Thursday, January 12, 2023

Income tax

Periodically the cry can be heard to do away with the IRS and replace it with a national sales tax. The arguments for this change make a lot of sense. It is simple since most states already collect a state sales tax and this would be collected at the same time and just passed on to the federal government. It encourages saving over spending and savings equals investment. The income tax system is so complicated that only the very wealthy can take advantage of all the loop holes. Many rich people pay less income tax than Joe Sixpack. The downside is so great that it will never happen. The government collects $3.5 trillion in income taxes and the consumers spend $14 trillion so to replace income tax would require a 25% national sales tax. If anyone was serious about getting rid of income tax the easiest way would be to repeal the 1943 law which made automatic withholding from pay checks. If that law were gone and people had to come up with their tax bill for the year on April 15 there would be riots in the streets. A better solution is to simplify the tax code which is currently more than 4,000 pages. Everyone is aware that you can get different answers to the same tax question depending on which agent answers the phone. It is complicated because special interest have influenced the law makers who write the law. So what else is new?

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