Is Fair Tax Really Fairer??

Much of the American public would like to see a simpler and fairer tax system. But, in fact, most of these citizens would define "fairer" as fewer taxes. Under our current system, the subtle withdrawal of funds through payroll withholding gradually increased from a patriotic ceiling of under 3% to a minimum rate of 7.65% on virtually every worker.

Is our current system fair?

The Fair Tax proposal calls for a 23% assessment on all income from sales and services provided to the final consumer, added to the price charged by every business. There would be no income tax assessed on business or individual income, no payroll tax withheld for Medicare or Social Security, no self employment tax for sole practitioners and no gift or estate tax.

But how would we deal with the sudden 23% inflation to the cost of everything? Since employers would no longer owe their portion of payroll taxes, that 7.65 percent disappears. With income tax taxes eliminated for corporations, prices won't include the cost of those taxes, in the charges from farmers, distributions, suppliers, miners, manufacturers, freight providers, consultants and landlords.

If you spend money, you pay the tax. If you don't spend money, you don't pay the tax. Foreign visitors, "cash only" consumers, and even the underground economy would pay the tax when legitimate products were purchased.

What about the very poor? How could they pay the higher prices when they don't get any income tax relief from what they currently aren't paying?

No problem. Everyone gets a monthly "prebate" payment: a refund of tax paid based on a consumption allowance adjusted by family size. This prebate starts at about $2,200 annually for a single person, doubles for a married couple and includes $750 additional for each dependent. Many state tax laws are based on the federal income tax law. Response: Valid concern, but creative state legislatures should find a way to tap into the new system. It will be an undue burden on businesses for collections. Response: Most already collect a sales tax and the proposal provides a portion of the tax to pay for their costs.

Consumption taxes are regressive, placing a higher burden on the poor. Response: With a prebate payment based on the poverty rate, the effective burden is negligible. Tax incentives to influence behavior will be taken away. Response: More freedom of choice? Wow!Those who have deferred taxes by using pension plans, annuities, installment sales and the like will never have to pay tax on that deferred income. Response: A distinct possibility: transition rules will undoubtedly be needed.Audits and financial reports would still be needed: in fact more so, since banks and other lenders won't have tax returns to assess potential borrowers' incomes. We'll just go back to doing what we were trained to do, help others plan and operate their business and personal life more efficiently.