Whenever you tax something, you get less of it, the Income Tax being a prime example. People find myriads of ways of avoiding the tax, such as working only enough to “get by,” evading the tax by underreporting income, or by not filing at all (e.g., illegal aliens & people living in “the cash economy”), etc. Roughly a fourth of the Income Tax incurred is not paid, so the rest of us must pay a third more than should be necessary, to make up the difference!

The Income Tax is so complicated no one can truly comply with it & the IRS cannot fairly administer it. It is widely viewed as onerous & enforcement tends to be “regressive” (low & middle-income taxpayers are pursued more rigorously than higher-income taxpayers, because that improves the agency’s “batting average” – the wealthy can afford better defense). This & widespread “tax cheating” have led the public to consider it “unfair.” That is why the expression, “I’m from the IRS and I’m here to help,” is so funny.

Our goal should be to encourage everyone to increase his income, his savings, his standard of living, etc., & to strive for a tax system that promoted all these things while being is inherently fair and easy to understand. If possible, it would be good to have a system that enabled American business to compete more effectively in world markets, increase employment & exports, while improving our balance of payments and reducing outsourcing.

Only the Fair Tax does all of these things. Eliminating withholding will give people “half” again as much take home pay. It is their money, after all. Businesses don’t pay taxes – they pass them on to consumers, along with all their other “costs.” Eliminating the 22% corporate Income Tax (& the attendant compliance costs) should enable businesses to cut the prices of the things we buy by 25% or more.

When the 23% National Retail Sales Tax is added, net prices should be slightly lower, so the increased take home pay will go even farther, leading to increased sales, production and employment. Most should have something left over for savings – pre-tax savings, which will compound without a tax burden. That will give people increased “ownership” of our country, plus economic flexibility & independence. It will also enable them to rely less on Social Security for their retirement.

Those at the low end of the income scale will get a monthly advance or “prebate” of their taxes, so they will pay little or no federal tax. Today, a person earning the minimum wage ($11,000 per year) pays about $2,900 in hidden federal taxes (26% of earnings), assuming he spends all his earnings. Under the Fair Tax he will pay no federal tax at all. (Things bought used – clothes, furniture, cars, etc. – will incur no tax, so he could even come out ahead.) People earning $30,000 per year will pay a tad over 10%. People earning $300,000 will pay about 20%. Check http://www.fairtaxvolunteer.org/pdf/EffectiveTaxRates.pdf

The individual will determine the amount he pays by his spending.

That 23% National Retail Sales Tax will fund the entire federal government, including Social Security & Medicare. The economy should double over about 15 years, raising federal revenues comparably. That should enable us to continue funding Social Security & Medicare, plus the War on Terrorism, without a tax rate increase. The tax rate needed is being recalculated now, because the improving economy should permit the rate to be reduced slightly.

With the NRST in view whenever something is purchased, the cost of the federal government will be apparent to everyone every day. That will encourage taxpayers to keep pressure on Congress to not increase the rate & strive to decrease it. There would be an incentive for Senators & Congressmen to “look like heroes” by finding ways spending & the tax rate could be reduced. Under the current system, the incentive for Congress is the reverse.

The other “tax reform” proposals on the table – the flat tax, ad valorem & VAT – just don’t “muster up.” A flat tax is still a tax on income & does not inherently eliminate the IRS, the business Income Tax or the current tax code. It could end up being just another change in the tax schedule. It would not improve our competitive position in world markets, improve our balance of payments or reduce outsourcing.

“Sneaky” taxes, such as ad valorem & VAT should be avoided too, not only because they are taxes on business, but also because it is too tempting & easy for Congress to increase them, since they are “invisible” to the consumer who pays them. That is neither honest nor “fair.” Taxes on businesses tend to make us less competitive in the world, decreasing employment & increasing “outsourcing.”

The best “deal” for every American is the Fair Tax!

http://www.fairtax.org

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