Simplification of the Tax Code: Is Consumption Tax the Answer?

Last updated on June 19, 2022

It is becoming increasingly difficult not to see how the complexity of the tax code is adversely affecting tax collection. Most taxpayers find it difficult to understand taxes and use the help of tax preparers to prepare their tax returns. Because of the complexity of the tax code, many businesses find loopholes in the tax code to minimize their tax rate or evade taxes in the U.S.

The answer to the problem of the complexity of the tax code can be many, but apart from making the tax code simpler, they must also make it more effective or retain its present effectiveness. The Fair Tax has been proposed by Congress as a way to increase revenue and make taxes simpler. The Fair Tax is a tax system where taxes are charged on spending, not income. It has been debated that the Fair Tax would broaden the tax base, remove all complexity from the tax system, and increase revenue.

Those who oppose the consumption tax quote that implementation of the Fair Tax would be very difficult, as taxing every commodity and service is a gigantic task. Furthermore, they believe that a tax system based on consumption does not lead to increased in revenue. As taxes are collected from retailers, businesses could find ways to evade taxes by using limitations within the tax code, which could lead to widespread tax evasion.

With many fearing the Fair Tax that could be fatal in a recovering economy, the proposal may face tough opposition in Congress. However, minor changes in the tax code to block the most exploited loopholes is still a priority in Washington.