The concept of a “fair tax†and possible dissolution of the IRS as promoted by certain Presidential candidates has created great excitement. As stimulating, refreshing and sensible as both may be, I’m afraid there is at least one (ignored) reason why neither will happen in the foreseeable (like, forever) future. Consider:
- The IRS has 91,717 employees (source: IRS 2006 Data Book) with the force and weight of law relieving us of the fruits of our labor at a cost of $10.882 billion (source: IRS 2006 Budget).
- We are paying $4,128,662,000 to 19,242 tax preparation services with 205,122 employees to help us relieve ourselves of the fruits of our labor (source: 2002 Economic Census*).
- Ditto for a substantial portion of the $48,497,646,000 we pay to the 56,705 Certified Public Accounting firms with 426,208 employees (source: 2002 Economic Census*), granted, CPA’s do other things besides taxes.
- Never mind the multitudes involved in litigation, ancillary services, or contracted/outsourced services (primarily by the IRS), which are undocumented and therefore indeterminate.
* The Economic Census is conducted every 5 years. The 2007 data is not yet available.
Tallying the numbers above it takes 723,000 people (jobs) at a cost of $63 billion per year just to pay our taxes. One shame of these statistics is that (I surmise) those jobs and that money are, to a great extent, included in the rosy job and GDP numbers that we hear regularly. I’m sorry, but I don’t see how 723,000 people and $63 billion collecting taxes is adding value to the economy. Value is added to the economy when we spend of our own freewill, not under force of law, never mind the insult of the nature of the expenditure.
723,000 jobs
$63 billion
They won’t go quietly.
Chuck is self-employed in agri-business in Virginia. He can be contacted at chuckangier@gmail.com
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5 users commented in " Why a Fair Tax Won’t Work "
Follow-up comment rss or Leave a TrackbackThe figures you state is exactly the reason the Fair Tax should be implemented and will be a huge success when it is implemented. The costs you have outlined are (and must be) passed on to the consumer of products and services. All of these costs do nothing except drive the prices of goods and services upward.
When they are eliminated price will(through competitive pressures) fall.
As to jobs lost, who cared when the textile industry left the US, when the vast number of union manufacturing jobs left, when online and telephone service jobs left, when electronic jobs left? These were productive jobs that were lost. Jobs associated with complying with a 66,000 page tax code is wasted money and counter productive.
Try a basic economics course or read the book on the Fair Tax before spreading hogwash.
Mr. Fiordalisi,
Either I am a poor writer or you must not have read my entire post because you and I concur 100%.
The cost of tax compliance IS wasted and counter productive.
The point I tried to make with this post, (but obviously failed) is that 723,000 jobs and $63 billion in revenues can and will mount a huge lobby AGAINST a simpler tax that may and should eliminate the need for their services.
it could leave a higher tax burden on the middle and lower class….maybe you should read more about it instead of the book about it…i mean its fine to read the book but to base your information off that book alone is wrong and you mislead people…get other sources because theres plenty of reasons why it wont work like for instance, that it may not yield enough money for the government, resulting in cutbacks in spending, a larger deficit, or a higher sales tax rate. or
while progressive on consumption, the tax could be regressive on income, and would accordingly decrease the tax burden on high income earners and increase the tax burden on the middle class.
I am a moderate conservative republican and while I do agree that the taxation system needs a major overhaul, the “fair tax” that is being so heavily touted lately simply won’t work. One, do you really trust the govt. to keep their word about it being the only tax? A slightly similar case in point: when Oklahoma got its first toll road, we were promised that once it was paid for, it would become a free road. Decades have passed and it’s been paid for many times over, but the toll fee has simply increased steadily through the years.
Here’s a huge reason why it wont work, though. The #1 rule in business is that you keep costs as low as possible and charge as much as the market will bear. Proponents of the fair tax say that when the tax expenses for the manufacturer, distributor, and retailer are dropped, the prices of the goods will go down, which will offset the huge tax that will occur at point of sale. When fuel prices skyrocketed, all groceries went up in price. When fuel dropped the prices didnt. Why? Because they saw that people were willing to pay more for the product. In the same way, I have an item (small sized sterling silver earrings, made in the U.S.) that I used to pay $1.20 for and sold it for $6. When I saw grocery store prices going up, silver started going up slightly, and because my rent and utilities were also starting to go up, I raised the price on that item to $7. That increase did not slow down sales of that item. Then, I began to be able to get the exact same item, from the same manufacturer for 80 cents, a 33% DECREASE in cost. Did I lower my retail price? No. Why? because people were still willing to pay $7.
Just because the cost to the manufacturer and retailer might go down if the “fair tax” were to pass doesnt mean that the retail prices will drop. The only time that retail prices drop is when demand for the product drops. A “fair tax” will result in even higher prices on goods (because of the huge tax at point of sale).
What we need is to reinstate high tariffs on imported goods, which will help to bring manufacturing jobs back to the U.S.; lower the income tax and have very few deductions; lower the sales tax (where I’m at, it used to be 4% and as prices have gone up they’ve gradually raised it to nearly 10%, claiming that since things cost more, they need more $ – nevermind the fact that since prices have gone up, they would be getting triple the sales tax if they left it at 4%. Instead, most people buy online or shop in the next township over that has a lower sales tax); stop wasting the taxpayers money on things that are overpriced (such as screwdrivers that costs a few thousand dollars or “brother-in-law” contacts for unnecessary and overpriced items); cut many of the govt jobs that are redundant; cut govt worker wages; and cut other waste such as flying govt workers from DC to Hawaii for “meetings:.
But I digress… point of my post is that just because the cost of goods to the mfg, distributor, or retailer might go down if the “fair tax” is passed, doesnt meant that the consumer will see the price go down.
Remember Dec 1995 when the airline ticket tax expired? All the airlines maintained their prices at first, but then one small airline lowered its prices to gain an advantage. Soon, all the airlines were competing by lowering their prices. For a brief time, we had cheap flights availabe to anywhere. Butt, alas, the tax was reinstated and prices went back up.
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