Ten Reasons to Support the FairTax Plan
The FairTax plan offers to replace the income tax, estate taxes, capital gains taxes, social security and payroll taxes with a single, flat national retail sales tax. The sales tax will apply to the retail sale of all new goods and services. It will exempt used goods and goods purchased by businesses (except those products purchased at retail and directly consumed by businesses.)
As part of the plan, every holder of a valid Social Security card residing in the United States will receive a fixed monthly rebate equal to the sales tax paid on essential goods and services. The rebate amount will remain constant for every American, so no one will have to report their income to the government.
This page describes the top ten benefits of this plan, and the reasons you should support it.
You Keep 100% of Your Paycheck
Under the Fair Tax plan, you will no longer have federal income taxes or payroll taxes (such as Social Security and Medicare) withheld from your paycheck. You can save and invest your entire gross income. You only pay taxes when you spend money on new goods or services.
Did you know that hidden income taxes and the cost of complying with them currently make up 20 to 30 percent of all retail prices? It’s true. According to Dr. Dale Jorgenson of Harvard University, hidden income taxes are passed on to the consumer in the form of higher prices – from 20 to 30 percent higher than they would otherwise be – for everything you buy.
You Never Have to File Another Tax Return
Under the FairTax plan, no one ever has to file another income tax return, because the FairTax plan abolishes the income tax. Eliminating this time-consuming and confusing process will save individuals both time and money. The IRS estimates that it takes taxpayers 28 hours and 30 minutes to complete the average tax return.
Over 130 million individual taxpayers reside in the United States. It costs each person an average of $662 to complete and file their tax return. That’s a total cost of $86 Billion we spend every year to comply with the ridiculously burdensome and complex income tax system.
Under the FairTax, individuals will spend zero hours and $0 complying with the tax code, and will never have to complete and file another tax return again.
The Poor Pay No Taxes
The FairTax plan includes a fixed-amount rebate, paid in monthly installments, for every holder of a valid Social Security card residing in the United States. The rebate amount will equal the amount of sales tax someone would pay if they made a poverty-level income and spent all of it. Every Social Security card holder will receive the same rebate amount, regardless of their income.
As a result, people with incomes at the poverty level will pay no federal taxes, because the rebate will equal the sales tax they pay. People who with incomes below the poverty level, and people who purchase primarily used goods, will actually have a negative tax rate. That is, the rebate they receive each month will exceed the amount they pay in sales tax.
The FairTax plan is a highly progressive plan, due to the fixed prebate payed to all Americans.
No More Loopholes for the Wealthy
If enacted as proposed, the FairTax plan uses a flat sales tax on retail sales of all new goods and services. The FairTax exempts NO persons from paying the sales tax and exempts NO goods or services from the sales tax. Only used goods remain exempt from the sales tax (because the tax has already been paid on them.)
This plan leaves far less room for interpretation, obfuscation, and cheating than the current income tax system. As a result, the wealthy will find it much harder to defer or avoid paying taxes, unless they choose to buy nothing and grow their own food.
Criminals and Illegal Aliens Will Pay Taxes
Today, persons who steal, prostitute themselves, sell drugs, sell illegal porn, or work in the United States illegally do not report their income, for obvious reasons. As a result, these people do not pay income taxes. Conservative estimates put the amount of untaxed income from such activity at over a trillion dollars annually.
Under the FairTax plan, any criminal or illegal alien who buys new goods or services at retail will pay the sales tax, just like the rest of us. For the first time, the federal government will begin collecting tax revenues from this underground illegal economy. Every time a drug dealer buys a new car, or a credit card thief buys new clothes, they will pay the sales tax. Every illegal immigrant will immediately begin contributing taxes as soon as they spend money.
No Penalty for Saving and Investing
Under the current system, the income tax penalizes you for earning interest or making capital gains in the stock market. As a result, you are losing the true power of compound interest and re-investing.
Under the FairTax plan, you will pay taxes only when you spend money on new goods or services at retail. This means you could truly begin to earn interest on your interest, without having to give up a large chunk of that interest every year. You could reach your savings goals faster.
With no capital gains tax, you will be free to move capital from one investment to another without worrying about losing a portion of it in taxes. You will no longer need to keep track of when you bought stocks and bonds, how much you paid for them, how long you held them, etc. There will be no need for tax-deferred accounts such as 401(k) plans, because ALL savings and investment accounts will be tax-free.
For more information, see The Impact of the Fair Tax on Investment.
The Fair Tax Increases U.S. Exports
Today, corporations must pay U.S. income taxes on the revenues they receive on products made here but sold overseas. Under the FairTax plan, U.S. exports are not subject to the sales tax. This will allow companies to sell their products overseas for prices 22 percent lower, on average, than they do today, while maintaining the same profit margins. Lower prices will increase the attractiveness of U.S. goods in overseas markets, which will increase demand for U.S. exports, which will create jobs here.
Simultaneously, goods imported into the United States will be subject to the sales tax, putting them on an equal tax footing with goods produced and sold in the U.S. The dramatic lowering of compliance costs will also give U.S. products a pricing advantage, as U.S. companies will not have to roll high compliance costs into their prices.
For more information, see The Fair Tax and International Competitiveness.
No More Complex Record Keeping
Today, when you save money, invest in the stock market, buy a home, exercise stock options, pay college tuition, or engage in numerous other financial transactions, you must keep detailed, accurate records so you can complete and file your tax return. Often, individuals must keep these records for many years and make sure they remain accurate in the face of stock splits, corporate mergers, depreciation, etc.
This complex record keeping is yet another unnecessary burden laden on the backs of taxpayers by the current system.
Under the FairTax, you pay a simple, straightforward sales tax on the retail purchase of new goods and services. You will never again need to keep detailed records of stock purchases, home loans, college loans, tuition payments, childcare costs, healthcare costs, etc., just to satisfy the government.
The FairTax is Easier to Police
Under the current system, every wage earner, investor, corporation, and retiree must comply with the tax law. This means that tens of millions of people must all follow the law and pay their taxes correctly. It also requires federal law enforcement to find tax evaders among a giant sea of taxpayers.
Under the FairTax plan, only retailers must comply with the tax law. This reduces the number of taxpayers to only about 10 percent of the number under the income tax system. This, in turn, allows law enforcement to focus on a much smaller number of tax payers, making it easier to find the cheaters. Retailers in 45 of the 50 states already collect and pay sales taxes today.
No More Social Engineering via the Tax Code
Under the current system, bureaucrats and political activists in the government can attempt to influence individual behavior through the tax code. They can use differential tax rates, special tax deductions, and special tax credits in an attempt to induce behaviors they deem “correct” or “appropriate.”
Many Americans find this kind of coercion offensive. If adopted as proposed, the FairTax plan puts an end to social engineering via the tax code. You will no longer report your income to the government, and the Fairtax will apply equally to all persons and to all new goods and services. This will leave Americans freer from the manipulations of government.