Fair Tax Blogburst 29-Aug-2006

Follow-up on last week's Blogburst about the outside collection agencies the IRS is employing to collect delinquent taxes.

On August 23, this was the headline:  IRS Warns Against Phony Debt Collectors.

                                                                                                       

The IRS warned taxpayers Wednesday not to be duped by scammers posing as private debt collectors the agency has hired to chase unpaid tax debts.

                                                                                                      

The program isn't even in place yet and concerns are already being raised, and not just by this Blogburst writer.

                                                                                                      

The Internal Revenue Service designed the debt collection program to minimize that risk "because we know what it's like out there with regard to identity theft nowadays," said Brady Bennett, IRS director of collection.                           

                                                                                                    

The IRS designed the program to minimize the risk.  Well that's comforting.  The IRS is looking out for you.

And this article addresses something I wasn't sure about and that is whether the private collection agencies would have access to social security numbers.  They will.

                                                                                                   

The IRS plans to give the collection agencies basic identifying and account information about the chosen taxpayers, including their names, addresses and Social Security numbers. The agencies do not have access to tax returns.

                                                                                                       

Also from the article:

Identity theives have posed as IRS agents in "phishing" schemes that use the tax agency's logo to lure victims. The e-mail schemes are designed to dupe taxpayers into revealing personal financial information.

The IRS does not communicate with taxpayers through e-mail, and it will not e-mail taxpayers about debts turned over to private collectors. The IRS also does not ask taxpayers for any passwords or PIN numbers that would allow the agency to access bank or credit card accounts.

Bennett also cautioned taxpayers chosen for the debt collection effort to make any check or money order payable to the U.S. Treasury, not a private company, and to send the money to the IRS. The collection agencies have been told to provide addresses to the taxpayers they contact.

This is all well and good but the IRS cautioning taxpayers via articles such as this probably won't be very widely read.  Is the IRS planning to contact taxpayers directly to advise them of this program?  I've not received anything from them.  And from the first line of the article, "The IRS warned taxpayers", how did they warn them?  By telling the AP? 

I read some of the comments last week on blogs that posted the Blogburst.  One commenter responded to the statement I made about our tax information being private by suggesting that since the government knows our tax information it is not private.  Good point, but that doesn't mean I want them passing it out to employees of private companies.  And if we had the Fair Tax the government would know much less about our private financial information.  KnightHawk at PoliPundit had some really good responses to some of the questions raised.  There were some good questions raised and worth a look.

                                                                                                

Now on to this week's blogburst.

                                                                                                 

Our representatives in Congress are finally getting the message that Americans are "fed up" with the current tax code.  The question is, how do we fix it? 

                                                                                                                                        

I contacted my (Alabama) Senators and Representative in Washington to let them know of my support for the Fair Tax.  Three letters, three different responses.  Congressman Spencer Bachus (6th district) is a co-sponsor of the Fair Tax Act of 2005, H.R. 25.  Good news.  Senator Jeff Sessions has not endorsed any specific proposal for reform, but does agree something has to be done about the tax code.  From his letter:  "Most taxpayers that I talk to are not only fed up with the complexity of the tax code, but the enormous tax burden that has been placed on them."  Senator Richard Shelby supports "a flat tax, as opposed to a national sales tax".  I wanted to address Senator Shelby's position because I believe his concerns about the Fair Tax are probably shared by many on Capitol Hill. 

                                                                                              

From his letter:

I support a flat tax, as opposed to a national sales tax, because I believe that the flat tax encourages savings in a more effective manner without leaving the federal budget vulnerable to fluctuations in our economy. Under a flat tax, government revenues would not fluctuate as severely because of changes in the economy as they would with a national sales tax. This is the same problem that many state budgets are facing today because they depend too much on sales taxes.

I'm not really sure about the "encourages savings in a more effective manner", but his concern about the fluctuations in the economy is interesting.  In other words, if our economy slows down the  government should not have to slow down.  Changes, I'm assuming he means negative changes, in the economy would surely affect the taxpayer but he would get no relief from Uncle Sam.  While the taxpayer's personal economy fluctuates (downward), the government keeps right on spending.  To me, this would be a good argument for the Fair Tax.  If the American taxpayer had to cut back and budget better, why not the federal government? But according to a study by American Farm Bureau, #9 in the Fair Tax FAQ, consumption is a more reliable source of revenue anyway.

                                                                                                   

Is consumption a reliable source of revenue? Yes, in fact, consumption is a more stable source of revenue than income. A recent study by American Farm Bureau economist Ross Korves shows the FairTax base is less variable than the income tax base. Why? Because during difficult times due to loss of a job or an inability to work, people may not have as much income, or may have no income at all. They borrow funds or use savings. They may not have earnings, but they still continue to consume.

                                                                                                  Another argument from Senator Shelby:

Additionally, a flat tax better protects poor and low-income Americans because they are not forced to overpay taxes through their daily purchases, and then wait until the end of the month for a rebate check, as many national sales tax plans have proposed. These Americans need this money immediately to pay their bills and meet their needs. Under my proposal, the "Tax Simplification Act," low-income Americans would not have to pay for these distortions in the first place because of a personal deduction that would apply to all Americans.

The Fair Tax proposes a "pre-bate", paid at the beginning of the month.  And low-income Americans would have the same advantage as everyone else, no deductions from their paychecks for federal withholding or social security and medicare.  This is important.  Even if the low-income American has no federal tax withheld, the social security and medicare taxes will still be deducted under the Flat Tax. Currently it is 7.65% and everyone pays the same regardless of income bracket. 

Please follow this link for Senator Shelby's proposal for a flat tax.  It certainly would be better than the current system, but it doesn't get rid of the IRS, it does not eliminate the corporate tax which is a huge plus for the Fair Tax, and it doesn't get rid of the social security and medicare tax.  The Fair Tax does. 

                                                                                                    

The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to host the weekly postings on your blog, please e-mail Terry. You will be added to our mailing list and blogroll.

Comments

[Tamara]

Maybe artists are seosppud to use Schedule E if they work with oil paint? Bank accounts including CDs should be reported to the IRS on a Form 1099-INT, which only shows the interest income. I don't know how they can screw that up. However, anything with a fluctuating share price has to be reported on Schedule D, and you have to keep track of your basis (i.e., the original share price) to determine your profit or loss. Unfortunately I've heard that if you don't record the basis, they will assume that the entire sale is profit even if anyone with half a brain realizes that can't be true. Obviously, that's an incentive to keep good records! If your money market or CD was through a brokerage firm, it might be easier for them to screw up something apparently listed as a sale so they think you should have reported the sale and the basis on Schedule D rather than using interest section of Schedule B. In other words, about the same level of robotic mindlessness as assuming royalties can only mean Schedule E.If you do have good records, it's usually pretty easy to fix mistakes. About fifteen years ago I had to send in copies of my records to prove I had rolled over an IRA within the window; that's all it took to satisfy them that I did not own taxes and penalties for an early withdrawal. Annoying, but not nightmarish. @Philip Owen: You didn't list the specifics of your issue with the IRS, but I'll make one general comment. Like any other organization, there are occasional incompetents who can't seem to understand the simplest things. Unfortunately, when those incompetents have the power to empty your bank account, hilarity does not ensue. If you ever think you're dealing with one of those, I've heard it's a good idea to ask to talk to a supervisor sooner rather than later.