Fair Tax Talking Points
FairTax Volunteer - FAQ 1
Concepts:
tax, Fairtax, taxes, FAQ Index, economy, sales tax, consumption, income, pay, revenue, goods, funds, prices, plan, rebate.
Summary:
The FairTax is a single-rate, federal sales tax collected only once, at the final point of purchase of new goods and services for personal consumption.
Business-to-business purchases for the production of goods and services are not taxed.
It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
All valid Social Security cardholders who are U.S. residents receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures.
The rebate is paid in advance, in equal installments each month.
The size of the rebate is determined by the Department of Health & Human Services' poverty level multiplied by the tax rate.
This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.
Why not just exempt food and medicine from the tax?
Exempting items by category is neither fair nor simple.
Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor.
Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit.
Also, today these purchases are not exempted from federal taxation.
The purchase of food, clothing, and medical services is made from after income tax and after payroll tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.
Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today.
Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest.
This process causes unfair and inefficient distortions in our economy and must be stopped.
Is the 23% FairTax higher or lower when compared to the income taxes people pay today?
Most people are paying that much or more today much of it is just hidden from view.
The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes.
That's 23 percent right there, without taking into account the 7.65 percent employer matching!
On top of that, you have to add in all of the hidden taxes embedded in the price of everything you buy, from goods (averaging 22 percent) to services (averaging 25 percent).
Effective tax rates vs. stated tax rates Because the 23-percent FairTax would not be imposed on necessities, an individual spending $28,808 would pay an effective tax rate of only 15.6 percent, not 23 percent.
That same individual will pay 17.3 percent of his or her income to federal taxes under current law.
Does the FairTax rate need to be much higher to be revenue neutral?
The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments.
Unlike some other proposals, this rate has been independently confirmed by several different, non-partisan institutions across the country.
How is the Social Security system affected?
Like all federal spending programs, Social Security operates exactly as it does today, except that its funds come from a broad, progressive sales tax, rather than a narrow, regressive payroll tax.
Employers will continue to report wages for each employee, though, to the Social Security Administration for the determination of benefits.
The transition to a reformed Social Security system will be eased while ensuring there is sufficient funding to continue promised benefits.
How does the FairTax affect Social Security reform?
The FairTax.org plan does not change Social Security benefits or the structure of the Social Security system.
All it does is replace the current revenue source (narrow, regressive payroll taxes) with a new revenue source (broad, progressive sales taxes paid by all consumers).
The income tax is holding us back and making it more difficult than it needs to be to improve our families' standard of living.
Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax.
Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides.
In contrast, this same couple, if they earn $40,000 in wages today under the income tax, pays $3,060 in payroll taxes and $2,945 in income taxes for a total of $6,005 in taxes (15.0 percent).
In addition, their employer pays another $3,060 in payroll taxes.
This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.
Additionally, some erroneously believe that people who have invested in Roth IRAs will never pay taxes on this money again.
They may not know it, but with corporate income taxes, they are paying hidden taxes averaging 22 percent (for goods) to 25 percent (for services) on everything they buy.
Under the FairTax, they break even from the very beginning because they only pay $0.23 out of every dollar they choose to spend on new goods and services, rather than anywhere from 20 to 30 percent in hidden taxes through their lifestyle choices.
When corporate income taxes are repealed, pre-tax prices can come down an average of 22 percent for goods and 25 percent for services according to Dale Jorgenson, Ph.D., former chairman of the Harvard University Economics Department.
Furthermore, used goods are not taxed because they have already been taxed once when they were new.
Therefore senior citizens, like all Americans, do not lose purchasing power, but gain it instead.
Seniors receive a monthly rebate so they don't pay taxes on the purchase of necessities.
Savings invested in any long-term, income-generating asset such as a stock, real estate, or a long-term bond that can't be called, will increase substantially in value.
Finally, complex estate planning is an artifact of an earlier age.
How much do pre-tax prices for goods and services go down under the FairTax?
All goods and services already contain the embedded costs of the current tax system in their prices.
When these embedded taxes are removed, prices come down.
Dale Jorgenson, Ph.D., former chairman of the Economics Department at Harvard University, has projected an average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax.
In addition, the FairTax lowers compliance costs by an estimated 95 percent and the removal of these costs will force prices down even lower.
Should the government tax medicine and health care?
Because federal income and payroll taxes are embedded in the price of everything you buy, you are already paying federal taxes on the drugs and other health care services that you buy today they are just hidden.
After passage of the FairTax, prices (even including the FairTax) may not go up at all.
Harvard economist Dale Jorgenson estimates that the pre-tax prices of services will decline by 25 percent because of the repeal of the income tax.
Service providers are not exempt from the income tax today, and should not be exempt from the FairTax.
Services now account for well over one-half of the gross domestic product (GDP).
Neither consumption of services nor consumption of goods should be tax preferred.
Competition, not politics, should determine what goods and services cost.
How does the FairTax affect income tax preparers, accountants, and many government employees?
There will, of course, still be some people who are involved in sales tax return preparation and sales tax administration under the FairTax, but many fewer than those involved with the income tax today.
The projected 10.5 percent growth in the economy during the first year of the FairTax will provide plenty of new jobs.
Surely these valuable labor and capital resources can be employed more productively - for example, in following the money trails left by terrorist, drug, and other criminal enterprises, rather than in tracking every American wage earner.
Under the FairTax, home ownership is a possibility for many who have never had that option under the income tax system.
For all of the money that pours into churches every Sunday and into a broad range of charities every day, only the 30 percent who itemize get any tax benefit.
A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement.
They withhold income and payroll taxes from their employees.
Moreover, the vast majority of retail businesses operating in states with a sales tax (45 states currently use a sales tax) are already sales tax collectors.
Under the FairTax, retailers are paid a fee equal to one-quarter of one percent of federal sales tax they collect and remit.
In addition, of course, retailers no longer bear the cost of complying with the income tax, including the uniform capitalization requirements, the various depreciation schemes, and the various employee benefit and pension rules.
Finally, because of the economic growth resulting from the aggregate, beneficial effects of dramatically lower income tax compliance costs and no payroll or income taxes, customers will have substantially more money - the greatest influence on retail sales - and a reasonable fee for collecting the FairTax, all ensure that retailers will do quite well.
With the penalty for working harder and producing more removed, Americans are free to keep every dollar they earn, and a new era of economic growth and job creation is unleashed.
As U.S. companies and individuals repatriate, on a tax-free basis, income generated overseas, huge amounts of new capital flood into the United States.
That is why taxable bonds bear a higher interest rate than tax-exempt bonds.
Second, under the current system, savings and investments are taxed.
As Americans save more money, the pool of funds in lending institutions grows.
Does the FairTax improve compliance and reduce evasion when compared to the current income tax?
The old aphorism that nothing is certain except death and taxes should be modified to include tax evasion.
Tax evasion is chronic under any system so complex as to be incomprehensible.
As a percentage of gross domestic product (GDP), tax evasion is beyond 2.0 percent, compared to 1.6 percent in 1991.
Tax evasion continues to be in the range of one quarter of income taxes collected.
Almost 40 percent of the public, according to the IRS, is out of compliance with the present tax system, mostly unintentionally due to the enormous complexity of the present system.
These IRS figures do not include taxes lost on illegal sources of income with a criminal economy estimated at a trillion dollars.
All this, despite a major enforcement effort and assessment of tens of millions of civil penalties on American taxpayers in an effort to force compliance with the tax system.
Disrespect for the tax system and the law has reached dangerous levels and makes a system based on taxpayer self-assessment less and less viable.
The FairTax reduces rather than increases the problem of tax evasion.
The increased fairness, transparency, and legitimacy of the system will induce more compliance.
The roughly 90-percent reduction in filers enables tax administrators more narrowly and effectively to address non-compliance and increases the likelihood of tax evasion discovery.
The relative simplicity of the FairTax promotes compliance.
Businesses need answer only one question to determine the tax due: How much was sold to consumers?
Finally, because tax rates decrease, tax evasion is less profitable; and because of the dramatic reduction in the number of tax filers, tax evaders will be more easily monitored and caught under the FairTax system.
Can the FairTax really be passed into law?
Do women have the right to vote in this country?
Do Blacks enjoy freedoms far beyond the lunch counter and mass transit?
Do free-market economies dominate Eastern Europe, peoples once under the boot of communism?
All these were grassroots efforts that effected significant changes in our nation and the world.
Passing the original 16th Amendment and the income tax wasn't easy and repealing the income tax and the 16th Amendment won't be easy either.
That is why the FairTax has undertaken to build a grassroots movement and grassroots alliances to support the effort.
Many civilizations in history have relied solely on transaction-based consumption taxes: A percentage of a grain shipment in exchange for a safe harbor.
These taxes were used to support despots, eventually collapsed the economies in which they were applied, and sundered civil rights.
The sales tax is a familiar tax, being a major source of revenue in 45 states and the District of Columbia.
It is true, however, that no post-industrial nation, until now, has ever repealed its income tax and replaced it with a federal retail sales tax.
However, England did repeal its detested income tax upon the defeat of Napoleon and enjoyed the fastest, longest expansion of its economy in its long history.
No other country has a system of government like ours, and no other country has led the world in so many fields as ours.
It was France and Germany that forced the imposition of a VAT in addition to income taxes across the European Community.
The flat tax and the FairTax share some important similarities.
While this is a simple postcard, the record keeping required to fill in the blanks is still long and burdensome.
Congress has tried to reform the income tax again and again, with the result being greater complexity and, generally, higher rates.
Can Congress just simply raise the rate once the FairTax is passed into law?
Yes, of course Congress can raise the FairTax rate just as it could raise the flat tax rate or can and does raise the income tax rate.
No current supporter of the FairTax would support the FairTax unless the entire income tax is repealed.
Moreover, concurrent with the repeal of the income tax, a constitutional amendment repealing the 16th Amendment and prohibiting an income tax will be pushed through Congress for ratification by the states.
Its supporters need only have one common belief: That it is a fairer, simpler, more efficient way to raise federal revenue.
The FairTax plan is devised to be revenue neutral for the first year of operation.
When income tax rates are quoted, economists call that a tax-inclusive quote: "I paid 23 percent last year."
If that were the case, for $100 one earned, $23 went to Uncle Sam.
Or, "I had to make $130 to have $100 to spend."
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes.
Sales taxes, on the other hand, are generally quoted tax-exclusive: "I bought a $77 shirt and had to pay that same $23 in sales tax.
Or, "I spent a dollar, 77¢ for the product and 23¢ in tax."
This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same.
Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare.
Under the FairTax, you may simply choose not to spend, or to spend less.
The poor actually pay less than zero-percent retail sales tax on their spending.
Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes.
Especially if they are frugal and buy mostly used products.
On the other hand, the wealthy approach a maximum of 23-percent retail sales tax on their spending.
The FairTax is a non-partisan proposal (HR 25/S 1493) that abolishes all federal income taxes, including personal, estate, gift, capital gains, alternative minimum, corporate, Social Security, other payroll, and self-employment taxes, and replaces them all with one simple, visible, federal retail sales tax.
The FairTax dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income.
The FairTax taxes us only on what we choose to spend, not on what we earn.
It does not raise any more or less revenue; it is designed to be revenue neutral.
The FairTax is a fair, efficient, and intelligent solution to the frustration and inequity of our current tax system.
FairTax.org is a non-profit, non-partisan, grassroots organization dedicated to replacing the current tax system.
The organization has hundreds of thousands of members and volunteers nationwide.
Its plan supports sound economic research, education of citizens and community leaders, and grassroots mobilization efforts.
For more information visit the web page, www.fairtax.org, or call 1-800-FAIRTAX.
Concepts:
tax, Fairtax, taxes, FAQ Index, economy, sales tax, consumption, income, pay, revenue, goods, funds, prices, plan, rebate.
Summary:
The FairTax is a single-rate, federal sales tax collected only once, at the final point of purchase of new goods and services for personal consumption.
Business-to-business purchases for the production of goods and services are not taxed.
It replaces federal income taxes including, personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.
All valid Social Security cardholders who are U.S. residents receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures.
The rebate is paid in advance, in equal installments each month.
The size of the rebate is determined by the Department of Health & Human Services' poverty level multiplied by the tax rate.
This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. See chart in Figure 1 below.
Why not just exempt food and medicine from the tax?
Exempting items by category is neither fair nor simple.
Respected economists have shown that the wealthy spend much more on unprepared food, clothing, housing, and medical care than do the poor.
Exempting these goods, as many state sales taxes do, actually gives the wealthy a disproportionate benefit.
Also, today these purchases are not exempted from federal taxation.
The purchase of food, clothing, and medical services is made from after income tax and after payroll tax dollars, while their purchase price hides the cost of corporate taxes and private sector compliance costs.
Finally, exempting one product or service, but not another, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today.
Those who have the money will send their lobbyists to Washington to obtain special tax breaks in their own self-interest.
This process causes unfair and inefficient distortions in our economy and must be stopped.
Is the 23% FairTax higher or lower when compared to the income taxes people pay today?
Most people are paying that much or more today much of it is just hidden from view.
The income tax bracket most people fall into is 15 percent, and all wage earners pay 7.65 percent in payroll taxes.
That's 23 percent right there, without taking into account the 7.65 percent employer matching!
On top of that, you have to add in all of the hidden taxes embedded in the price of everything you buy, from goods (averaging 22 percent) to services (averaging 25 percent).
Effective tax rates vs. stated tax rates Because the 23-percent FairTax would not be imposed on necessities, an individual spending $28,808 would pay an effective tax rate of only 15.6 percent, not 23 percent.
That same individual will pay 17.3 percent of his or her income to federal taxes under current law.
Does the FairTax rate need to be much higher to be revenue neutral?
The proper tax rate has been carefully worked out; 23 percent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments.
Unlike some other proposals, this rate has been independently confirmed by several different, non-partisan institutions across the country.
How is the Social Security system affected?
Like all federal spending programs, Social Security operates exactly as it does today, except that its funds come from a broad, progressive sales tax, rather than a narrow, regressive payroll tax.
Employers will continue to report wages for each employee, though, to the Social Security Administration for the determination of benefits.
The transition to a reformed Social Security system will be eased while ensuring there is sufficient funding to continue promised benefits.
How does the FairTax affect Social Security reform?
The FairTax.org plan does not change Social Security benefits or the structure of the Social Security system.
All it does is replace the current revenue source (narrow, regressive payroll taxes) with a new revenue source (broad, progressive sales taxes paid by all consumers).
The income tax is holding us back and making it more difficult than it needs to be to improve our families' standard of living.
Every household receives a rebate that is equal to the FairTax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax.
Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides.
In contrast, this same couple, if they earn $40,000 in wages today under the income tax, pays $3,060 in payroll taxes and $2,945 in income taxes for a total of $6,005 in taxes (15.0 percent).
In addition, their employer pays another $3,060 in payroll taxes.
This makes it less likely that federal budget pressures require Medicare or Social Security benefit cuts.
Additionally, some erroneously believe that people who have invested in Roth IRAs will never pay taxes on this money again.
They may not know it, but with corporate income taxes, they are paying hidden taxes averaging 22 percent (for goods) to 25 percent (for services) on everything they buy.
Under the FairTax, they break even from the very beginning because they only pay $0.23 out of every dollar they choose to spend on new goods and services, rather than anywhere from 20 to 30 percent in hidden taxes through their lifestyle choices.
When corporate income taxes are repealed, pre-tax prices can come down an average of 22 percent for goods and 25 percent for services according to Dale Jorgenson, Ph.D., former chairman of the Harvard University Economics Department.
Furthermore, used goods are not taxed because they have already been taxed once when they were new.
Therefore senior citizens, like all Americans, do not lose purchasing power, but gain it instead.
Seniors receive a monthly rebate so they don't pay taxes on the purchase of necessities.
Savings invested in any long-term, income-generating asset such as a stock, real estate, or a long-term bond that can't be called, will increase substantially in value.
Finally, complex estate planning is an artifact of an earlier age.
How much do pre-tax prices for goods and services go down under the FairTax?
All goods and services already contain the embedded costs of the current tax system in their prices.
When these embedded taxes are removed, prices come down.
Dale Jorgenson, Ph.D., former chairman of the Economics Department at Harvard University, has projected an average producer price reduction of 22 percent for goods and services in just the first year after the adoption of the FairTax.
In addition, the FairTax lowers compliance costs by an estimated 95 percent and the removal of these costs will force prices down even lower.
Should the government tax medicine and health care?
Because federal income and payroll taxes are embedded in the price of everything you buy, you are already paying federal taxes on the drugs and other health care services that you buy today they are just hidden.
After passage of the FairTax, prices (even including the FairTax) may not go up at all.
Harvard economist Dale Jorgenson estimates that the pre-tax prices of services will decline by 25 percent because of the repeal of the income tax.
Service providers are not exempt from the income tax today, and should not be exempt from the FairTax.
Services now account for well over one-half of the gross domestic product (GDP).
Neither consumption of services nor consumption of goods should be tax preferred.
Competition, not politics, should determine what goods and services cost.
How does the FairTax affect income tax preparers, accountants, and many government employees?
There will, of course, still be some people who are involved in sales tax return preparation and sales tax administration under the FairTax, but many fewer than those involved with the income tax today.
The projected 10.5 percent growth in the economy during the first year of the FairTax will provide plenty of new jobs.
Surely these valuable labor and capital resources can be employed more productively - for example, in following the money trails left by terrorist, drug, and other criminal enterprises, rather than in tracking every American wage earner.
Under the FairTax, home ownership is a possibility for many who have never had that option under the income tax system.
For all of the money that pours into churches every Sunday and into a broad range of charities every day, only the 30 percent who itemize get any tax benefit.
A corporate tax only makes what the working poor buy more expensive, costs them jobs, lowers their lifestyle, or delays their retirement.
They withhold income and payroll taxes from their employees.
Moreover, the vast majority of retail businesses operating in states with a sales tax (45 states currently use a sales tax) are already sales tax collectors.
Under the FairTax, retailers are paid a fee equal to one-quarter of one percent of federal sales tax they collect and remit.
In addition, of course, retailers no longer bear the cost of complying with the income tax, including the uniform capitalization requirements, the various depreciation schemes, and the various employee benefit and pension rules.
Finally, because of the economic growth resulting from the aggregate, beneficial effects of dramatically lower income tax compliance costs and no payroll or income taxes, customers will have substantially more money - the greatest influence on retail sales - and a reasonable fee for collecting the FairTax, all ensure that retailers will do quite well.
With the penalty for working harder and producing more removed, Americans are free to keep every dollar they earn, and a new era of economic growth and job creation is unleashed.
As U.S. companies and individuals repatriate, on a tax-free basis, income generated overseas, huge amounts of new capital flood into the United States.
That is why taxable bonds bear a higher interest rate than tax-exempt bonds.
Second, under the current system, savings and investments are taxed.
As Americans save more money, the pool of funds in lending institutions grows.
Does the FairTax improve compliance and reduce evasion when compared to the current income tax?
The old aphorism that nothing is certain except death and taxes should be modified to include tax evasion.
Tax evasion is chronic under any system so complex as to be incomprehensible.
As a percentage of gross domestic product (GDP), tax evasion is beyond 2.0 percent, compared to 1.6 percent in 1991.
Tax evasion continues to be in the range of one quarter of income taxes collected.
Almost 40 percent of the public, according to the IRS, is out of compliance with the present tax system, mostly unintentionally due to the enormous complexity of the present system.
These IRS figures do not include taxes lost on illegal sources of income with a criminal economy estimated at a trillion dollars.
All this, despite a major enforcement effort and assessment of tens of millions of civil penalties on American taxpayers in an effort to force compliance with the tax system.
Disrespect for the tax system and the law has reached dangerous levels and makes a system based on taxpayer self-assessment less and less viable.
The FairTax reduces rather than increases the problem of tax evasion.
The increased fairness, transparency, and legitimacy of the system will induce more compliance.
The roughly 90-percent reduction in filers enables tax administrators more narrowly and effectively to address non-compliance and increases the likelihood of tax evasion discovery.
The relative simplicity of the FairTax promotes compliance.
Businesses need answer only one question to determine the tax due: How much was sold to consumers?
Finally, because tax rates decrease, tax evasion is less profitable; and because of the dramatic reduction in the number of tax filers, tax evaders will be more easily monitored and caught under the FairTax system.
Can the FairTax really be passed into law?
Do women have the right to vote in this country?
Do Blacks enjoy freedoms far beyond the lunch counter and mass transit?
Do free-market economies dominate Eastern Europe, peoples once under the boot of communism?
All these were grassroots efforts that effected significant changes in our nation and the world.
Passing the original 16th Amendment and the income tax wasn't easy and repealing the income tax and the 16th Amendment won't be easy either.
That is why the FairTax has undertaken to build a grassroots movement and grassroots alliances to support the effort.
Many civilizations in history have relied solely on transaction-based consumption taxes: A percentage of a grain shipment in exchange for a safe harbor.
These taxes were used to support despots, eventually collapsed the economies in which they were applied, and sundered civil rights.
The sales tax is a familiar tax, being a major source of revenue in 45 states and the District of Columbia.
It is true, however, that no post-industrial nation, until now, has ever repealed its income tax and replaced it with a federal retail sales tax.
However, England did repeal its detested income tax upon the defeat of Napoleon and enjoyed the fastest, longest expansion of its economy in its long history.
No other country has a system of government like ours, and no other country has led the world in so many fields as ours.
It was France and Germany that forced the imposition of a VAT in addition to income taxes across the European Community.
The flat tax and the FairTax share some important similarities.
While this is a simple postcard, the record keeping required to fill in the blanks is still long and burdensome.
Congress has tried to reform the income tax again and again, with the result being greater complexity and, generally, higher rates.
Can Congress just simply raise the rate once the FairTax is passed into law?
Yes, of course Congress can raise the FairTax rate just as it could raise the flat tax rate or can and does raise the income tax rate.
No current supporter of the FairTax would support the FairTax unless the entire income tax is repealed.
Moreover, concurrent with the repeal of the income tax, a constitutional amendment repealing the 16th Amendment and prohibiting an income tax will be pushed through Congress for ratification by the states.
Its supporters need only have one common belief: That it is a fairer, simpler, more efficient way to raise federal revenue.
The FairTax plan is devised to be revenue neutral for the first year of operation.
When income tax rates are quoted, economists call that a tax-inclusive quote: "I paid 23 percent last year."
If that were the case, for $100 one earned, $23 went to Uncle Sam.
Or, "I had to make $130 to have $100 to spend."
We choose to compare the FairTax to income taxes, quoting the rate the same way, because the FairTax replaces such taxes.
Sales taxes, on the other hand, are generally quoted tax-exclusive: "I bought a $77 shirt and had to pay that same $23 in sales tax.
Or, "I spent a dollar, 77¢ for the product and 23¢ in tax."
This rate, when programmed into a point-of-purchase terminal, is 30 percent.
Note that no matter which way it is quoted, the amount of tax is the same.
Under an income tax rate of 23 percent, you have to earn $130 to spend $100.
Spend that same $100 under a sales tax, you pay that same $30, and the rate is quoted as 30 percent.
Perhaps the biggest difference between the two is under the income tax, controlling the amount of tax you pay is a complex nightmare.
Under the FairTax, you may simply choose not to spend, or to spend less.
The poor actually pay less than zero-percent retail sales tax on their spending.
Much like with the earned income tax credit of today, the rebate may give them more money than they actually spend on retail taxes.
Especially if they are frugal and buy mostly used products.
On the other hand, the wealthy approach a maximum of 23-percent retail sales tax on their spending.
The FairTax is a non-partisan proposal (HR 25/S 1493) that abolishes all federal income taxes, including personal, estate, gift, capital gains, alternative minimum, corporate, Social Security, other payroll, and self-employment taxes, and replaces them all with one simple, visible, federal retail sales tax.
The FairTax dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income.
The FairTax taxes us only on what we choose to spend, not on what we earn.
It does not raise any more or less revenue; it is designed to be revenue neutral.
The FairTax is a fair, efficient, and intelligent solution to the frustration and inequity of our current tax system.
FairTax.org is a non-profit, non-partisan, grassroots organization dedicated to replacing the current tax system.
The organization has hundreds of thousands of members and volunteers nationwide.
Its plan supports sound economic research, education of citizens and community leaders, and grassroots mobilization efforts.
For more information visit the web page, www.fairtax.org, or call 1-800-FAIRTAX.
posted by Captain Morgan at Wednesday, July 27, 2005
1 comments
