The often-polarizing subject of tax reform has inarguably taken more than its share of space on this page over the years, as well as in Accounting Today as a whole. We've chronicled the overlong and futile efforts of President George W. Bush's 2005 Advisory Panel on Federal Tax Reform, in addition to the more recent efforts under the Obama administration's President's Economic Recovery Advisory Board.
As a result, I've begun to dismiss any new or recycled grassroots movement to reform the Tax Code - whether it be flat, VAT or any other acronym - with the cynicism of a disappointed baseball fan who is encouraged at the end of yet another losing season to "Wait until next year."
Lately, however, the idea of a Fair Tax has been appearing more often than Lady Gaga. The Fair Tax plan, while hardly new, is, on the surface, a fairly simple concept that even I understand. It would replace all federal income and payroll-based taxes with a multi-pronged strategy that includes a national retail sales tax and, through companion legislation, abolish the Internal Revenue Service. Its rate would be set at 23 percent, although its detractors claim that because the taxes would be levied by states and local municipalities, in reality it would closer to 30 percent or higher.
The Fair Tax's chief advocate and recently declared GOP candidate for the Oval Office in 2012 is one Herman Cain, the former chief executive of the Godfather's Pizza chain and past president of the National Restaurant Association. While the current crop of GOP contenders is, to be kind, underwhelming, with no clear favorite in the infancy of the campaign, Cain has chosen to make the Fair Tax the cornerstone issue in his early run for the White House, as did former Arkansas Governor Mike Huckabee in 2008.
I don't expect Cain will ultimately receive the GOP nomination; in fact, I don't even think he will come close. The problem with a one-note campaign is that voters become concerned with your knowledge and proposals of other critical issues. That and the fact that Cain has never held political office, despite several unsuccessful attempts, would probably disqualify him in the later rounds. But Cain's viability as the nation's chief executive notwithstanding, the Fair Tax has at least stirred up the tax reform conversation again, not to mention accumulating nearly 12 million mentions on Google.
But like any radical proposal, there's rarely a simple solution, and the Fair Tax is no exception. Yes, it's only 132 pages long, as opposed to the 60,000-plus of the IRS code, but abolishing the IRS would send a devastating ripple throughout the preparer community, not to mention all the lost jobs at the service.
Proponents claim that retail prices would fall under a Fair Tax, and eliminating corporate income and capital gains taxes would make the U.S. a more attractive place for investment and business. Also, illegal immigrants, many of whom neither report income nor pay taxes, would be forced to pay their share of the Fair Tax.
Opponents argue that even if retail prices were to drop, consumers would still be faced with a 30 percent or so hit on home purchases, which would do little to spark an already sluggish housing market. In addition, they claim the 30-percent-plus increase would serve only to encourage smuggling, much like what has happened with cigarettes once states raised sales taxes on tobacco.
Either way, tax reform has again emerged as a campaign issue.
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