Here is a Brief Description:
The FairTax Act promotes freedom, fairness, and economic opportunity by repealing the federal income tax plus other taxes such as the payroll withholding tax, abolishing the Internal Revenue Service, and enacting a national retail sales tax paid at the cash register.
Here is the Scariest Objection:
The FairTax Act will result in the largest double taxation in American history. Upon transition, all funds which had been previously taxed will suddenly become taxable again upon consumption because the bill contains no mechanism to alleviate that double taxation. (So, if you are living on proceeds from 401(k) plans and savings, your period of double taxation is for life.)
Here is a Brief History:
The FairTax bill currently before Congress, HR25, was introduced by John Linder on July 14, 1999.
At the end of the 106th Congress in 2000, HR25 had the following seven co-sponsors, four of whom were Republican, and three of whom were Democrat:
Rep Barcia, James A. (D) [MI-5] - 9/8/1999
Rep Bonilla, Henry (R) [TX-23] - 9/14/1999
Rep Campbell, Tom (R) [CA-15] - 9/8/1999
Rep Condit, Gary A. (D) [CA-18] - 11/10/1999
Rep Hall, Ralph M. (R) [TX-4] - 9/14/1999
Rep Lewis, Jerry (R) [CA-40] - 11/10/1999
Rep Peterson, Collin C. (D) [MN-7] - 7/14/1999
Increased support for the proposal was garnered after talk radio personality Neal Boortz and Georgia Congressman John Linder published The FairTax Book in 2005; additional visibility was gained during the 2008 presidential campaign.
At last count, the bill has approximately 114 cosponsors.
The 16th Amendment Brought Us an Income Tax:
The 16th Amendment was simply worded, the tax return consisted of only one page, and the entire tax code was only 14 pages in length.
Today the Internal Revenue Service employs more agents than the FBI and CIA combined, and with 144,000 employees it employs more people than all but the 36 largest corporations in the United States.
How Would It be Implemented:
The FairTax Act is designed to replace all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a national retail sales tax. The FairTax Act would eliminate the Internal Revenue Service (after three years) and establish an Excise Tax Bureau and a Sales Tax Bureau in the Department of the Treasury.
Individual states would have primary authority for collecting FairTax revenues and remitting them to the Treasury.
How Much Will It Cost Me, You Ask:
Americans for Fair Taxation complains that HR25 calls for a 23 percent inclusive (or 30 percent exclusive) rate. But, the President's Advisory Panel on Tax Reform, as established by George W. Bush, calculated that a 34 percent rate on the price of consumer goods would be necessary to make the program revenue-neutral.
(And, using a formula that corrects for faulty assumptions about government spending, William Gale, director of the economic studies program at the Brookings Institute, calculates that a 39.3 percent exclusive rate would be necessary for revenue neutrality.)
Most states with sales taxes have roughly a 50 percent tax base. The FairTax Act’s 100 percent base would require consumers to pay taxes on a great many more things than they might anticipate. Such as:
* Purchases of new homes
* Rent
* Interest on credit cards, mortgages and car loans
* Doctor bills
* Utilities
* Gasoline (30 percent in addition to current taxes, which would not be repealed)
* Legal fees
* Services (Plumbers, mechanics, etc)
And Who Really Pays:
Because the poor tend to spend a higher proportion of their income on basics such as food and clothing, sales taxes do, then, require them to pay a higher percentage of their income on taxes.
The FairTax Act attempts to correct for this by exempting sales taxes for everyone at or below the poverty line. Those taxpayers would receive a "prebate" of approximately $5,600 that the Treasury Department estimates would cost between $600 billion and $700 billion annually.
With the prebate program in effect, those earning under $15,000 per year would see their share of the federal tax burden drop. So, if they are paying less under the FairTax Act then someone else has to be paying more. According to the Treasury Department, that “someone else” is everyone earning between $15,000 and $200,000 per year. Therefore, those in the highest and lowest income tax brackets will see their effective tax rate drop, while everyone else will see their rate rise. Virtually all middle-class Americans would pay a higher share of the tax burden under the FairTax Act, while corporations would pay none.
Some Believe it Could Lower Consumer Prices:
Proponents of the FairTax Act point out that prices on consumer goods contain “hidden taxes.” Under current law, corporations have to pay taxes on their earnings. Moreover, businesses have to pay social security taxes for each employee. Talk-show host Neal Boortz argued that 22 percent of the price of a consumer good is really a “hidden tax.” Get rid of corporate and social security taxes, Boortz argued, and consumer good prices would drop by 22 percent.
Some critical analysis shows that this just ain’t so. The FairTax Act is designed to be revenue-neutral; for every tax dollar collected under the current system the FairTax Act system has to collect a dollar. If the FairTax Act rate equals just those embedded taxes it can not be revenue-neutral because embedded taxes do not take into account personal income or estate taxes.
Some Fair FairTax Act Criticisms by blogger Hank Van Gieson:
Effective tax rates for most retirees will be higher under the Fairtax than under current law.
Retiree and Roth type savings will be essentially double taxed.
State and local bond issues will have to offer higher than basic interest rates in order to attract investors.
State/local taxes will increase by an estimated $300 billion annually.
Placing a tax on permits at the local level will adversely impact the construction industry.
Adding the prebate to the federal budget will result in entitlements becoming the largest share of the federal budget and will put increased pressure on discretionary spending.
The separation of church and state will be put at risk by removing the income tax restrictions on churches.
Claims of “controlling taxes by controlling spending” are misleading. Half of the average person’s budget is services and there are no “used” services. As a practical matter, the availability of used goods is limited to automobiles, houses, boats and similar infrequent purchases.
Purchasing used goods will avoid federal taxes, but the prices paid for all used goods will include a portion of the embedded costs of the Fairtax.
While purporting to eliminate all income taxes, under the provisions of H25, foreign corporations with income from US sources must pay a 23% income tax.
Adding a 30% national sales tax to normal customs/duty charges for all foreign imports could empty retail shelves of inexpensive foreign made products and adversely impact every American’s budget.
In order to raise the revenue needed by state and local governments to pay the national sales tax, cascading taxation may become a reality. This is in direct conflict with one of the stated goals of HR25.
And Finally:
Since all services would be taxed, your paperboy and lawn mower and babysitter (for example) would have to charge the tax and then keep accurate records so he or she could report and pay those collected taxes to----oh, I don’t know---some form of the IRS (at the State level) I suppose.
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