The Makings of Reform
A Classical Argument on Tax Reform


Should the Income Tax be replaced with a flat Sales Tax? Would a flat Sales Tax
actually solve anything? Yes, the Federal Income Tax should be replaced with a flat rate sales tax on all non-necessities except food products. There are many reasons for this; for instance, the current tax system is unfair and way too complex to easily use. The reasoning behind its being unfair is the fact that the current system is unnecessarily catching the middle-class taxpayers in the higher tax brackets, this is a large deviation from the way that the tax system was originally set up.The Current Income tax is too complex. It involves many forms and excess paperwork. There are exemptions and loopholes throughout the system which are liberally exploited, as was pointed out in “What is Charity,” Stephanie Strom’s article for
the New York Times. Then, it follows that each exception makes more paperwork. In
fact, as was argued by Randau in his Argument for Extensive Tax Reform, “…our current tax system is too complicated, too fragmented, too time consuming, unfairly administered, unevenly enforced, and wide open to the influence of vested special interests.”In opposition, one could argue that the exemptions are absolutely necessary. Most likely, one would cite the charity exemption as a model for their argument. I would concede that the charity exemption is necessary, however, there are many other exemptions that are not, as well as the fact that there are too many differing kinds of taxation, but justifying exemptions across the board just because one is indeed essential is ludicrous. There are, in fact to many ways to be taxed. One is taxed when one receives a gift, when one gives a gift that costs over a certain amount, when one gets married, as well as when a relative dies, among other things. All of these add up not only against the pocketbook, but also in terms of paperwork and complication.

If one looks at the way the Income Tax system is functioning in our world to day,
one can’t help but notice certain inconsistencies with the way it says it applies itself to the “income classes” and the way it actually works. The American tax system is founded on the worldview that the wealthier someone is, the more they should pay, and in this case, they should pay even a larger percentage. Now, in theory, this would work marvelously, but since the bracket system’s installment, it has begun and continues to work less and less like it was designed. The reasons behind this are simpler then might be expected. First off, the wealthy spend more time and energy trying to keep their money than do any other group of citizens, and therefore are the first to find and exploit loopholes in the system. A general way the system is exploited is to tie the money made in investments and artificial companies, so that on paper their overall accumulation of wealth looks like much less money then it actually is. They might have to pay taxes on the money in the future when they take the money out of other sources, but even still, they’ve made money while they waited, so they end up on the plus side of the entire operation. Corporations are some of the worst offenders in this area, for as was made clear in an article in MSN money, “In 2000 alone, 94% of all U.S. corporations paid less than 5% of their total income in corporate taxes, the GAO said in a report released Friday. Among the largest corporations -- the 1% of all corporations that owns 93% of all corporate assets -- 82% paid less than 5% of their income in taxes.”As can be seen, most of the supposedly ‘biggest customers’ to the US Government aren’t really paying near what they are supposedly expected to pay. So, who pays the brunt of the tax revenue? It is a trifle surprising to learn that the middle class is the biggest taxpayer. Why is this? Well, it has to do with too main reasons. The first, is the fact that Middle Class taxpayers are less likely to find and exploit loopholes like the rich are, which is also due to the fact that they have less cash on hand to invest that they aren’t going to need. The other main reason is that over periods of high inflation, the middle class taxpayers have moved up slightly into a higher bracket—mainly due to the fact that the system wasn’t adjusted right when inflation was at its worst. As was said in a “News Batch” article online, “Because of significant inflation during this period, many in the middle class entered the higher tax brackets…”So, even though the middle class is not actually making any more money in terms of value, they do have to pay more. This is completely contrary to the way the system was intended to function when it was first established, and as such is in need of revision. One of the main counter arguments to this point is the thought that the middle classes are actually making more money, and that the brackets are adjusted enough. This argument does not look at the facts of the case, and indeed, forgets that (as was stated on cbpp.org) the average middle class household pays about 36.7% of their income to the government when all is said and done. That’s nearly forty percent! The main, and perhaps only real counterargument against the fact that there are too many loopholes in the tax system comes from business advocates. Such advocates claim that getting rid of the exemptions would utterly ruin their businesses, and in turn push the American economy on a slippery slope down into financial oblivion. They have a point, as getting rid of exemptions would somewhat hinder the growth potential of businesses. However, they exaggerate by saying that such a revision would lead to economic oblivion. Businesses should at least pay a part of the tax burden, but currently, they can and have found ways out of paying. It might hurt for a while, but businesses have survived much worse hindrances before, and in time it will all seem only a memory, and the entire system will be better because of it. With greater income, the government could cut back on the amount each bracket is taxed, and still make enough to ‘stay afloat.’


Finally, why a sales tax? What are the benefits of such a proposal? First and foremost, personal privacy is the top reason on the list. The Income tax is a highly invasive form of tax, giving the government information that it has no right to see.A sales tax would eliminate this incursion almost entirely. Secondly, a sales tax would penalize people more for what they buy then what they earn, encouraging savings and limiting the consumerism that is so prevalent in America’s society today. It allows people to in essence, give the government money in a more voluntary manner, thus giving them no reason to complain that the government is unfairly ‘taking’ money from them, as it is completely optional, in a sense. One may wonder what happens in a depression? Surely people won’t buy as much. That is less true then might be anticipated. As is stated on the Fairtax website, “…during difficult times due to loss of a job or an inability to work, people may not have as much income, or may have no income at all. They borrow funds or use savings. They may not have earnings, but they still continue to consume.”So, in fact, a sales tax would make more during a depression then an Income tax would, as income tax gains nothing from people who do not have an income. Thus, the system is reliable enough to suit the need of the government. One of the biggest arguments against a sales tax is, what happens to charitable giving? Surely people will be less inclined to give if they have no tax exemptions or rebates for doing so. The fact is, a majority of the people that give, give because they want to and don’t take any of the tax benefits for it. Besides which, with a sales tax, it is in fact easier to give, because there is more money on hand before you spend as opposed to with an income tax. On the other hand, it is certainly possible to add a ‘tax rebate’ on the amount given during each year if that was desired.

In Conclusion, there is a great amount of ambiguity as to what should be done to the tax system to make it simpler, easier, more fair, and streamlined. What I have laid out, is an argument for one of the many ways to improve the system, but it is what I believe to be the most effective and fair of all the ideas in circulation. A National Sales tax surely could solve many of the issues with the current tax system, and would fit in with the true function of tax—that being to take care of the Governments basic expenses, and no more. The government has no need for profit, as do companies, so it should not be excessive and hard to understand. The argument stated above matches well with all of these criteria, and most of all, it is more fair. Finally, there is much that can be said for both sides, but seemingly the most logical is the one declared above.



Works Cited

Strom, Stefanie. “What is Charity?” New York Times. 14 Nov. 2005. 16 Nov. 2005

Randau. “Argument for Extensive Tax Reform.” Proaxis. 28 Jun. 1998. 10 Dec. 2005


Staff, MSN Money. “Most Companies Paid No Taxes During the Boom.” MSN Money. 2005. 14 Dec. 2005


Staff, News Batch. “Budget and Tax Policy Issues.” News Batch. Aug. 2004. 12 Dec. 2005


Lav, Iris J. “Information and Misinformation about Federal Tax Burdens.” Center on Budget and Policy Priorities. 21 Jan. 1999. 13 Dec. 2005
< http://www.cbpp.org/1-21-99taxburden.htm>

“Homepage.” Americans for Fair Tax. 2005. 16 Nov. 2005