A More Fair Tax

April 15th has come and gone, and it is always a reminder of how much money our government takes from us–assuming you are one of the 50% who actually pay income taxes.  Yes, just under 50% of Americans pay no income tax. This would help explain why a recent poll showed that about 50% of Americans think that the taxes they pay are just about right. If you’re not paying anything, I guess that would seem just about right to some folks.  Of course, this puts an undue burden on the other 50% of Americans who are paying for all the federal services that 100% of American’s enjoy.

We need to do something to make the tax system more fair and less complicated. Our current system of taxation punishes hard work and success. The harder you work, the more money you make. The more money you make, the greater percentage of that money is taken by the government. With the Obama administration’s mentality of wealth redistribution, coupled with new taxes for Obamacare, it’s only going to get worse.

I really like the Fair Tax. It is well thought out, and solves several problems, including the inequities and punitive nature of the current tax code for both businesses and individuals. In fact, 22 million dollars has been spent to research the Fair Tax legislation and what would be required to replace our current income tax. Since we can barely get our representatives to read the legislation they vote on, this alone is a good reason to seriously consider it.

How does it work?

The Fair Tax is fair because it is a consumption tax. You only pay taxes when you buy something. It doesn’t matter how much money you make. So, if you go out and buy a new gadget like an iPad, you pay the Fair Tax. If a billionaire goes out and buys a yacht or a private jet, he or she pays the Fair Tax.  The Fair Tax also means that people who today do not pay any taxes on their earnings will also contribute, where they would not under the current income tax system. For example, an illegal alien who buys a TV would pay the Fair Tax. A drug dealer who buys a new car would pay the Fair Tax. A tourist who buys clothing or other goods while they are over here in the US will be contributing to the Fair Tax.

How Much?

The Fair Tax is a straight 23% sales tax on all new items purchased. That may seem like a lot, but you have to remember that the Fair Tax would replace all the other federal taxes that you pay today, including the Federal Income Tax, Social Security tax, Medicare, Estate Taxes, Gift Taxes, Capital Gains Tax, the Alternative Minimum Tax, and Corporate Taxes.  So, to start out with, you keep your whole pay check. You’re probably paying 15% to 25% in income taxes alone now. It also means if you invest some of the money that you earn, you get to keep all of your gains. You only pay taxes when you spend the money you earn.

What’s more, it would not take long before the cost of the goods and services we all buy go down about the same amount as the Fair Tax. This means the cost of goods and services will be about the same as they are now, even with the Fair Tax added in. The reason for this is that every company that touches a manufactured good embeds about 22% into the cost of producing that product. They have to do this to cover the corporate taxes that they must pay today. It’s a myth that taxing a corporation places that burden on the corporation rather than the public.  Corporations do not pay taxes, people do. Corporate taxes are passed on as higher prices, lower wages, or lower returns for investors.  Once the Fair Tax kicks in, corporate taxes will go away.  You might think that businesses will just keep the 22% savings for themselves. But, free market forces will quickly drive businesses to lower their prices. As one company lowers their price to gain a competitive advantage, others will follow.

Isn’t the Fair Tax Unfair to the Poor?

Actually, those who are poor actually do better than everyone else under the Fair Tax, since you are only taxed on what you buy, and wealthy people buy a lot more stuff. To protect the poor, there is a provision in the Fair Tax that covers the tax that would be paid on the basic necessities of life. This is not a hand out. Under the Fair Tax, every family, whether rich or poor, will receive a prebate check each month that is enough to cover the taxes that would be paid on essential expenses like food, clothing, etc.  For example, a single person would receive a check for $208 at the beginning of each month to cover the taxes they would pay for necessities. A family of four would get a check for $559.  The amount received is the same regardless of how much money that individual or family earns, how much they spend, or what they spend it on.  You still have to pay the Fair Tax on things like food, but you will receive a check to cover the taxes on those basic necessities for a family of your size.

So, with the Fair Tax, rather than having half our population paying no taxes like we have today, everyone will pay based on what they consume beyond the basic necessities of life.  The poor family will not need to worry about paying the Fair Tax on essentials, since they will get a check to cover that each month. If they only buy the essentials, they will be paying no net taxes, and if they are frugal, they will even get more from the government than they pay in taxes. But, if they pay for their essentials, and decide they also want to  buy a big screen TV, they will have to pay the Fair Tax on it just like you and me. That’s why the Fair Tax is fair.

April 15th — Just Another Day

Collecting and complying with the Fair Tax is also easy. No more complicated tax forms that take hours or days to complete. No more IRS. Instead, retail establishments collect the Fair Tax and send it to their state government, which forwards the tax to the US Treasury. There is no huge bureaucracy needed. Compliance costs for Americans, which have been estimated at 265 billion, will be all but eliminated.

Sounds great, doesn’t it.  What can you do?  First, learn everything you need to know about the Fair Tax at FairTax.org.  Then, find out where your local representatives stand on the Fair Tax. Do what you can to elect people who are in favor of it, and spread the word to others.

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