The hardest thing to understand in the world is the income tax. — Albert Einstein
Do you know what’s the biggest marketing ploy ever in American history? You may think of John Pemberton who made Coke household name by trying to sell it as patent medicine. If so, you are not alone!The biggest marketing ploy ever was the system of withholding invented by our beloved government.
Imagine that you are making cool $100,000 a year. On the dreaded day of April 15th, you have to write a $28,000 check to Uncle Sam. You will have different view about our government and value of handing over your hard-earned money to bureaucrats in Washington. Most people never realize how much they pay in taxes mainly due to the clever system of the income tax withholding.
It may surprise you to know that Americans opposed income tax withholding when it was proposed in 1942. Beardsley Ruml came up with the biggest marketing ploy in the history by offering Americans one year abatement on their taxes to gain support for his tax withholding plan. If you can imagine — the ploy worked! Now, we pay taxes without even knowing how much we pay.
I sold a hotel in 2008 as my property tax bill skyrocketed from $38,000 to $52,000 in one year. I appealed my bill as business was already down in 2008. After several months, I went to see the gentleman who assessed my property at the tax assessor’s office.
Officer: After careful consideration, we’ve decided to keep your property taxes unchanged.
Me: How’s that possible? If you assess based on the income, value has gone down a good bit.
Officer: Well, it takes over $3 million to replace this property; I think we are fair.
Me: Really? Can you buy it from me? I will be glad to sell.
Officer: I can’t but have you tried to sell?
Me: I don’t think you understand my viewpoint.
Officer: I have some advice for you. Are you well-educated?
Me: I have master’s degree in Engineering. What that has to do with the hotel?
Officer: I suggest that you find a job and let your wife manage this hotel.
Me: Pardon me sir, I don’t think I need advice from a government officer who has never invested a dime in his life, I bet. And, for your knowledge, I already have a full-time property manager. It doesn’t matter if I have a job or not.
Officer: Good luck sir. I think you have means to pay taxes.
Me: Thank you for your financial counseling. I really appreciate our local government’s desire to empower small businesses to grow. You will hear from me soon sir when I sell my hotel and never consider doing business in this state.
I ended up laying off few employees just to pay property taxes as business had taken turn for the worst due to $4 per gallon gas price back in the summer of 2008.
This personal incident made me think about taxes we pay to our government and its impact on our personal economy. I would have not sold that hotel if property tax was in tandem with the revenue. And — I know that — if property taxes were eliminated all together then I’d have hired more employees or would have built a small restaurant on the premise.
Enter the fair tax plan. It’s an amazingly simple plan to skyrocket your personal and our national economy.
Imagine that you keep all the money that you earn. You won’t have to worry about calculating your take home pay anymore. If your state government enacts the fair tax plan then how nice will it be not to pay property taxes on your primary residence or commercial property?
We are not talking about depriving our government from the tax revenue. In fact, everyone including those who involved with the underground economy will pay 23% sales tax. It’s even better for us frugal freaks who spend less and save more.
American corporations have squirreled away over $13 trillion dollars overseas to avoid record corporate taxes. There won’t be any payroll or corporate income taxes under the fair tax plan.
Alan Greenspan predicted that $13 trillion can comeback to our country within six months after the federal government enacts the fair tax plan. Can you imagine how many jobs $13 trillion can create in America?
When you buy a car from Honda, price of the car already has embedded payroll and FICA taxes that Honda pays to the government on its employees’ behalf. Corporations don’t pay taxes. They simply collect taxes from consumer and pass it on to our beloved government. Fair tax will ease the pricing pressure and somewhat offset higher sales tax we pay by offering goods at lower prices.
For long, politicians and lobbyists have used favorable tax breaks for big businesses to promote one business or another at the cost of taxpayers. Our 1.3 million page tax code is impossible to understand for even the brightest among us.
Imagine how efficient our government will be without major lobbyists influencing law makers’ decision to impact our lives.
Imagine how fearless you feel when there is no IRS? Most people opt out for the standard deductions even when they know that it’s costing them money because of the fear of IRS audit.
Imagine how simple it will become for an entrepreneur to open a business using services such as Legalzoom, once politicians stop picking winners and losers based on what they consider fair tax brackets for certain income groups?
You can even argue that our government will have more revenue with the fair tax plan. Why? Instead of about 160 million Americans paying payroll taxes, over 300 million people will pay taxes considering the fact that tourists will also contribute to Uncle Sam under the fair tax plan.
What about Social Security and Medicare Programs?
When President Roosevelt signed Social Security Act into law on August 14th 1935, 17 workers contributed for every retiree. Now, only 1.75 workers contribute for every recipient. The system is on its way to become bankrupt in next 40 years or so as more baby boomers will retire. With the fair tax plan, our government will have everyone in the nation — including those who are not legal — to fund the Social Security and Medicare programs.
Tax foundation estimated that it took $203 billion dollars for corporations and citizens alike to understand and fill those tax forms in 2003. If I can guess, cost must have risen further. This gives you an idea about the complexity of our tax system and its enormous drag on both your personal and national economy.
It may never happen in my lifetime to see fair tax in this land that I love, but I am an optimist and I believe that this great nation will awake one day and embrace this simplest plan to skyrocket our economy.
An income tax form is like a laundry list – either way you lose your shirt. — Fred Allen
(Photo Courtesy: Double_Nickel)
My bet is we will see a national sales tax.
Problem is, it won’t replace the income, SS or Medicare taxes. It will be in addition to them.
this will be the way the government breaks faith with the concept behind Roth IRAs. As the $$$ in Roths grows they will become irritable targets.
That’s not good if payroll and FICA won’t be replaced. That means IRS will be more powerful. The beauty of the national sales tax is its power to eradicate current tax system.
no argument there.
thing is the government loves multiple income streams. It makes it easier to raise taxes.
One year it will be, Income taxes have been increased in ‘blank’ number of years so this proposed increase is not so bad.
Next year, property taxes have been increased in ‘blank’ number of years so this proposed increase is not so bad.
Next year, sales taxes haven’t…. etc.
Jim – I can’t agree with you more. The fair tax plan gives power back to us — mere mortals — who are being played by the whims of politicians. At one point, I was paying way over in six figures just in the property taxes, and my kids never even went to public school. Major chunk of property taxes go to fund public schools that are failing. Instead, if sales tax is the revenue source then local government will have to promote businesses to earn their fair share.
Scary stuff. I hate that people who have more money than I will ever see are responsible for spending the little that I do have.
Well said Michelle!
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Shilpan, I believe we must be long lost brothers. I LOVE the fair tax and have supported it for the past 4-5 years!!
It has some success in Kansas and Missouri but it never made it all the way through. I WISH we would go to a system like this, but there are too many politicians that get paid to keep the system the way it is.
I hope that one day we’ll actually make a REAL change…
Jason – I feel same way. We’ve never met, yet I can feel that you and I are on the same wavelengths when it comes to our ideals. I adore you for that. I think the fair tax plan can take our nation to a new height unseen by any major economic forces seen before in the history. It will inspire new generation of entrepreneurial spirit in this nation.
I didn’t know that fair tax had some success in Kansas and Missouri … why did the momentum stop? This post is quite convincing, by the way! 🙂
TB, I believe that Americans are slowly realizing how worst our national deficit is. We are borrowing money from China and printing more dollar bills only to be reckoned with much higher taxes to pay in the future. I firmly believe that the fair tax plan can be the cure-all for this problem. I am doing all I can to increase awareness.
The current tax system is not based upon the principles of equality. However, with the implementation of “FairTax”, one will have to pay according to his spending habits. Good news for savers.
Absolutely!! Thank you for stopping by.
The most frustrating thing about the current tax system is how the richest can game the system and pay a small percentage of their income. Look at what Mitt Romney paid in taxes. It is terrible. The fair tax is a fabulous idea or the Flat Tax is another one that I am all for. Get rid of this 1 million page tax code that we have, because the more complex it is, the easier it is for the richest people to find loopholes.
Absolutely. Fair tax is even better than flat tax because everyone will pay including our underground economy. For long, our tax code has been manipulated to favor those with big money. In fact, it will help the middle class most as they bore the major portion of the tax burden.
The more I learn about the tax laws, the more I see that 1) they are unnecessarily complicated, 2) they can be manipulated with the right know how. I have yet to learn more about the fair tax plan, but it does seem to have some popularity.
Tax laws are so complicated that most of us never even bother to take time to challenge. That’s exactly what politicians’ want. Most people spend more time worrying about their favorite sport team than to know how much money they are handing over to our government.
Thank you for your great tax rank, Shilpan. U.S Taxation has to be one of the most talked about and controversial subjects to date. I’m not opposed to paying taxes. What I’m opposed to is our current tax code. It’s so difficult to even understand by most tax experts. And, there are far too many changes to it.
The Fair Tax, is the best taxation plan in existence, and was created by some of the top experts on the subject of taxation. Who would object to paying a 23% sales tax? Nobody. Yet, the government won’t implement it, because it will take away their control of our tax dollars.
Agreed. If you consider embedded cost for any goods or services, you will realize that paying 22% or 23% in national sales tax is the best way to get out of this mess we are in.
For fun I’d ask new clients what they thought they’d paid in taxes the prior year. The answers were ALWAYS well below what they’d really paid out. One, a radiologist who made about $350k/year said he thought he’d paid about $30k in taxes. He was horrified to see the real number.
My favorite line of your post?
“Officer: I suggest that you find a job and let your wife manage this hotel.”
Awesome.
Joe, I was flabbergasted with his response. I can’t believe that he was suggesting such a silly thing.
calling it “silly” is kind.
my read was more arrogant and petty.
Thanks Jim!
I’ve never heard of the FAIR tax before. It seems like it could actually do a lot of good, but the IRS likes to keep things complicated so I don’t see it happening anytime soon.
Katie, I agree with you. This plan can do good for the country, but I don’t think that politicians will make it happen.
I say the same line too! “Want to buy my house from me at the price you’ve assessed????” Of course, they can’t.
I’ve actually got the gov’t to lower my property taxes three years in a row, and wrote about it on FS. Each year, I battled them by a couple hundred grand. For 2011, I got them down by $288,000. That’s a $3,500 savings. Yeah baby! FIGHT ON!
Sam
That’s wonderful Sam. You certainly know better than I do to convince them. It’s getting harder to get property taxes reduced due to local government budget shortage.
Initially Income Tax was introduced to cover civil war expenses (correct me if I am wrong). It was also said that the taxes would be suspended after the war is over.
You are absolutely right. Due to public opposition, tax was abolished after the civil war. Good point.
[…] A Simple Plan to Skyrocket Your Personal and National Economy The hardest thing to understand in the world is the income tax. — Albert Einstein Do you know what's the biggest marketing ploy ever in American history? You may think of John Pemberton who made Coke household name by trying to sell it as patent medicine. If… Read more […]
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[…] A Simple Plan to Skyrocket Your Personal and National Economy The hardest thing to understand in the world is the income tax. — Albert Einstein Do you know what's the biggest marketing ploy ever in American history? You may think of John Pemberton who made Coke household name by trying to sell it as patent medicine. If… Read more […]
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A few thoughts:
Gov’t would lose some revenue to people taking large purchases overseas (especially of goods that are manufactured overseas and therefore see no production cost savings from this proposal). Probably not a big enough problem to scrap this, but a loophole nonetheless.
Leasing vs. buying would seem to be another loophole.
Would put a lot of accountants, tax software programmers, etc. out of work. From a numeric standpoint the job losses should be more than made up for in other places, and I assume there would be a significant delay before the change would take effect for companies (who need to update their software, pricing calculations, etc.) and employees to prepare for this.
Would gov’t revenue be more or less variable than it is today, as people spend more or less in bull/bear economies?
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