During President Donald Trump’s inaugural address, he said, “Don’t let the Washington politicians ever tell you that something can’t be done. I refuse to accept that!” Now he has a chance to prove it by calling for a landmark overhaul of our tax system.
Former South Carolina Mick Mulvaney is Trump’s director of the Office of Management and Budget. He told Fox Business that the Administration wants to scrap the current income tax code and start over. He said, “We need to go big or go home.”
The last significant change to our tax system occurred in 1986, during the Reagan Administration. An overwhelming bi-partisan majority in Congress voted to remove many tax deductions and lower the top personal income tax rate from 50% to 28%.
The Trump Administration has the chance to go much further by proposing the elimination of the income tax system and replacing it with the FAIRtax. Charleston was one of three test market cities polled by Americans For Fair Taxation, asking people what they wanted in a tax system. I was polled in 1998 and was asked if I wanted a system that doesn’t tax investments. The stock market was roaring at the time, and we were paying larger capital gains and dividends taxes on mutual funds every year on money that had already been taxed. I became an instant fan of the FAIRtax.
The FAIRtax plan (bill HR-25) was originally filed in Congress in 1999. It would repeal the income tax code, which has been in place since 1913 when the 16th amendment was ratified and allowed taxation on income. The income tax was initially only levied on the top earners. It was soon expanded to fund World War I and now taxes corporations, investments and estates. The FAIRtax is a revenue-neutral tax on consumption at the point of purchase for new goods and services. A monthly Family Consumption Allowance covers the taxes which would be paid by a family of four on its first $2700 in monthly spending.
America’s 35% corporate income tax is the highest in the industrialized world. It is a big reason why so many corporations have moved their operations overseas to countries with a more favorable tax system. The high rate increases the cost of American-made goods and is a big reason for our $700 Billion trade deficit on goods in 2016. FAIRtax will lead to a manufacturing boom in the U.S.
In addition to eliminating the personal income tax, the FAIRtax would eliminate the 13.5% payroll tax on Social Security and Medicare paid by employers and employees. Social Security paid out $81 Billion more in benefits than it collected in payroll taxes in 2016. A consumption tax would be a much more stable source of funding for Social Security and Medicare.
A recent study by economist Richard Cebula shows that there was more than $650 Billion in tax evasion in 2016 and the figure is projected to increase to $1.2 Trillion by 2026. Tax evasion now represents about one-fifth of the $3.3 Trillion in taxes actually collected. Factors which lead to tax evasion are the increasing number of self-employed or contract employees who don’t have taxes withheld and the growing underground cash economy, which includes illegal aliens.
Tax filing software designer Philip Schlosser estimates that compliance with our current tax system costs Americans nearly $1 Trillion annually. Read his analysis at TaxRevolution.us/tax-code-complexity-costs-up-tp-1-trillion-per-year. FAIRtax would significantly reduce tax evasion and compliance costs. We would all pay our taxes at the point of purchase and would no longer have to file tax returns.
President Trump’s first attempt at major legislation, repealing and replacing the Affordable Care Act, stalled because he depended on Speaker Paul Ryan to produce the legislation without getting buy-in from various factions in the House. The President needs to take the initiative by proposing his tax reform plan first and gathering public support for it while Congress is in recess.
The best way to reach President Trump is on Twitter @realDonaldTrump or @POTUS. Encourage him to back the #FAIRtax plan! He could go down in history as the President who ended the income tax.
John Steinberger is the editor-in-chief of LowcountrySource.com. To contact him, email John@LowcountrySource.com.
