A Postscript to Congressman Linder’s Article on the FAIR Tax by Karen Walby, Ph.D

In a recent FAIRtax Friday article by John Linder, he commented that “If we had been under the FAIRtax in 2012, 10 percent of all corporations in America would have collected 89 percent of all the taxes on goods.  These are big corporations with totally computerized ordering and sales systems. It would be difficult for them to help you cheat even if they were inclined to do so.”

I thought you would like to view the data behind that statement since it is key to appreciating how the FAIRtax will improve compliance and reduce tax evasion.

The IRS has a Corporation Statistics Program which produces estimates of the various line items on the U.S. Corporation Income Tax Return (Forms 1120 and 1120-S).  The data presented below are based on a sample of the actual returns of all active corporations for the 2012 tax year.

The IRS classifies corporation tax returns by the size of business receipts.  In the table below we have consolidated the data for both C and S corporations* that are in the Wholesale and Retail Trade industry.  Since the FAIRtax does not tax sales to businesses, it must be noted that the IRS does not report data separately for retailers and wholesalers. This is not surprising since there are many wholesalers who also sell at retail:  many building supply and hardware stores sell both to construction subcontractors as well as to “do-it-yourselfers.”  However, these data should still be representative of the percentage of retail sales done by large businesses.

The table shows the number of corporate tax returns and the business receipts (sales) for each business size category.

There are 5.2 million corporations engaging the Wholesale and Retail Trade industry with combined sales of $14.6 trillion.  Ten percent are corporations with greater than $2.5 million in annual sales.  These Top Ten percent account for sales of $12.9 trillion.  That’s 89% of total sales in the Wholesale and Retail Trade industry.  Clearly the large corporations dominate the Wholesale and Retail Trade industry.  These corporations are going to accurately report their sales and the sales taxes collected on them.

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We also want to note that there was a typo in Linder’s same article.  Thanks to the reader who pointed it out.  [We do read your comments.]  The article referred to a “74,000-word code.”  That should have read “74,000-page code.”  That number includes all the IRS code, regulations, and IRS rulings.  But the typo begged the question:  Just how many words are there in the tax code?  TEN MILLION.

The Tax Foundation recently calculated the number of words in the income tax code and regulations (excluding legal rulings) to be more than 10 million.  The King James Version of the Bible has only 783,137.  And in contemporary literature, the very popular seven volume series of Harry Potter novels amounts to only 1,084,170 words.   It is no wonder that the code is incomprehensible, even to tax experts.  It takes no less than wizardry to understand it!

ABOUT KAREN WALBY, PH.D.

Karen Walby, Ph.D., is the Director of Research Americans For Fair Taxation

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