructor at Albany State University, says he is all for the Fair Tax plan.
"I think they all should pay something," Wright said, citing the "nearly 50 percent of Americans who pay no income tax at all."
Wright said he did some tax work for one mother of two who earned just $14,000 in year, yet our current income tax system brought her actual income to nearly $17,000.
One of Wright's primary reasons for change is the proposed abolition of the IRS and its near-absolute power to investigate things financial.
"The IRS is allowed to pry into your life to any extent it likes, everything you spend money for," Wright said.
Wright did say he probably would make businesses liable for the new consumption taxes, and that the system would probably require an audit function, as well as a type of enforcement mechanism.
Bill McDaniel, another area CPA, is less comfortable with the proposed change, saying the proposal is not as simple as it sounds.
"(Fair Tax supporters) say it's not a detriment to housing, but I don't see how it wouldn't be," McDaniel said, raising the point that while used homes would be tax-exempt, those newly built would carry a 30 percent consumption tax -- prohibitively expensive for many prospective buyers.
McDaniel said he is afraid the same would hold true for cars and other items, with consumers buying pre-owned goods or holding on as long as they could before buying new items and paying the higher tax.
McDaniel said he also believes that, despite the equalizing intent of the prebates, the system remains tilted toward the rich. According to McDaniels, as individual income grows to sizable proportions, more and more is saved and invested while many middle- and lower-income citizens spend nearly all they earn. This would mean a greater percentage of burden would fall on the middle and lower classes.
When asked for his opinion on the points put forward by Fair Tax proponents, Democratic Congressman Sanford Bishop said, "I strongly believe that those in Southwest Georgia and across America would benefit greatly if the federal tax code was simplified to lessen the burdens, remove loopholes and ensure fairness."
Bishop said he would be open to the Fair Tax proposal if it were modified to address "some of the negative items," and he cites the prebate provision as a positive part of the overall plan.
"But so far, none of the proponents (have) been able to offer satisfactory modifications to avoid the economic devastation that eliminating the mortgage deduction with the fair tax would visit upon the home-building, building materials, home furnishings and residential real estate industries," Bishop said.