The opposition, Romney/Ryan team did not come back with this common sense answer to their allegations and misconceptions: If the tax code is unfair, why do we still have it? It was declared by the Supreme Court in 1895 that the Wilson-Gorman Act was unconstitutional because it was a “direct tax” and other factors in their decision. It was a tax that levied 2% tax on income of $4,000 or more, which was 2% of American taxpayers. The tax was also applied to net profits of corporations, companies, and associations. In constitutional arguments in Pollock v. Farmers’ Loan and Trust Co., the plaintiffs insisted that the income tax was a direct tax, the law taxing real property, which was equivalent to a property tax and a direct tax. Article I, Section 9, United States Constitution:
No capitation or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration …
…all Duties, Imposts and Excises shall be uniform throughout the United States.
This means that the present tax code of progressive tax rates according to income is unconstitutional because it is not “uniform” like a flat tax would be. To make a long story short, the Wilson-Gorman law was thrown out by a 5-4 Supreme Court justice vote. They declared that taxes on income were constitutional.
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Therefore, because of the 16th Amendment, the income tax is constitutional. However, it still remains to be overly complicated (not even folks at IRS understand it fully), inefficient (too many loopholes), unfair (not everyone pays the same tax rate), and intrusive – what right under natural law does any person, entity, or government have to take a portion of wages you have earned before you get to spend it and decide when and where it is to be spent? It is an immoral tax and a tax that taxes money several times – “taxation upon taxation”.
… I’m trying to point out a travesty of modern finance: the unequal treatment of debt and equity, better known as the tax-deductibility of interest. Thanks to interest deductibility, our tax code unfairly benefits companies that lever themselves to the moon — e.g., big banks — while putting those who choose equity financing — like Apple — at a comparative disadvantage. And the disparity is real. The Congressional Budget Office finds that equity-financed corporate investments pay an effective tax rate of 36.1%, while debt-financed investments pay an effective tax rate of -6.4%. Yes, that’s a negative tax rate for debt-financed corporate investment. Taxpayers are paying corporations to lever up. It’s totally unfair and unwise.
Under the FairTax, the corporate income tax, dividend tax, capital gains tax, payroll taxes, and individual income taxes (including any taxes on interest) would be completely eliminated. Instead, a national sales tax of 23% would be levied on all new goods and services. An “advanced refund” mechanism would also be put in place to ensure that the tax does not hurt those below the poverty line. I’m not the best one to explain the details, so I recommend checking out the FairTax website. If nothing is taxed besides sales, there can be no perverse tax incentives to lever or de-lever. Debt and equity are truly on an equal footing, as they should be.
The Fair Tax Act would:
- Create a level playing field in taxation.
- Encourage people to save.
- Actually increase the revenue for government.
- Forcing Congress to maintain a fiscal budget by reducing spending because they can only spend according to that budget. (this part would have to be incorporated with a constitutional amendment that directs the action)
- It will remove all loopholes, as well as the expense of government to counter tax evaders.
- The tax code laws will be simple and consistent. Every year tax rules change in order to please one group or another, yet providing a barrier to another group in keeping ahead of the earning versus tax rate.
- Taxes will be based on what people purchase, not what people earn – no need for loopholes.
- Government would save millions on paperwork and auditing would no longer be required, which means the IRS will become just a small auditing department and lose its abusive powers.
In the aforementioned explanation, I demonstrated that some corporations do get over on taxation the way the present system works. The Fair Tax Act of 2011would automatically, even at a flat rate across the board, receive more tax funding from the wealthiest and be fair for those who are within the “poor” income bracket. The more income one has the more money is spent, therefore the “wealthy” will pay more in taxes and the class envious will have nothing to whine about.