Friday, April 15, 2011

CNBC Documentary Shows Problems with Income Tax Compliance and Enforcement

Last night, CNBC aired The American Tax Cheat, a program produced by CNBC and hosted by Becky Quick. The documentary showed how huge of a problem tax evasion is and how easy the tax code can turn otherwise law abiding citizens into criminals by evading taxes. According to the documentary, as much as $300 billion dollars goes uncollected every year due to tax evasion.

The documentary mostly showed the IRS going after individual citizens. Some of those citizens flat out refused to pay income taxes while others relied on tax professionals that used illegal methods. Either way, the citizens that were caught were penalized severely.

The documentary also mentioned how complex the tax code is, that many taxpayers do not understand the tax code, and that the tax preparation industry rely on the complexity of the tax code. The cost of a professionally prepared return averaged $245, according to the documentary.

The documentary clearly shows the need for the FairTax. The FairTax bill (H.R. 25 and S.B. 13) proposes a national sales tax on new goods and services to replace the current personal and corporate income tax. As part of the FairTax, all households would get a prebate (a rebate paid in advance) every month for sales tax paid for purchases up to the poverty level for that size of household. The FairTax bill also calls for the repeal of the16th Amendment, the constitutional amendment that authorized the federal income tax.

The FairTax compels everyone (citizens, tourists, undocumented persons, and even criminals) in the United States to pay taxes without requiring them to fill out forms. The businesses would collect the tax and submit it to the government. If businesses don’t, the business would be held responsible, not their law abiding customers.

Because individuals won’t have to fill out forms, they won’t have to pay professionals to pay taxes. That money would be better spent taking the family to a ball game, amusement park, or pay other bills.

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