Triple Taxation VS The FairTax

The other day I was driving to Chapel Hill and there had been an accident where a car had run a red signal light and hit several vehicles. The accident had traffic in both directions backed up for a half mile or more. I decided to turn down a side street to avoid the long wait, only to find that I ended up going in the wrong direction to get to my final destination at UNC Hospital. I took out my GPS and plotted my destination to get headed in the right direction.

As I was sitting at an intersection the news came on and the news caster was talking about the “Tax Deal” the Republicans had made with the President and how it would get our economy back on track. This made me recall a comment I had read on Face Book earlier. The comment mentioned that under the current tax system, the American people are taxed on what we produce, (income & payroll taxes) on what we save, (interest received), then again when we die, they tax what is left. That's TRIPLE taxation on the same dollar.

We must ask ourselves “is this fair?” Congress has the American people clueless on how much taxes are collected from each dollar earned. That is why the American people must say “Enough is ENOUGH!” We have headed in the wrong direction long enough and like me using my GPS to get headed in the right direction; we must help enact the FairTax.

How will the FairTax help? First, we need to know, “what is taxed?” The FairTax is a single-rate, federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption. Used items are not taxed. Business-to-business purchases for the production of goods and services are not taxed. A rebate makes the effective rate progressive.

Second, we need to know, “what taxes are abolished?” The FairTax is replacement, not reform. It replaces federal income taxes including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes.

Thirdly, “Is the 23% FairTax revenue-neutral rate higher or lower when compared to income and Social Security 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 the business taxes and associated compliance costs passed on to consumers in higher prices.

What is the “effective tax rates vs. stated tax rates?”
Because the 23-percent FairTax rate of $0.23 on every dollar spent is not imposed on necessities, an individual spending $30,000 pays an effective tax rate of only 15.5 percent, not 23 percent. That same individual will pay 17.3 percent of his or her income to federal taxes under current law.

“How does the prebate work?” All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services’ poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc.

Many have asked, “Why not just exempt food and medicine from the tax? Wouldn’t that be fair and simple?” 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.

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 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.

“How does the FairTax protect low-income and lower-middle-income families and individuals?” Under the FairTax Plan, poor people pay no net FairTax at all up to the poverty level! 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. Those spending at twice the poverty level pay a tax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today.

Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. 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. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most.

In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.

Finally, “is the FairTax fair?” Yes, the FairTax is fair, and in fact, much fairer than the income tax. Wealthy people spend more money than other individuals. They buy expensive cars, big houses, and yachts. They buy filet mignon instead of hamburger, fine wine instead of beer, designer dresses, and expensive jewelry. The FairTax taxes them on these purchases. If, however, they use their money to build job-creating factories, finance research and development to create new products, or fund charitable activities (all of which help improve the standard of living of others), then those activities are not taxed.

The FairTax, it's simple, easy to understand, and visible. It cannot be converted into an income tax and individuals never file a tax return again, ever!
What you earn is what you keep. No more withholding taxes; no more income tax.
Congress has tried to reform the income tax again and again, with the result being greater complexity and, generally, higher rates. The problem is the income tax and it is time to stop tinkering with it. It’s time to junk the entire income tax system and start over with a tax system that is more appropriate for a free society and better able to meet the needs of the information age.

For more information on the FairTax, visit www.fairtax.org or go to your local library and checkout “The FairTax Book.”