What is the Fair Tax Plan?

If you are a working American Citizen, you pay income tax. We are so used to the income tax that we do not even look at that part of our pay checks anymore. When we discuss our pay with friends or family we refer to it as our take-home pay not what we actually earn.

Next time you receive a paycheck stop and really look at the details. There is federal income tax, state income tax, and some areas have local income tax. Do not forget about Social Security tax and Medicare. Now, imagine that the income taxes were erased from your paycheck. That's a big difference, is it not?

Actually getting the money you earn. That is the reason I am an advocate of the Fair Tax Plan. We get to keep the money we earn, the government still receives revenue, and we can even disband the Internal Revenue Service. Everybody wins. Except maybe those guys who work at the IRS, but I am sure they can get jobs as financial advisors for everyone else when they actually receive the money they earned and they put it into use.

Income tax is a tax on the income you earn when you go to work or other event such as the sale of property. The federal government's share is based on your income and family size. The state government's share is also based on income and family size, but not every state imposes a state income tax. This includes Nevada, South Dakota, and Wyoming.

The income tax was created by the ratification of the sixteenth amendment in 1913. In the beginning there was no withholding of taxes. You received a yearly bill and you wrote your check like a good citizen. You knew exactly how much you paid. The practice of withholding went in and out until World War II when the government needed the cash flow to fund the war. Today we are so used to it we do not even bother to look at how much is being taken out.

One large misconception is that companies pay income taxes as well. This is not entirely accurate. Guess what they figure into the cost of their product? That is right, taxes. Companies happily pass the cost of their taxes on to their consumers. The government is betting on the fact that the average American does not understand corporate taxes and do not realize they are actually funding the entire government themselves.

What we are overlooking when we look at our paychecks is one of the reasons the economy is being held back. What is economic growth? It is when the amount of money being spent rises. When people have money they typically spend it. Because we do not actually get all the money we earn we do not have as much to spend. Therefore, the economy's growth is stunted.

Because of the current income tax laws we are also missing the economic growth generated by new and expanding businesses. More and more companies are moving their corporate headquarters overseas in order to avoid a version of double taxation. Current corporate tax laws currently tax not only what companies earn in the United States; they also tax what the companies earn in other countries. It makes it unnecessarily hard for our businesses to compete in international markets.

The FairTax Bill (H.R.25/S.25) was introduced in July 1999 to the 106th United States Congress by Republican John Linder and he has reintroduced it during every session convened since then. However it has never been voted on by a committee in either the House or the Senate. In order to become a law the bill will have to be included in a final version of tax legislation from either the Ways and Means Committee or Finance Committee. After that it has obtain support from the Joint Committee on Taxation, and finally pass both the House and the Senate. The formal name of the current FairTax legislation is the Fair Tax Act of 2005. It has been introduced by Linder in the House and by Republican Senator Saxby Chambliss in the Senate.

The FairTax is a proposal for changing United States tax laws. All federal personal income taxes, payroll taxes, corporate taxes would be repealed. As well as capital gains taxes, self-employment taxes, gift taxes and inheritance taxes. However, government funded programs such as Social Security, Medicare, and Medicaid would still exist and would still be withheld.

The FairTax would allow Americans to keep one hundred percent of their paychecks less any state income taxes. It would end corporate taxes and compliance costs hidden in the cost of goods and services. Finally it would fully fund the federal government while fulfilling the promise of Social Security and Medicare. Neither of which are able to keep up under the current laws.

The basic idea is a national retail sales tax. It would be set at about twenty-three percent tax on all good and services. The sales tax would be charged and collected just as state sales taxes are today by retail stores. The amount of resources in these businesses needed to handle taxes would actually decrease since the plan simplifies the process by doing away with the need to keep up with payroll taxes.

With the FairTax you only pay taxes on any item once. Alternately, if you decide to purchase used goods, for example a car or house, you do not pay the FairTax. When you decide what to buy and how much to spend, you can keep track of how much you are contributing to the government with each purchase. On the other hand you do not have to spend your money. You choose to invest your money and not pay any taxes on it.

A monthly tax rebate to households of citizens and legal resident aliens is included in the FairTax Plan as well. The purpose of the rebate is to eliminate the taxation of necessities such as food and clothing. This would be estimated on the total FairTax paid on poverty level spending according to guidelines published by the United States Department of Health and Human Services. This is how the FairTax can eliminate taxes on the poor, lower the tax burden on most, while making the overall rate progressive.

In order to receive a rebate each family would have to register once a year. They would provide the names and social security numbers of each household member to their local sales tax administering authority. The Social Security Administration would then disburse the rebate payments in monthly installments to each family.

This plan will not burden United States exports the way the current income tax system does. The plan will put our exports on the same level with foreign competitors. The FairTax will remove the corporate taxes and compliance costs from the cost of our exports. Lower prices mean an increase in demand for United States exports thereby increasing jobs in manufacturing sectors. On the flip side, imports are subject to the same FairTax rate as domestically produced goods. Not only will the FairTax put United States products sold here on the same tax level as foreign products, but the remarkable lowering of compliance costs in comparison to other countries' taxes also gives our products a definitive pricing lead which foreign tax systems will not be able match.

One of the biggest arguments for the FairTax Plan is the inclusion of all 295 million Americans and an estimated 30 million to 40 million foreign tourists and visitors, even criminals. The criminal economy, including drugs and porn, is about one trillion dollars of untaxed activity. Under the FairTax Plan all of this would be taxed. Drug lords do love to spend their money and under this plan every dollar they spent would be taxed. In addition, with the substantial decrease in tax fraud cases the FairTax Plan allows law enforcement to concentrate on following the money to criminal activity, rather than making criminals out of every taxpayer struggling to decode the current code.

There are many ways to show your support for the FairTax Plan. Write to your representatives in both the House and Senate. Write or call your local governing bodies as well or attend local town all meetings.. Let those who you voted for to represent you know how you feel about the current tax code and what you want them to do about it. After all, they work for you.

Buy your all friends, family, and co-workers a copy of The FairTax Book for Christmas. Talk to them and at least get them informed about the FairTax Plan. Organize meeting or join a volunteer group like American for Fair Taxation. Anything you do to spread the word can help get this bill passed and get yourself a little more money in your pocket.

Bibliography

1) Boortz, Neal and John Linder. The Fair Tax Book. New York:
HarperCollins Publishers Inc., 2005

2) Wikipedia, the Free Encyclopedia. 6 Sept 2006
http://en.wikipedia.org/wiki/Income_tax

3) Wikipedia, the Free Encyclopedia. 6 Sept 2006
http://en.wikipedia.org/wiki/Fair_tax

4) The Internal Revenue Service. 6 Sept 2006
http://www.irs.gov/

5) Americans for Fair Taxation. 6 Sept 2006
http://www.fairtax.org/index.html