Fair Tax?

Welcome to the second FairTax Blogburst!

While many people know what the FairTax is all about, many others do not. This week we'll cover a little ground explaining the basics of the FairTax, and why the members of this Blogburst think it's an idea whose time has come.

First off, let's be clear about one thing -- the FairTax is not about tax reform. It's a complete replacement of the existing system. The current tax on income is completely gutted. In the words of Steve Forbes,

"[The tax code] is a monstrosity, and there's only one thing to do with it. Scrap it, kill it, drive a stake through its heart, bury it, and hope it never rises again to terrorize the American people."

That's exactly what the FairTax does. It replaces all federal income taxes, including personal, estate, gift, capital gains, alternative minimum, Social Security, Medicare, self-employment, and corporate taxes. What does it replace these taxes with? The FairTax is a single-rate, federal 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.

Did you get that now? If you buy a used power tool, you'll pay no tax. If you want to buy a used car, you'll pay no tax. If you buy a used home, you'll pay no tax. You can decide for yourself, for the most part, how much tax you want to pay. Of course, groceries and utilities are all new, so you'll pay tax on those. But the FairTax includes an innovative concept -- the prebate. Essentially, this is a rebate you'll receive at the first of each month on the taxes you're projected to spend on essential goods and services for that month. Who gets the prebate? Everybody!

Do the math on this on your own paycheck. Look at your net earnings (after taxes), add back in the Federal Income Taxes that were deducted, add back in Medicare, then Social Security. That's how much you'd bring home if the FairTax were implemented. Plus, you'd have your monthly prebate which would run anywhere from $178 for a single person living alone to $723 for a family of 8 (complete table here).

Taking a real-world example, let's suppose a married couple is doing pretty well, and bringing home about $57,000 annually. This amounts to $4,750 each month in bring-home pay. Their taxes amount to roughly $1,140. Their tax prebate would be $357. Adding the prebate to their income, Medicare, and Social Security taxes they'd no longer have to pay, their take-home pay would increase by about $1,500 each month, bringing them to $6,250, or $75,000 annually.

This couple would have to spend $6,500 in one month's time to be taxed $1,500, thus nullifying that increase in discretionary income. Furthermore, that money would have to be spent 100% on new items or services. But guess what? Since all Federal taxes are removed, prices on goods and services will fall to reflect the lower cost of producing them. This will mean that as far as the net effect on your pocketbook goes, there will be no change, as the FairTax is designed to be revenue neutral. In other words, the government isn't going to be making any more or any less money from taxes, but about the same.

The FairTax has many advantages on our economy, not the least of which is that criminals could no longer salt away money tax-free. Since we're no longer taxing income, we don't have to worry about how much a criminal enterprise is making, and try to build a case against them for tax evasion. Their money would be taxed just like yours and mine would be -- when we spend it.
From the Americans for Fair Taxation web site:

Today, the IRS will admit to 25 percent non-compliance with the tax code. However, this does not take into account the criminal/drug/porn economy, which equally conservative estimates put at one trillion dollars of untaxed activity. The FairTax will tax this - criminals love to flash that cash at retail - while continuing to provide the federal penalties so effective in bringing such miscreants to justice. The substantial decrease in points of compliance - from every wage earner, investor, and retiree, down to only retailers - also allows enforcement to concentrate on following the money to criminal activity, rather than making potential criminals out of every taxpayer struggling to decipher the current code. [Emphasis added]

One hundred thirty-five Representatives and 22 Senators are either for or leaning for the FairTax. Over 75 economists from some of the largest think tanks, financial institutions, and universities in the nation have signed an open letter to the President, the Congress, and the American People in support of the FairTax. It's a good idea. Furthermore, as was stated earlier, it's an idea whose time has come.

Visit the Americans for Fair Taxation web site, or contact your area representative. Write your Representative. Do whatever it takes to alleviate our tax burden, revitalize our economy, and make America the place to come for a fair shake in the global economy.

The FairTax Blogburst is jointly produced by Terry of The Right Track Blog and Jonathan of Publius Rendezvous. If you would like to join us, please e-mail Terry or Jonathan. You will be added to our mailing list and blogroll.

FairTax Blogroll

• The Right Track
• Publius Rendezvous
• Cao's Blog
• Right Wing Nation
• Kim Priestap
• Don Surber
• Ogre's Politics & Views
• Blue State Conservatives
• Oblogatory Anecdotes
• Euphoric Reality
• The Buzz Blog
• Slobokan's Site O' Schtuff
• Right Truth

Posted by: Ogre at 04:04 PM

Comments

Posted by: Debbie at March 01, 2006 06:42 PM (NnLSt)

Posted by: Ogre at March 01, 2006 07:00 PM (/k+l4)

Posted by: Debbie at March 02, 2006 04:09 AM (NnLSt)

Posted by: Ogre at March 02, 2006 12:16 PM (/k+l4)

Posted by: Harvey at March 05, 2006 04:41 PM (ubhj8)

Posted by: Ogre at March 05, 2006 08:38 PM (CyQ4M)

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