What is the Fair Tax?
The FairTax is a proposed federal sales tax that would replace the federal income tax and abolish the IRS. It is not sponsored by either party and is neither a Democrat or Republican issue. Under the FairTax, there would be a 23% sales tax on all new items purchased. If this plan was instituted, it would replace the federal income tax as well as the social security and medicare taxes among many others. This would mean that these taxes would not be taken out of your paycheck before you even get to see it. The idea behind the FairTax is to put the people in charge of their own money. Under the FairTax, the people would have a stronger control over their own money and it would also help pull companies back to the United States rather than forcing them to go overseas. This would help the economy which would indirectly benefit every American.
Where did the FairTax come from?
Tax reform is not a new concept and has actually been a major issue in presidential campaigns since the early part of the 1900's. There have been many proposed tax reform concepts on the table from a flat tax to a VAT and to a national retail sales tax. The idea for a national retail sales tax has been around in some form or another for quite some time. But where did the actual idea for the FairTax come from? Three businessmen in Texas put over $4 million to researching a more effective system of taxation, and the FairTax is what they found to work. They used some of the top economic analysts from Harvard, Stanford, and MIT to create a system that 89% of people who were properly informed of it seemed to prefer of the current tax system.
What would the FairTax change?
The FairTax would replace the individual income tax, the gift tax, the corporate tax, the capital gains tax, the estate tax, the payroll tax, the self-employment tax, and the alternative minimum tax and it would estabish a simple sales tax instead. In addition to simplifying the tax system, the FairTax would disband the IRS, which spends over $10 billion to operate each year. Each year, American people spend approximately $200 billion in the process of filing taxes. With the amount saved from only this, we would be able to feed, clothe, and educate every starving person in the world.
Opposition to the FairTax
It will be impossible to enforce it.
Actually, with the tax system being based on a sales tax, it will run the taxes through coorporations which will narrow the range of people that the government has to monitor in order to collect the taxes. Under this system, it would be much harder for the millions of Americans to find a loophole and avoid the nearly $350 million that are not collected under the current tax system. This will all occur because individuals will no longer file taxes, but instead, all the taxes will be taken out of sales.
The FairTax will not be revenue neutral at only 23%.
The truth is that the studies that were run that came to this conclusion were not run with the actual FairTax system. The President's Advisory Panel on Tax Reform, which is the group that ran this experiment, created their own version of the FairTax rather than what has actually been printed in the legislation that would institute this tax reform. If you were to take the same study and plug in the real FairTax, not only would it be revenue neutral, but it would also generate a slightly higher income for the government.
The FairTax would put a greater burden on the lower class.
Once again, opposition has fallen short of dismounting the FairTax. Under the FairTax, the government would reimburse every American one and a half times the poverty level. This means the government would pay for food, clothes, school supplies, and other necessities that the American people need. The FairTax also eliminates all taxes for Americans living below the poverty line. In addition to this, those who live at below twice the poverty level would pay a reduced version of the FairTax which would only require a 12% tax, which makes it impossible for a larger burden to be placed on the lower class. Also, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free. Seems like it would be pretty hard for these taxes to repress those in the lower class because it actually gives them a bigger break than they get now.
"About the FairTax." Americans for Fair Taxation. August 1995. June 2008. http://www.fairtax.org/site/PageServer?pagename=about_fairtax_four#enforceable.
Gullet, Joseph. "What is the Fair Tax." The Fair Tax Revolution. March 2008. http://www.fairtaxrevolution.com/about_the_fairtax/info_desc.asp.
Longley, Robert. "Is a 'Fair' Tax in America's Future." The New York Times. May 2008. http://usgovinfo.about.com/cs/taxes/a/aafairtax.htm