Okay, I think it's about time someone explained all the fine and wonderful attributes of our current system. If the FairTax has all the flaws that some are trying to establish, please defend the current system. Also please relate any warm and fuzzy conversations you may have had with an IRS agent. Also if anyone posting here was old enough to vote in 1913 when the 16th amendment was passed, God Bless You!

Disclaimer: No one from JK Harris or H &R Block or anyone else whose livelyhood is dependent on the current system is allowed to respond.

No one would invent our system if working from a blank slate. But, a couple of things come to mind that argue in favor of tinkering with the system we have, rather than starting over. First, the political problem. Every little crazy bit of the IRS code has a constituency behind it that thinks it is a great idea. Will we all be willing to give up our little prize for the greater good? While any new system can be made revenue neutral overall, there will be winners and losers. There is every reason to think that a national sales tax will include favorable treatment for favored interest groups. I can hear the candidates now: "I will never sign a tax bill that interferes with your rights under the second amendment" or "Taxing abortions violates a woman's right to choose" and so on.

Second. A lot of people have invested a lot of money in reliance on the existing Code. What happens to the guy who today bought a 30 year tax free municipal bond, paying 3.5% interest? Without the tax benefit that gives it a premium in value over a taxable bond paying the same rate, the muni will be worth less. We are talking about $ trillions in bonds, so the dollars are significant. People buy homes in reliance on the mortgage interest deduction.

All this talk about making taxes simple is misplaced. Most of us already have simple returns. Most of the thousands of pages of the tax code don't apply to working stiffs.

Think about the mortgage interest deduction - you only get a portion of your income taxes back with the current system. Under the FairTax - you don't pay the income taxes so you keep all of them. The deduction is trumped.

Wrong

Under the "fair tax" you have to pay the interest in a lump-sum up front. That's a HUGE "opportunity cost" If we plug into the Future Value (FV) function of Excel we get the following information

For every $100,000 of house value, and assuming a historical mtg interest value of 7%

Under Income Tax, you will have paid roughly $2,300 in taxes on the money you used to pay your mortgage with. And assuming a 30% marginal tax rate, you will get on average $1500 back on taxes for the average interest you will pay.

That means that over the 30 years, you will pay roughly $24,000 total in taxes on the payments you make. Half of that (the average outstanding over 30 years) over 30 years is an "Opportunity Cost of $176,766. So you will have lost $178k in potential earnings due to the cost of paying taxes on your mtg payment over 30 years (assuming a historical ROI from the stock market of 9%)

BUT for the "fair tax" all the tax is paid up front. So the "opportunity cost" is a lot simpler. It is simply how much money your $23,000 could have earned at 9% interest over 30 years. That is $338,803.

So that means that if you buy a new house, for every $100,000 of house value, BECAUSE you PAY UP FRONT the full tax amount, it will cost you $162,032 MORE.

So sure, your "deduction is trumped". But you it costs you $162k/$100k of house value to get that "trumping".

That's a pretty silly and expensive tradeoff.

The current tax system is hardly perfect and there is a lot that could be done to make it fairer, but even so, in comparison to the "fair" tax. it has some distinct Pros

• For every $100k of house value, a new house costs $162,036 LESS than with the "fair tax" which requires you to pay all of the taxes in an upfront "lump sum" tax.
• The current Income Tax is progressive, the Fair Tax is regressive. all the "prebate" does is to raise the threshold at which regressivity cuts in.
• The current tax is predictable - Business likes preditability, and the "fair tax" has only a fairy tale about how any sort of transition would be accomplished.
• The Income Tax effectively reduces the usefulness of "self-incorporation" as a mechanism for avoiding taxes, The "fair tax" rewards it dramatically
• The current tax is simple for individuals and complex of for businesses, the Fair Tax will be simple for businesses, but with self-incorporation it will be a bookeeping nightmare for individuals.

As for warm and fuzzy conversations with the IRS - I've had significant dealings with the IRS on 5 occaisions. In each case the folks I dealt with were curteous, professional and helpful. In each case the matter was solved expeditiously.

Face it, the reality is that you just don't like paying taxes. And you are willing to wreck the economy to accomplish that.

The notion of a simplistic tax to fund the U.S. government is a pipe dream usually pandered by Repulblicans to the ill-informed; typically with the goal of screwing those same individuals out of hard earned dollars while enriching their ilk and themselves. The fact is, the current tax code attempts to accomplish a myriad of tasks; everything from easing the indivdual cost of housing, retirement, and healthcare to population control. (Yes, there is some preliminary evidence that recent boosts in the child tax credit may be resulting in greater fertility rates among white and black Americans.) There's the EIC, or earned income credit, a welfare program administered through the IRS. Whether you like it or not, it is an attempt to ameliorate one flaw of our free market economy: the plight of the requisite working poor to earn a living wage. I say requisite, because they are necessary to make wealth meaningful in a capitalist society; it is simply up to us, as a society to decide just how poor they should be; how big a piece of the aggregate "pie" they deserve through the minimum wage and other directives. So far, our collective conscience and empathy have been short of the mark; thus the EIC and other such supplements to those who WORK yet cannot sustain themselves.

Every line on your tax forms has both purpose and function, all in the roughshod calculus of maintaining the sustainability of our economy and society. The fact is, all Americans now enjoy the lowest real income tax rates as a function of AGI since WWII, albeit with a historically high public debt. To wholly throw out the current individual income tax code, without regard, is to throw out the entire evolution of the notions and ideals as to how our individual taxes should be levied.

Yes, there is unfairness, compexity, and bad policy in the current tax code, but that would be the case regardless. The key is to find the best compromise that provides long term societal, economic sustainability. That will always be an ongoing task. There are no easy answers, perfectly fair policies, or schemes that work in all times.

The simple fact is, most American's tax returns are extremely simple, and their tax very low. If more Americans would belly up and do their own taxes, fill out the forms, and go through the mathematical mechanics of it, perhaps some of these presumed notions of the income tax would dissipate. My take is that most listen to the political rhetoric, but rarely take the time to see if the rhetoric really applies to THEMSELVES; chances are, it doesn't.

Final thought: If you are an American and you hear another American preaching about high income taxes, chances are far better than 50-50 that the one doing the preaching is advocating, in a Trojan horse kind of way, that you pay higher income taxes and he/she pay less. :)