By Warner M. Montgomery

Under the current Tax Code, the IRS spends much of its time chasing tax evaders. It is estimated that up to 22% of income taxes are evaded, ie, not legally paid. There is another $60 billion in non–reported, non–collected taxes.

Using its enforcement authority, the IRS audits thousands of taxpayers each year, over 70,000 last year. In 1997, the IRS assessed over 33 million civil penalties on American taxpayers in an effort to force compliance with the tax system. About 4.1 million were eventually forgiven; however, hundreds of people lost their homes, automobiles, and other property. Scores of people ended up in prison. This is no way to run a democratic republic.

The Fair Tax will end the IRS’s right to intrude into the person and property of American citizens. Since taxes will be collected at the point of sale, individual citizens will no longer live in fear of an IRS audit. Retail businesses will be responsible for turning over the sales tax (possibly 23%) to the federal government. It is likely the Fair Tax will increase tax compliance and reduce compliance costs at the same time.

The number of tax collection points will decrease. Rather than 118 million individuals and businesses collecting taxes, there will only be 14 million businesses collecting and filing taxes. Since there will be fewer taxpayers for the government to keep track of, tax evasion will be more risky and less beneficial for the tax cheater.

Some of the problems related to the underground economy (criminal activity and tax evasion) will no doubt continue, but proponents think hostility to the system will decline. Businesses will not be required to keep anymore records than they keep now. Retail businesses will simply collect the sales tax from its customers and forward it on to the federal government.

For more information: www.fairtax.org or call 1-800-FAIRTAX.

(Next week: Is the Fair Tax a Flat Tax?)