UPDATE: I have edited the FairTax information to reflect what is in Congress as of April 2013
Below is a guest post from someone who is more of an Income Tax thinker, than a FairTax thinker. I picked this post up because I wanted to help educate the individual on the FairTax; and because he seems genuinely willing to learn. I will leave my comments below and I hope others do too. After all, if we are going to educate people on something, should we not be educated on the subject as well? ~Robert Williams
Is the Fair Tax really going to be fair for boosting America’s future?
Are you someone who thought that the Flat Tax was a brilliant idea that failed? If answered yes, you’re probably going to love the Fair Tax. The Fair Tax is the “let’s dump the Tax code” idea from the Congress that plans to abolish all death taxes, federal income taxes, capital profit taxes and payroll taxes to replace it with a national retail sales tax. A group, well known as the Americans for Fair Taxation introduced the Fair Tax Act of 2003 that would call off all the aforementioned taxes and replace it with a single tax of 23% that will be administered by the present sales tax authorities.
Don’t you think that a flat 23% tax would have a drastic detrimental impact on the poor people? Yes, due to this gross indiscrimination the Fair Tax Act proposes the poor people to pay a rebate that is equivalent to 23% of the poverty level. As per the Department of Health and Human Services, the guideline for poverty for a family of 4 in 2008 was around $21,200 and this means that a poor family with 4 people will receive a check of $525 a month in order to be able to cover the costs of the sales tax.
Is the Fair Tax really fair for the American economy?
As per Linder, an economist, the Fair Tax momentum continues to build fast and this means that this particular Act is gradually gaining the support of the lawmakers. The bill now has 21 co-sponsors and all of them represent a bipartisan coalition of members throughout the nation. However, according to Linder, the present tax code highly violates the principle of equality as special rates for the special circumstances actually violate the original Constitution and therefore it is unfair. But after the implementation of the Fair Tax Act, each and every tax payer will require paying the same rate and will also require controlling their liability through their expenses. The tax paid by an individual will entirely depend on the lifestyle that he spends as the more money you spend, the more tax you’ll have to pay.
Advantages of the Fair Tax Act and studies that are in favor of it
Well, the most obvious advantage of the Fair Tax Act is the removal of the annual income tax headache and the cost that you have to pay to the tax preparers. By eliminating the Internal Revenue Service, government spending would also be reduced and some other proponents even argue that an increase in consumer spending would lead to an improved GDP, wages and productivity of jobs.
Without closely determining the assumptions and the calculations of each study about the pros and cons of the Fair Tax Act, it is tough to understand the way in which the Fair Tax Act will impact the US economy. If this Act is ever passed in the nation, the implementation has to be slow enough so that the performance can be easily evaluated. A gradual and slow shift from income taxes to the fair tax would be the best way out. A huge and fast change may make this entire plan unworkable.
Jason Holmes is a regular writer with Debt Consolidation Care and is also a contributory writer with other financial sites. His expertise is woven around various aspects of the debt industry and with his e-books he tries to impart to people the different situations and simple solutions to get out of difficult situations. Some of his works include e-books like ‘Credit Score The Quintessential Therapy for a Happy Pocket’, Take Creditors and Collection Agencies to Small Claims Court’ and, My Story- From Depression To a Smile’. Follow us on: http://www.facebook.com/debtconsolidationcare
To answer your two primary questions: YES and YES. If those two answers weren’t clear enough after you read the Bill, then you don’t know the FairTax as well as you think you do.
1. Jason says: “Are you someone who thought that the Flat Tax was a brilliant idea that failed?“ NO! And I can almost assure you that most people who are FairTax supporters now, understand why a flat tax system was (and still is) a HORRIBLE IDEA; the main reason being a flat tax is still a tax on income. That means it leaves in place the IRS, the Capital Gains taxes, estate taxes, and a number of other mechanisms that the FairTax eliminates.
2. Jason says: “The Fair Tax is the “let’s dump the Tax code” idea from the Congress that plans to abolish all death taxes, federal income taxes, capital profit taxes and payroll taxes” WRONG! The FairTax is NOT from Congress. It is a Bill in Congress that was adopted by a couple of Congressmen interested in bettering America. But it was NOT written, created, or even crafted by Congress. The FairTax is a product of 5 businessmen from Houston, TX who were fed up with trying to reduce their taxes and not enough time trying to grow their businesses.
3. Jason says: “…introduced the Fair Tax Act of 2003“. Actually, the FairTax was created in 1995 and debuted in the 106th Congress in 1999. It has been in every session of Congress since then and continues to pick up momentum. The current bill is named “The Fair Tax Act of 2013”, is number HR-25 in the house, and S-122 in the Senate. It also has a companion bill that will repeal the 16th Amendment to the US Constitution named HJ Res 16.
4. Jason says: “Don’t you think that a flat 23% tax would have a drastic detrimental impact on the poor people?” Can we back up a couple of lines? As you stated previously (I copied it into my response #2), The FairTax “plans to abolish all death taxes, federal income taxes, capital profit taxes and payroll taxes“. So does it make sense to you that replacing all those taxes (and more) with a 23% consumption tax would ADD a 23% burden to poor people?
It doesn’t make sense to me at all, here’s why: The vast majority of poor people work for a living. They earn a paycheck from an employer who is required by law to take an remit certain taxes to the federal government. Depending on the wages being earned, that could be 10% or 15% for the income tax and another 7.65% for the payroll tax. If those taxes are no longer being taken from them, then they have received an immediate payraise of 17.65% to 22.65%. That right there is more spending power in their pockets immediately. On top of that, the FairTax advances us on all of the taxes we pay, based on the Dept. of Health and Human Services National Poverty Guideline (NPG). So, a family of 4 (this is an average household in America) will receive an additional $564/mo to help them OUT of poverty. So I hope Jason sees where his statement is incorrect.
5. Jason says: “As per the Department of Health and Human Services, the guideline for poverty for a family of 4 in 2008 was around $21,200 and this means that a poor family with 4 people will receive a check of $525 a month in order to be able to cover the costs of the sales tax.” That is partially correct. Let me explain. First, your numbers are a little off, but I understand where you’re going. As you read in my last comment the number has increased with the fluctuating economy. It will continue to do so after the FairTax, but in the opposite direction. As the economy gets better, the poverty guideline will lower, ultimately reducing the amount of money shelled out to lower-income families.
Second, that value IS the amount of taxes that a family of 4 spending AT the poverty level would spend. In 2011, the Family Consumption Allowance for a family of 4 was $29,420. Multiply that by the FairTax rate of 23% and you get $6,766. Divide that by 12 and you get $564/month. You can do this with any family size. As you can see, the FairTax UNTAXES every legal, registered, US family up to the National Poverty Guideline. So does it make sense for anyone to say that the FairTax only helps those spending less than $15,000? No, it doesn’t.
Jason says: “The bill now has 21 co-sponsors and all of them represent a bipartisan coalition of members throughout the nation.” I think you’re reading the wrong version of the Bill entirely. The current version of HR-25 can be found here and now has 63 Co-Sponsors (and the 1 Sponsor). The Senate version, S-122 can also be found here and has 7 co-sponsors (plus the 1 Sponsor); which gives us a total of 72 supporters in Congress; the HIGHEST number of initial co-sponsors in its history.
Jason says: “If this Act is ever passed in the nation, the implementation has to be slow enough so that the performance can be easily evaluated. A gradual and slow shift from income taxes to the fair tax would be the best way out. A huge and fast change may make this entire plan unworkable.” I disagree with that 100%. I hope others who disagree will also voice exactly why they do so. A “gradual and slow shift from income taxes” would mean that something is left in place. If we leave anything in place for our corrupt politicians to toy and tinker with, they are going to screw something up. We DO NOT want to give Congress the power to tax us on both our income and on consumption. They can already do that now IF THEY WANT TO. The reason they aren’t is because it would be political suicide to even suggest anything like that. However, if we HAND them that ability, by allowing them a “gradual and slow shift from income taxes”, then there is no way we will have a completed process….E-VER! What we need to do is follow the FairTax, AS WRITTEN! The FairTax will immediately rip out ALL of the income tax code, rules, and regulations. It will switch to a consumption tax system on 1/1/20xx of the year following its passage, and it will then set in motion to abolish the IRS within 3 years. Over $22,000,000 went into the research of what the FairTax is, what it will do, and how it will work. Let’s not screw it up by handing Congress the keys to the Lamborghini.