I think we can all agree that our current tax system is less than desirable. No one wants to pay taxes, but, like Ben Franklin noted, it's one of two things in life that are a sure thing (that, and death). Besides, government, which is supposedly good, needs taxes to operate. So, there's no getting around paying taxes. The current problem with our tax system is the way we pay taxes: the income tax. The Fair Tax proposal would radically alter the system, making our tax system more fair and effective.
First, a brief history of the IRS, and the income tax it collects, is in order. Our Founding Fathers never intended for there to be an income tax- they saw it as an instance of dangerous government interference in citizens' lives. In fact, when the income tax was first introduced in the late 1800s, the Supreme Court actually overturned it as unconstitutional. Therefore, a constitutional amendment was required to legally enact an income tax- the Sixteenth Amendment.
The IRS, or Internal Revenue Service, was created to keep track of who owes what taxes. Although the percentage of workers' incomes that is taken by the government has varied greatly over the course of history, it has today settled to 33%. This means that one third of every citizen's paycheck is taken by the government. If you work year round, think of it this way: every penny you earn between January 1st and April 30th is taken by Uncle Sam. According to the Tax Foundation website, the amount in income taxes that the average American pays is greater than the expense of buying food, clothing, and paying mortgages combined. That means taxes cost you more money than just living does. That's totally ridiculous!
So, seeing that the income tax basically amounts to government theft, we need a change. These are the basics of the Fair Tax: it would repeal the Sixteenth Amendment (income tax), and establish a national sales tax of 23%. So, 23 cents of every dollar you spend at a store, in any state, goes to the government.
This is much fairer than the income tax, because you can control what you buy- therefore controlling what you pay in taxes. Additionally, illegal immigrants- who don't pay income taxes- would pay the Fair Tax, because they have to buy things, too. So, the Fair Tax would represent a large step towards a solution to the economic challenges of illegal immigration in this country. Therefore, the Fair Tax lives up to its name- it really is fair.
Another positive aspect of the Fair Tax is that it does not require the IRS- that bureaucratic monstrosity that has its tentacles in every American worker's pockets- to operate. The IRS is a wasteful organization- for example, it employs more government agents than the FBI and CIA combined- and it is possible to defraud the IRS. The Fair Tax would require a much smaller, and therefore more effective, governmental agency to oversee it and tax evasion is much more difficult- after all, the only way to not pay the Fair Tax is to not pay for anything at all. So, the Fair Tax is much more effective, which also save us money- money the US desperately needs during these troubling times.
Critics of the Fair Tax system argue that it places an unnecessary and detrimental burden upon poor families. However, as the Fair Tax legislation stands right now, poor families (defined as families living under the poverty line) would be exempt from paying the tax. In this way, the Fair Tax actually works to combat poverty. The Fair Tax bill has already been drafted, and you can view it on the Library of Congress' website.
There are also arguments over specifics of the Fair Tax plan, including whether the 23% sales tax would be sufficient to cover the government's expenses. There are also critics who claim that the Fair Tax actually calls for a 30% national sales tax. These arguments are complex and often very technical, and unfortunately, the agencies that make these arguments have so far refused to release their methodology. So, we can't really draw any meaningful conclusions about these aspects of the Fair Tax yet.
However, in all fairness, I believe that the Fair Tax deserves serious consideration. Americans and our politicians have long called for tax reform, and here is our chance to actually do something about it, rather than just talk.
Totally and completely disagree. With the Fair Tax Plan, the poorer the citizen, the more their income is being taxed.
For example, say someone earned $2 million in a year and spent $1 million on taxed items. 50% of their income has been taxed, already over the tax plan currently in place. Now, say someone earned $20,000 in a year and spent all their money on food and shelter and other essentials with nothing saved. 100% of their income was taxed.
With our current tax plan, everyone is taxed in proportion to how much they make. Everyone pays 33% of their income. Done.
You know: fair.
esuffern explained it better than I in her posts: Fair Tax Plan, Prt 2, and Prt 3
One short sleepe past wee wake eternally,
And death shall be no more; Death, thou shalt die.
-John Donne
I enjoyed looking over esuffern's blogs, and the vigorous debate they spurred, because they represent exactly the kind of dialogue I want going for the Fair Tax. This is one way to dispel the misinformation surrounding the Fair Tax.
There probably are problems with a “fair tax”- which is why those problems should be discovered and avoided now. Unfortunately for me, esuffern posted those blogs a few months before my time, so I couldn't take part in the debate.
Your point about the true dollar amount someone is taxed is misleading. If someone makes two million dollars, and spends half of it, he just paid all his taxes while simultaneously providing for his own needs and desires. With an income tax, you have to pay 33% of your income solely to taxes, and then in addition to that, spend the one million you proposed on necessities and luxuries. Less net income is spent at the end of the day with the Fair Tax.
Another way of putting it would be this: using your same hypothetical example again, under the Fair Tax, 50% of that particular person's income (that is, only the amount he spent) is taxed at 23%, while under the income tax, 100% of that person's income is taxed at 33%. I did the math so I could use the numbers to demonstrate the savings under the Fair Tax: in the Fair Tax, the rich person in your example paid $230,000 in taxes (1,000,000 x 0.23), while under the income tax, he paid $660,000 in taxes (2,000,000 x 0.33).
Now to the second hypothetical situation you presented. The same principle applies: under the Fair Tax, 100% of the person's income is taxed (only because he spent it all) at 23%, while under the income tax, 100% of the person's income is taxed (which would have been taxed regardless of whether he spent it all) at 33%. No need for a mathematical demonstration here- we all know 23% of $20,000 is less than 33% of the same amount.
Here's yet another twist: if this poor person had a family, he wouldn't be paying taxes at all under the Fair Tax, because a salary of $20,000 is below the poverty line for most family sizes (there are poverty tables for different years and family sizes here). He'd be exempt.
After reading this defense of the Fair Tax, a critic could ask, "Ok then, I see that under the Fair Tax, less income is taxed. But then that means that less tax revenue is generated! How will our government function?" FairTax.org predicts that despite this very true observation, the Fair Tax is estimated to generate $358 billion more than the current tax system. How is this even possible? One reason is that the Fair Tax expands the tax base, including America's substantial illegal immigrant population, as well as the 40 million foreign tourists who visit this country ever year- people not taxed under an income tax. This, predictably, leads to more tax revenue for this country.
I appreciate your comment. It confounded me at first, and made me think and even do non-school related math. I had written an 8 page paper for a government class last year about the Fair Tax full of information, but unfortunately for me, I've lost it...