The FairTax Act (HR 25, S 1025) is currently in the House Ways and Means Committee.
It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.
The American taxpayer has an excellent opportunity
to take control of his federal tax burden and take home his entire paycheck (minus any state or local deductions.) This opportunity also presents a means of funding Social Security and Medicare while allowing companies to invest more into growth and increased pay for their employees. This opportunity is known as The Fair Tax.
The Fair Tax Act of 2007 (HR 25) would abolish federal income taxes, payroll taxes, Social Security contributions, and Medicare contributions. The revenue to operate the federal government would be generated by a 23 percent tax on purchases of new items. This 23 percent national sales tax seems like a large number at first glance but upon closer examination it becomes an attractive alternative to the existing quagmire that is the federal tax code.
A major initial concern with the implementation of a national sales tax is how it might affect poor families and those on fixed incomes. The tax burden on the poor is addressed by The Fair Tax in a couple of ways. The first and most important relief is provided in the form of monthly prebates to every household that meets the criteria of having valid Social Security numbers for each member and that each member is a legal U.S. resident. The prebate schedule for 2007 shows, for example, that a two adult household with two children would receive a monthly check of $525 to offset the taxes on necessities.
Another important form of relief that applies to every taxpayer is the elimination of taxes on used items, including real estate and vehicles. Only purchases of new items by the end user are taxed. This not only enables all people to choose their own tax burden based on their purchasing decisions, it also eliminates taxes on business to business transactions. By having a flat tax on the sale of the final product, companies can pay less for raw materials and components and therefore charge less and invest in higher quality and development. American made products become more competitive internationally once the excess taxes are removed. Increased competitiveness of American products naturally leads to improved American job security.
The American economy stands to grow in a system that encourages higher wages, lower prices, and product innovation. The quality of life in our nation is bound to improve across the board as we have more of our own money to spend as we wish while fully funding the federal government’s obligations. It is important to realize that this plan eliminates the concern about the viability of Social Security.
The elimination of federal taxes on the purchase of used homes will make home ownership more affordable. New construction can also be more affordable given the fact that the materials used by the builder are not subject to taxation. Additionally it may be easier to buy a home considering the fact that savings and the interest gained by savings are not taxed.
The Internal Revenue Service is abolished along with the income tax. A decrease in federal bureaucracy means more efficient use of tax dollars and an elimination of loopholes and tax shelters. People will have a difficult time cheating the system once the tax code becomes as open and simple is it would be under The Fair Tax. The playing field is truly leveled and those that wish to spend more on new items will pay more in taxes.
This plan eliminates the practice of punishing success while allowing every American man and woman to have more control of his or her own money. How many people in our society believe that the government can better distribute a large portion of their paychecks than they can themselves? How many citizens of our nation believe the government uses our money in wise and efficient ways? Freedom is enhanced when individual citizens have increased control of their own lives and fortunes. Control can be shifted to the people and The Fair Tax would be a great first step.
at my new job, looking at the list of federal and state taxes that were taken out was a bit depressing. Yet, I was never one of those people that got upset with the IRS or with paying taxes in general. The revenue from taxes is used to fund many important functions in our society and without this revenue, our nation would be without many valuable services.
However, I do understand the mass confusion that surrounds filling out tax forms, especially for those with businesses and many assets. In law school, federal tax was a class I successfully avoided because of the horror stories of former students. If some future tax attorneys found the federal tax code daunting, how could Congress expect everyday Americans to understand it? Indeed, there is a need for an overhaul of the U.S. tax code. There have been a multitude of proposals for such reform. One proposal, The Fairtax, advocated by talk show host Neal Boortz, is popular among the conservative and libertarian set. Yet, this plan appeals to peoples' base anger at money being taken out of their paychecks and uses simplistic economics as a fix to the broken tax system in America. You don't have to be a tax attorney to see how this "fair" tax system could not work.
The FairTax plan states that there will be a 23-percent (of the tax-inclusive sales price) sales tax imposed on all retail sales for personal consumption of goods and services. No more taxes will be taken out of one's paycheck each month. First, proponents' math is wrong. Using all-inclusive figures, a 23 percent sales tax on the tax-inclusive sales price is equal to a 30 percent tax on the actual price of the item. On the website www.factcheck.org, the author states to receive $23 in takes on a $77 item, the government must impose a 30 percent tax.
The next hallmark of the plan is what is known as a "prebate." Each valid Social Security card holder and valid U.S. resident receives a monthly rebate to held with necessities of life. For one person the monthly prebate is $196. This prebate would be put in place so the poor would be able to afford necessities. Even billionaires get rebates. The prebate program would be one of the largest categories of federal spending. Billionaires receiving checks from the government to help with the necessities of life? How does that make sense?
Hence, a tax on goods and services and prebates to help offset the higher costs of goods, plus you get to keep all of your paycheck. That sounds like a great proposal I would have written in the fifth grade. Unfortunately life is not that simple. There is no proof to show that this 23% (more like 30%) tax will generate enough revenue to support all of the programs, including police, fire department, and social service programs, that our current tax system supports (although still on a shoestring budget). The prebate program entices people with the thought of checks in the mail each month. Why do families who are upper to higher class need these prebates? Will these prebates sustain poverty level families whom struggle to pay high prices for basic needs? How can the U.S. government afford to add another program to spend money on that will be its new biggest spender?
It's apparent the tax code needs reformed. Yet, let's leave it to those educated in the tax code and economics. Not those who believe that incredibly non-sensical ideas will keep the country running smoothly. Yet, that seems to be in fashion these days.
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