In the economy today a large number of Americans do not pay Federal Income Tax. This is not fair to the citizens who are required by law to pay taxes. Why should only half of the country bear the burden of paying taxes to support the United States? Every person living in America needs to stand up, take responsibility and pay their share of taxes to ensure the Nations financial stability. John F. Kennedy once said, “My fellow Americans, ask not what your country can do for you, ask what you can do for your country. ” If the current tax situation in America is not resolved, eventually America will be broke.
Those not paying taxes are the very same people that are bleeding America dry, they believe the federal government should support them and their families. What would happen if everyone believed that it was alright to sit home and wait on others to give them everything needed to sustain life? The nation as a whole would no longer exist. When almost half of all Americans do not pay income tax and do not contribute anything to the funding of the United States, there has to be change. To be clear, 47 percent of Americans account for the people who do not pay any federal taxes.
Of this 47 percent about 33 percent paid in what is referred to as payroll tax which includes Social Security and Medicare (Gleckman, 2010). This means 14 percent of Americans paid absolutely no taxes, contributing nothing to the financial well being of the United States. Who is not paying taxes and why? Of those not paying income tax, 40 percent are single filing joint returns and 70 percent are claiming head of house hold (Robert Williams,n. d. ). [pic](Bluey,n. d. ) Taxes have always been at the fore front of American politics.
Beginning with the Boston Tea Party in 1773 when American Colonists boarded three ships in the Boston harbor to protest over the 1765 Stamp Act. The Act taxed paper products including newspapers, playing cards and legal documents. In 1767 taxes were added to paint, paper and tea which lead to the Boston Tea Party. After the American Revolution one of the first taxes created was known as the Sin Tax which taxed distilled beverages. The tax was met with anger by settlers living in the outer most areas in the United States where most of the distilled beverages were being produced.
During the War of 1812 the American Congress looked at adopting an income tax, but the war ended before the tax was needed. Then in 1861 to pay for the Civil War, Congress passed an income tax law that took a year to ratify and was finally enacted in 1862. With this law, everyone was taxed on their income. Those earning an income up to $10,000 were taxed 3 percent and those earning over $10,000 were taxed 5 percent of their wages. This law was meant to be temporary and was repealed in 1872.
Congress began looking at income tax again in the 1890’s, but the law they created was deemed unconstitutional by the US Supreme Court in 1894 because the Constitution only enabled the collection of taxes based on the population of the States. In 1913 Congress amended the US Constitution by adding the 13th Amendment that gave Congress the authority to collect income tax. “Congress shall have power to lay and collect taxes on income from whatever source derived, without apportionment among several States, and without regard to any census or enumeration. ” (Gleckman, 2010).
The American tax code is so complicated that the average Americans cannot figure out how to fill out their own taxes. Fox News reported that 89 percent of Americans use a tax preparer. The Internal Revenue code consists of 308 billion words! The American tax payers spend approximately 163 billion annually to comply with tax laws and work an average of 26 hours per year preparing their taxes. The IRS commissioner does not even prepare his/her own taxes (Kibbe, 2011). When the person in charge cannot understand or does not have the knowledge or the ability to prepare his/her own taxes where does that leave the average American?
Over the last several decades Congress has used taxes and tax refunds to fund social benefits. The child tax credit, college attendance , retirement tax favored savings plans, the earned income tax credit, and childcare tax credit are just a few of the programs financed with tax credits. These tax credits accounted for almost 950 billion in expenditures in 2007. If all of these credits were alleviated then almost 98 percent of Americans would pay taxes if their income was over 20,000 dollars a year. By using the tax code to fund social benefits, Congress has eliminated over half of all Americans for paying income tax.
Freedom and fairness is what the United States was built upon; the Boston Tea Party was in response to the colonists’ belief that the taxes being levied on them were unfair. It took 137 years and an Amendment to the U. S Constitution before Congress could pass a law allowing an individual’s payroll or earnings to be taxed. It is not that the American people are totally against paying taxes it is actually the opposite. When taxes are collected fairly and equally across the board most Americans do not mind paying.
It becomes unfair when some Americans are taxed at a rate of 20 percent of their income while others are taxed at a zero percent rate and even receive additional money from tax returns. As a nation the United States must have a Fair Tax. Today’s effective tax rate is over 45 percent for Americans in the highest tax bracket. This is found by adding together all the taxes that an individual pays today starting with the highest tax bracket in America at 35 percent, adding in payroll taxes at 2. 5 percent, and local sales taxes at 7 percent. This equals 45.
5 percent but this is not including any additional taxes added on by local governments. This tax code that is over 17,000 pages long and is so complicated the average American cannot understand how to file their own taxes (Kotlikoff, 2005). This is why a Fair Tax is the only way that America is able to get back on track. Imagine being able to keep an extra 22 percent of a person’s pay to spend on what his/her family’s needs and desires. Fair tax gives Americans just that. The Fair Tax begins by putting more money into the pockets of all Americans, not only the wealthy but the poor will see the same increase in their paychecks.
Poor Americans are paying the additional taxes that would be eliminated by a Fair Tax, this will almost cut in half the taxes paid by some. The Fair tax would stimulate economic growth by putting more money into the pockets of all Americans. When the government gives people more spare money it not only allows them to better provide for their families it is effectively giving an almost instant stimulus to the American economy. It is basic economic knowledge that when people have more spare money they spend more money, that could eventually raise the GDP by 25 percent over the next few decades (Kotlikoff, 2005).
Another problem with the tax system in place now is that people in high places have easy access to manipulate the system and because this tax code is so long it makes it easy for politicians to hide a lot of the kickbacks they receive. Most people have no problems paying taxes that they consider fair, it is when they believe they are paying too much is when they begin looking for loopholes and ways not to pay. Why should they care if the politicians who are running the country are constantly looking for different ways to beat the system?
By implementing a Fair Tax it encourages people not to cheat. There will always be some who are going to try and beat the system, for those there will always be a need for an enforcement department like the IRS. With the fair tax it will make it significantly harder for people to be able to cheat because most of the sales today are through big box retailers like Wal-Mart, Target, etc. There will also be a lot less people paying direct taxes, that would free up thousands of IRS agents to ensure the compliance of the remaining tax payers (retailers) (Kotlikoff, 2008).
The table above shows the results from a study by Kotlikoff and it compares the FairTax’s progressivity relative to the remaining lifetime resources under our nation’s current federal tax system. This table shows that FairTax lowers the average remaining lifetime net taxes but the percentage of reductions will be larger at the lower end of the earnings distribution. FairTax will make our tax system more progressive for working households but some researchers question, “How can the FairTax generate lower net tax rates for everyone an still pay for the same real government expenditures” (Kotlikoff, 2008)?
The answer to this question is that not everyone’s average net tax rate will fall. This table only focuses on workers on both ends of the pay scale spectrum. It doesn’t show households who’s primary economic resource is their wealth. For these people they will see a tax rise to about 23 percent which is almost double from the previous rate they received of 15 percent (Kotlikoff, 2008). FairTax will not only help the poor but will also help the rich, it is the most feasible solution to our tax problems and it helps all Americans manage their money better.
People would not have to worry about any taxes being taken out of their checks or worry about paying taxes at the end of the year. Not only does it do this, it will also deter people from committing fraud and limit the amount of loopholes in the system. All decisions have pro’s and con’s and FairTax is no different. So far this paper has listed many pros in support of FairTax, now it will show the cons and how they will not make a drastic affect on the total outcome of FairTax. Many of the cons are in relation to the IRS becoming smaller causing people to lose jobs and the sales tax increasing creating an underground economy.
The con that the IRS would be significantly smaller is true, there will be no need for a IRS that is the size of the one instituted today. This would cause a loss of many jobs. If FairTax was implemented, it would stimulate our economy which would create more jobs than what would be lost from the IRS being reduced in size. Another con is the sales tax for FairTax would have to be significantly higher which could possibly cause the creation of an underground economy. This means that the higher sales tax may cause people to look for ways to avoid paying taxes.
People may look for goods where they won’t have to pay taxes such as buying goods from other people or bootleggers. Consumers could buy goods from other consumers to bypass they tax. However the only way for a consumer to acquire a good to sell is to have bought it which requires him/her to pay sales tax on the good. Another con about the sales tax being higher is, it may influence people to spend less and save more and pay off existing debts. Even if this is true, it will not have a big impact on our consumer based economy.
If people do save more and pay off debts it would be a benefit because by paying off their debts they will have more money available to them to spend in the future. No matter what, people will have to consume goods such as groceries and the necessities for life. Therefore, even if people are saving money, they will still be paying taxes by purchasing these necessity goods. In a perfect world our tax system today would work exactly the way it’s supposed to. But this is not a perfect world and never will be.
Our country has drug dealers, illegal immigrants, and even politicians trying to find loopholes in the system. When John F. Kennedy said, “My fellow Americans, ask not what your country can do for you, ask what you can do for your country. ” He may not of been talking about the problems that America is facing today but his words are equally applicable. What this paper has shown is that the best thing Americans can do for America is to implement a FairTax so all people will pay taxes equally. References Bluey, R. (2012, February 19). Chart of the week: Nearly half of all Americans don’t pay income taxes.
Retrieved from http://blog. heritage. org/2012/02/19/chart-of-the-week-nearly-half-of-all-americans-dont-pay-income-taxes/ Clark, D. (2009, January 29). 10 pros and cons of the fair tax. Retrieved from http://geekpolitics. com/10-pros-and-cons-of-the-fair-tax/ Gleckman, H. (2010, Apri 15). About those 47 percent who pay “no taxes. ”. Retrieved from http://taxvox. taxpolicycenter. org/2010/04/15/about-those-47-percent-who-pay-“no-taxes-”/ Kibbe, M. (2011, April 18). Tax day 2011 — We need a flat tax more than ever Retrieved from http://www. foxnews.
com/opinion/2011/04/18/need-flat-tax/ Kotlikoff, L. (2008, January 15). Why the fairtax will work . Retrieved from http://www. fairtax. org/site/News2? page=NewsArticle&id=9321 Kotlikoff, L. (2005). The case for the ‘fairtax’. THE WALL STREET JOURNAL, Kotlikoff, L. & Rapson, D (2006). Comparing average and marginal tax rates under the FairTax and the current system of federal taxation. Boston: Boston University. Rosenberg, J. (n. d. ). History of income tax in the U. S.. Retrieved from http://history1900s. about. com/od/1910s/a/incometax_2. htm.