The FairTax 101
Published 6:51 pm Monday, December 5, 2005
By By Tray Smith
At nine o'clock on the evening of Saturday, April 9, 2005, Mrs. Casey walked into her house with her two young children. They were retuning from a day out to the mall, where they ate lunch, saw a movie, and shopped. As they walked in, they saw her husband sitting at his computer desk working, the same place he had been ten hours ago when they had left. He had desperately wanted to go with the rest of his family on the occasion, but he couldn't that day because he had too much work to do. He had to spend the day filling out the family's income tax returns.
While the Casey's are fictional characters, for millions of Americans every year, their story is all too real. According to the Tax Foundation, Americans spent over 5.8 billion hours just to comply with our federal tax code in the year of 2002! Of course, not everyone has to go through such a laborious process. If people choose, they can pay an accountant to prepare their taxes for them, get tax prep software, or go to tax preparation classes. Several people did choose one of those routes, and that added up to a total cost of $194 billion spent on tax preparation in 2002.
It is for these reasons that earlier this year, the President appointed a nonpartisan panel to suggest a simplification of the tax code. That commission recently submitted their report to the White House.
But, unfortunately, their proposals fall far short of the true type of fundamental tax reform that we need. While they want to simplify several aspects of the income tax and eliminate the AMT (Alternative Minimum Tax), they miss the core problem, which is the income tax itself.
The income tax is a myriad of credits, deductions and breaks that allows politicians to decide how we spend our money, puts us at an economic disadvantage with the rest of the world, and cost our businesses and families billions in compliance cost and compliance time each year. That is why the only solution to the income tax is getting rid of it.
But how will the government get money? The answer is the Fair Tax. The FairTax is a national retail sales tax levied on all goods and services. To replace the income tax and remain revenue neutral (collect the same amount of money that the government currently collects), the sales tax would be set at an inclusive rate of 23 percent. Specifically, it would get rid of all income taxes, payroll (FICA) taxes, and the IRS.
The FairTax has several benefits, but I will focus on the major gains it will bring to our country. First, no tax returns will have to be filled by anyone. Second, tons of jobs will be created in America and our economy will double in size within fifteen years. This is because our factories will become the only one's in the world that will be able to make products and ship them overseas with no embedded tax cost; a huge advantage over foreign competition. Finally, the amount you pay in taxes would be seen at the bottom of every receipt, so you would know how much the government is taking from your pocket book. This is starkly different from now, as the government simply withholds money from your paycheck and then forces you to fill out a tax return that often results in you getting a refund. This process prevents you from knowing how much money the government is actually taking from your wallet. It is also can lead to the false perception that you can actually "get something back" from a refund, because refunds are really just a return of some of the money you have already paid.
The FairTax is not without criticism. Among them is that it is regressive, or that it charges the poor a higher percentage of their income than the rich. But that is not true with the FairTax. Under the FairTax plan, the Department of Health and Human Services calculates how much money your family needs to provide the basic needs of life, based on the number of people in your family. Then they calculate what the sales tax on that money would be, and send every American a rebate to cover that cost. For a family of four in 2005, the government would have given a rebate of $492 a month!
Plus you can't forget that this rebate is in addition to the fact that everyone gets to keep their entire pay check, because there is no income tax at all anymore.
As well, the price of goods and services will substantially decrease because of the current tax cost already embedded in them, estimated at 22%. This is caused by business income taxes and corporate compliance cost, which all vanish under the FairTax.
While some will surely claim that this plan is too good to be true, or that it hurts the poor, the truth is, the FairTax lives up to its name. It is Fair! That is the bottom line.
Tray Smith is a freshman at Escambia Academy. He writes a political column in the Atmore Advance. He can be reached at email@example.com. His column appears weekly.