Goal: Reduce Compliance Costs
Changing the progressiveness of the income tax, short of making it flat, will have little to no effect on compliance costs. You see, compliance costs are related to such things as increases or decreases in paperwork, the need for more or less tax accountants and of course, records retention requirements. Changing rates doesn’t change any of those compliance costs.
A flat income tax that has a corporate or payroll tax component will have somewhat lower costs associated with it. However, since businesses generate income in many ways, they have much higher compliance costs. In fact, just the record storage requirements for businesses, under any form of corporate income tax, are always significant.
By contrast, the only costs associated with a flat income tax that excludes corporate and payroll tax components are related to record storage for 135 million individual taxpayers, whose storage requirements are generally limited to only a few file boxes. However, that’s only if such a flat income tax doesn’t tax savings and investments. But as mentioned earlier, this’s quite unlikely. Still, we gave it four stars.
9-9-9 inherits the very high compliance costs of both a personal and a corporate income tax, and then goes on to actually add a layer of additional, albeit minor, compliance costs, related to the sales tax. But even without that small extra layer of costs, 9-9-9 still fails to have any effect at all on reducing compliance costs, due to all the compliance issues of the current system that 9-9-9 inherits.
On the other hand, the only compliance costs associated with the FairTax are related to record storage and then, only for about 8 million retail businesses, plus an insignificant cost to update cash register software. Moreover, the only retained records that are required for the FairTax are those pertaining to retail sales and most of that will be automated in the cash register or in the sales software. In most cases, a company’s bookkeeper will be able to handle the FairTax and no tax accountant will be needed.
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