For several years now a few brave members of the US House of Representatives have been trying to pass the little publicized HR 25, a bill which seeks to change forever how we pay our federal taxes. In popular speech it is known as the Fair Tax Bill. The same or a similar bill is before the United States Senate.
The Fair Tax is not a flat tax. A flat tax is perhaps fairer than our present income tax system, but a flat tax continues to tax income. The Fair Tax in HR 25, on the other hand, is a tax on services and new goods purchased at the retail level, a type of retail sales tax. And since wealthy people buy more stuff and more expensive stuff than the less well off, the Fair Tax is a tax on wealth and on the wealthy. * It is also a tax on people who ignore the present income tax system, such as drug dealers and undocumented workers.
With the passage of the Fair Tax, all income earners in the United States would receive 100% of their income, minus any voluntary or state withholdings, with absolutely nothing withheld at the federal level. The 15th of April becomes just another fine spring day.
The Fair Tax also eliminates all corporate taxes, all inheritance and gift taxes, all taxes on interest or dividend earnings, and any and all taxes based on earnings.
A tax on consumption rather than income, the Fair Tax is 23% "inclusive" in the price of all new goods and all services, including groceries, car repairs and doctors' visits. For instance, you go to your big box store and buy a lawnmower priced at $1000.00, you hand the cashier $1000.00, and the store keeps $770.00 and remits $230.00 to the US revenue service (perhaps each states sales tax division will administer this). Then you recall that you have no way to get the mower to your house. So you write a check for $100.00 to have the store deliver it. The store takes your check, thanks you, and transfers $23.00 of it to whatever agency will get it to Washington. And, oh yes, they deliver your lawnmower.
One argument we all hear against the Fair Tax is that it puts an additional burden on the poor, because many of them presently pay no income taxes, and suddenly they will have to pay nearly a quarter of what they earn on everything they purchase. There are at least four reasons why this is not so:
(1) Although it is true that many low income workers do not pay income taxes, they do pay other payroll taxes such as social security and Medicare. The Fair Tax eliminates these payroll taxes.
(2) There would be little or no increase in the price of goods or services. Good competitive businesses pass much of their savings to their customers. The Fair Tax would make it less expensive to run any business, because a business would no longer have to spend big bucks just to comply with our present complicated tax code. As a result prices would come down. And even with the 23% inclusive tax, the price of a hundred dollar item or service would remain close to $100.00.
(3) People of limited income buy a considerable amount of pre-owned stuff, especially large items such as cars and furniture. Used goods are not taxed.
(4) At the beginning of each month the federal government would send a "necessity based" pre-bate to every person who is registered. For instance, if the government determines a single person requires $12,000.00 annually to provide life's necessities, they would send him or her $230.00 per month. That's is an additional $2760.00 per year, a tax free pay raise which many of us would welcome. And that amount would be a boon to retirees, many of whom now actually pay income taxes on a substantial portion (50% to 85%) of their social security benefits.
Critics remind us that the Fair Tax is lends itself to fraud. Perhaps it does, but certainly no more so than our present system of taxation. With the income tax only one person has to know if he or she chooses to cheat; with the Fair Tax, at least two people would have to know, making it a bit more risky. Most legitimate business people would think twice before risking prison or a huge fine over such an easy way of feeding Washington's appetite.
One of the greatest advantages of the Fair Tax is its simplicity. Each business remits to the federal government 23 cents of every dollar it receives in sales of services and/or new goods. The business then uses the other 77 cents of each dollar to continue its operation and take care of its expenses, including paying its employees, without the concern of how much to withhold from them, etc. The company accounting department is kept busy creating ways to make, save and invest money.
Then the employees have only to be concerned with where and how to spend, or save and invest, their money. Isn't April the 15th a lovely day?
Because so much has been written about it, including a lot of criticism, a short article of this nature could never quite do the Fair Tax justice. I think that it is one of the greatest concepts to appear in the USA since the Republic was founded. Other people who share this view, or who wish to learn more about this grass roots movement, may visit Americans For Fair Taxation:
Americans For Fair Taxation Americans for Fair Taxation
* Politicians often speak of taxing the wealthy at a higher rate. What they usually mean, I believe, is that they want to tax high income at a higher rate than low income. While income is some part of wealth, for many people it is only a small part.