Things I Observe

According to the news, the worse is yet to come regarding the economic crisis. Congress just passed the 700 billion dollar recovery bill and the Fed just cut rates by half a point. In light of all this, the media is still asking what else can be done. A few years ago a proposal was introduced to congress that would essentially eliminate the Federal income tax and replace it with a consumption tax on all goods and services called the Fair Tax. The pitch is that the tax on goods and services would be somewhere in the neighborhood of 30% but would be absorbed by the savings of goods and services at the production level. Although 30% sounds like a deal killer, there is some rational thought behind the idea that actually makes it plausible.

I’ll admit, even with an Economics degree, it took a while to grasp the fundamental concept. But after I did, it became clear that this could actually work. Basically, if there is no Federal income tax then you get to keep more of the money you make. ‘So who gets taxed?’ you may ask. You and I would get taxed whenever we buy something at the retail level. ‘But won’t that mean that I’ll pay more for the things I buy?’ Not really because the loaded cost to the merchant has been reduced because there is no payroll tax to pay and the wholesale cost is lower because the raw materials are not taxed and neither are the other resources used to produce the product.

In my opinion if congress can take less than a month to decide that taxpayers are going to prop up the credit markets with $700 billion ‘real’ dollars, this would be a great time to think outside of the box and stimulate the economy by influencing consumer behavior. All of a sudden, everybody who buys something contributes equitably based on their consumption habits versus their income. And by everybody – rich, poor, middle class and those who cheat as well as find legitimate loopholes in the current tax system are playing on the same field.

I wouldn’t go so far as to say this is the magic bullet but, couldn’t you survive if April 15^th was just another day and you knew exactly how to adjust your tax burden? The people who have been carrying the torch since it was introduced in 1999 have encountered resistance from both Democrats and Republicans alike. I personally have no idea how much I ‘really’ pay in taxes from one year to the next but, would be open to keeping as much as possible. If you’re interested, I would you suggested starting with the book written by Georgia Congressman John Linder and co-written by radio personality Neil Boortz called The Fair Tax Book.