I listened to a pitch for the “Fair Tax” tonight. It is a consumption tax (sales tax) that would replace ALL other federal taxes. I’m convinced taxes on consumption are a much better idea than other forms of taxes in terms of fairness. The idea is that if you want less of something you tax it. We are taxing income and wealth. As a country, do we want citizens increasing or decreasing their income and wealth? Under the FairTax, used items are not taxed, only new items and services. It is interesting to note that everything we buy currently has a hidden tax already built in — 22% of the cost of items go to pay for tax compliance today.
The FairTax has a feature called a prebate. This is money transferred from the Federal government to each legal citizen each month. The amount of the prebate is equal to what taxes cost for poverty-level spending. If you consume goods at the poverty level of consumption, you wind up paying zero in taxes.
The FairTax is to be collected by the states, under the same system currently being used to collect sales taxes. This means it could be implemented easily without lots of extra infrastructure or cost.
One of the biggest problems with our current system is that it is used to transfer wealth and allows government to pick who the winners and losers are. There is a whole industry formed around government lobbiest who work to influence the tax law so their clients receive preferential treatment in terms of tax law. Under the FairTax, the industry of tax law lobbiest would go away.
The current federal income tax system is clearly broken — unfair, overly complex, and almost impossible for most Americans to understand. But there is a reasonable, bipartisan alternative that is both fair and easy to understand. A system that allows you to keep your whole paycheck and only pay taxes on what you spend.
The FairTax is a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current three-million-word-plus word tax code. Under the FairTax, every person living in the United States pays a 23% national sales tax on purchases of new goods and services. This rate is equal to the lowest current income tax bracket (15%) combined with employee payroll taxes (7.65%), both of which will be eliminated.