Yesterday morning, I went to a charity breakfast for an outstanding organization in Chicago called "Ladder Up." The purpose of the organization is to encourage some of the best legal, business and government professionals in the Country to assist low-income citizens file their income tax returns for free. Ladder Up's simple idea has translated into $147 million in economic benefits for 84,000 hardworking Chicagoland families by engaging 1,800 volunteers each year.
At this breakfast, I heard story after story of how Ladder Up was able to save a hardworking family thousands of dollars in tax refunds, which were withheld from the individual by the federal government. Amazingly, as a result of failing to file several years in a row, one family was owed $10,000 from the government! Imagine how that one filing literally changed that family's life.
While I sat back and listened to each generous professional speak at the podium, I could not help but wonder if the politicians in Washington, D.C. realize how they are literally creating poverty via our tax system? Aside from the day-to-day struggle that these low-income families face, they have the additional stress of not being able to understand the tax code well enough to receive their own money back from the government. Is the long-term solution to this problem having our best and brightest volunteer their time to file income tax forms?
There is a simple fact that America will no longer be able to maintain the most robust economy in the world if each year our most intelligent and educated citizens spend their manpower figuring out what they owe to the federal government. Instead, we want those individuals doing productive activities like creating new jobs, businesses and developing new technologies.
Ironically, one of the speakers at the breakfast explained that Albert Einstein, who brought us the theory of relativity, could not understand the income tax code. So wouldn't the clear solution to this problem be fixing the tax code? I felt the incredible urge during the speech to raise my hand and shout, "Wait, I have an idea…"
In fact, I've been studying several tax code alternatives over the last few years, and the FairTax would certainly solve the problem that Ladder Up is trying to remedy. The FairTax eliminates all federal taxes, including the income tax, thereby lowering the price of all goods and services that embed these costs. It would then replace all those taxes with one 23% sales tax, bringing the price of goods and services back to where they originally were.
To prevent people accusing the sales tax of being regressive, every household would get a check in the mail at the beginning of each month for the cost of living up to the poverty rate. That would ensure that the poor are not taxed. Best of all, there would be no more income tax filings that low-income households would need to learn. In fact, all citizens would keep 100% of their income, so there would be no withholdings either.
I am sure after reading this that some may still favor a simplified Flat Income Tax. But, that argument is for another day. I am merely basing my assessment on the problem that I witnessed this morning at a breakfast among charitable individuals who want to assist the poor.
It is quite simple: If the problem is that lower-income families cannot understand how to file an income tax return, the best solution, if possible, is to eliminate the filing requirement. Only the FairTax offers that option.
Nevertheless, until that day when we actually reform our tax code, organizations like Ladder Up are necessary to help needy families obtain what they are entitled to under our tax law. Still, that does not mean that we should be satisfied with the status quo. If the government is creating poverty, limiting the governmental harm at its source should be a top priority.
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