Commentary: In Pursuit of a 'Fair Tax'

Jun 05, 02:02 AM

Current Headlines: By Roth, Allan

I've just finished my first quarter century as a licensed Certified Public Accountant and I'll admit that I can barely do my own taxes. Taxes are now so complex that without great tax software and tax-preparing CPAs as friends, I would be floundering. Current U.S. tax systemPersonally, I've never met a fan of our current tax system. Maybe it's because no one particularly likes to pay taxes, or maybe it's because the tax code has become so mind-boggling that often the Internal Revenue Service won't take a position on an issue. Just when you think your mind can't get any more boggled, along comes the Alternative Minimum Tax and numerous sunset clauses, and planning becomes an exercise in futility.Today, an estimated $250 billion is spent annually in tax planning and tax preparation. That's well over a thousand dollars for every person in the country. And that doesn't count the economic costs for deploying capital in tax-efficient ways rather than in ways that result in the most economic benefit.If we want to make America more competitive in this global economy, wouldn't fixing this system, and deploying countless tax attorneys and accountants toward more productive efforts, be a great place to start?The Fair Tax ActEnter the Fair Tax Act. It replaces federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self- employment and corporate taxes with a simple 23 percent consumption tax - meaning that we pay for what we buy rather than what we earn.The Greater Colorado Springs Chamber of Commerce and the Business Journal were so intrigued with this proposed legislation, that they are co-hosting a presentation by one of its subject matter experts, Dan Mastromarco, on June 13. Mastromarco is a tax attorney and partner of the public policy group Argus. Chamber Business Affairs President Dave Csintyan says that several members of a chamber task force were impressed by the proposal when they met with Mastromarco during a recent trip to Washington. Csintyan says the goal of the presentation, sponsored by Academy Bank, is to inform and educate. Proponents of the act claim the tax is a fair, efficient, transparent and intelligent solution to the frustration and inequity of our current tax system. Some of the other benefits are noted in the exhibit.Embrace imperfection - life isn't always fairNow I have to admit, everything I've read about this tax is good, though it has also been very one-sided. Mark Patterson, a tax manager with Stockman Kast Ryan & Co., notes that no transition to a new tax system can be completely fair. For example, how would you feel if you just paid your taxes to convert your IRA to a Roth IRA, or if suddenly your home mortgage payment is no longer tax deductible?Leslie Nordyke, a local CPA, analyzed the tax and noted that a family of four making $40,000 would actually pay more taxes under the new system. She is all for a more simple and efficient tax code, but said this act may result in higher taxes for the working class.I could go on and on about all of the unfair things about this proposal. The sad truth is that waiting until we have a proposal that's fair to everyone will leave us stuck with our current complex code that increases with complexity every year. Some might say the concept of fair taxes is an oxymoron, or pie in the sky. Regardless, I think we can all agree that we need something better than our current tax code. Something, dare I say it, that we might actually be able to understand.Another possible solution might be to take the Fair Tax Act and build in protection for those that could be harmed by the new tax law. Again, sounds great in theory, but I fear the inevitable result would be more tax code than we have now.The bottom line? If we want to change the current tax code that nearly everyone feels is unfair, we are going to have to embrace some pain in the short-run and that pain will not be evenly shared. Patterson notes that the current system at least offers some predictability. Maybe taxpayers will ultimately prefer the devil we know, so to speak, to the one we don't. I, on the other hand, am a firm believer in the KISS Principle (Keep It Simple Stupid). You say there's a tax that would be revenue neutral and simplify the process, and you can color me on board. Whether that KISS reform could come out of our political process remains to be seen.Allan Roth is a CPA and a certified financial planner. He is the founder of Wealth Logic LLC, an hourly based financial planning and licensed investment advisory firm, and is an adjunct finance faculty member at the University of Colorado at Colorado Springs. He can be reached at 955-1001 or at ar@DareToBeDull.com.

(Copyright 2006 Dolan Media Newswires)

(c) 2006 Colorado Springs Business Journal, The. Provided by ProQuest Information and Learning. All rights Reserved.