THE COMPTAX
BY
SCOTT L. JENSON, CPA (RETIRED)
In 1998, the US General Accounting Office (GAO) issued a report on "Tax
Administration." In it, an analysis is made of the "Potential Impact of Alternative
Taxes on Taxpayers and Administrators" and criteria were published for
comparing different systems of taxation: "Tax systems are commonly judged and
compared according to four criteria: equity, economic efficiency, simplicity, and
administrability. A tax system is generally considered better than alternatives that
raise the same amount of revenue if it is more equitable, more economically
efficient, simpler for taxpayers to comply with, and easier and less costly to
administer." Judged by these criteria, our present system must be about the
worst system possible (though somehow it keeps getting worse--think "Affordable
Care Act..")
The CompTax, so named because it is a shorter version of "Comprehensive
Tax," is actually a very descriptive name. The CompTax would replace the current individual and
corporate income taxes, the FICA tax (both employer and employee portions of
Social Security), and Medicare tax (both employer and employee portions). Part A
would consist of a corporate-like tax that would be levied on all businesses
including partnerships, LLCs, and individually owned, based on their net income,
calculated based on generally accepted accounting principles. Also allowed as a
deduction would be dividends and owner withdrawals, which would be taxed
under Part B. The Part B tax would be levied on all transfers to individuals (wages,
dividends, interest, etc.), with the proviso that part (or all) of the tax could be
withheld from the individual according to a sliding scale. The rate for the business
would be the same as for the individual. Payments to low wage-earners could
have no tax at all, and payments to the very high-earners would not be deductible
above a certain amount, thus maintaining (or enhancing) the progressive nature
of our present system.
The really great thing about CompTax is that Part B is a tax on a transaction,
much like a sales tax, not a tax on an individual or organization, and it is not an
income tax, per se. The fact that the tax is either withheld from an individual or
paid by the business does not change this important distinction. It doesn't matter
whether the individual is married, single, a homeowner, charitable or any other
particular distinction. If Congress wanted to provide a benefit to a particular
interest group or activity, they would debate it, pass it, and write a check for it, or
fund it some other way. And for 85 percent of individuals, they would no longer
even have to file a return (the other 15 percent are business owners who would
file on their business).
So, how would CompTax be judged according to the GAO criteria? In terms
of equity, there would be one rate for everyone and every organization, but with
allowance made for the very rich and for the poor. In terms of economic
efficiency and ease of compliance, the costs of compliance would be greatly
reduced since the law would be greatly simplified and most citizens would no
longer even be taxpayers, at least not directly, thus saving about $546 billion
annually in compliance costs. These facts, and the
additional benefit of ease of collection, would not only make the administration
of the tax much easier, but it would make the actual collection much more
efficient and successful, thus recouping much of the half trillion dollars annually
the IRS is currently unable to collect. The tax cheats and scofflaws would have a
much more difficult time dodging their responsibility to financially support the
country. Additional benefits are also available, and many of them could be
quantified as the new law is fine-tuned. These include making American factories
more competitive internationally, making labor unions viable again, greatly
reducing our balance of payments deficits, helping solve our immigration
problem, bringing home American money presently parked overseas by US
companies, and stabilizing Social Security and Medicare long-term, to name a few.