The recent “fiscal cliff” tax bill typifies how our present income tax law has become so confusing and overgrown. This new addition has preserved some previous tax cuts, but instead of stopping there, it has piled on several special interest tax breaks, for asparagus, NASCAR tracks, green algae, Hollywood producers, dairy farmers and plug-in electric vehicles, to name a few. With these additions, the income tax law has grown by several more pages and has shown favoritism to several industries.
What is needed is a fresh start with a tax that is simple, fair, efficient, stable and that fosters economic growth. The Fair Tax Act is a bill that is currently awaiting discussion in both the House and Senate of the federal government. It is the result of over twenty million dollars in research and development that has taken into consideration all of the desirable features of a simple revenue system to fund our national government and which has eliminated the undesirable features of the current taxing system.
The Fair Tax starts by eliminating all income taxes, payroll taxes, corporation taxes, estate taxes, and taxes on capital gain, interest and dividends. This automatically eliminates a multitude of tax favors to various special interest groups that have been powerful enough to get special tax breaks. It encourages corporations to return from their offshore tax havens or to refrain from leaving our country, thus stimulating economic growth.
The Fair Tax replaces all of those taxes with a single, thus simple, one-rate tax on consumption, collected at the point of sale or performance of all new merchandise or services. This eliminates the quarterly estimated tax payments and the one-time-per-year April tax time scramble by millions of people, corporations and businesses, because the tax is collected by a relatively few merchants and service providers and submitted monthly the way that 45 of 50 states already do with their sales tax revenues. In other words, the mechanism for collection is already available in all but five states to do the collections and submissions, and the number of entities doing the submitting is drastically reduced from when every taxpayer is required to file quarterly estimated payments and an annual tax return.
The Fair Tax is a tax on consumption and as such, gives each person control over how much he or she ends up paying in taxes. The Fair Tax returns any tax spent up to the poverty level on basic necessities, thus not burdening low-income families, and it does so in a nondiscriminating way by returning this amount of tax to everyone.
The Fair Tax rate of 23 percent is calculated to be revenue neutral in regard to the taxes that are eliminated, and is included in the stated price of each item or service. Thus for a $100 item, $23 goes for taxes, the tax-inclusive method of calculating. Critics of the Fair Tax have said that this means a 30 percent tax because $23 is 30 percent of $77. However, if these critics insist on this method of calculation, then they should also inform you that the 25 percent income tax bracket is really 33 percent because for every $100 income, you keep $75, while $25 goes for taxes, which is 33 percent of $75. And if you add in the $7.65 payroll tax for Social Security, you get to keep only $67.35 and the remaining $32.65 tax amounts to 48 percent, the true income tax bracket if you use this exclusive method of calculating.
For the many other desirable features of the Fair Tax, please see the FAQ section of the website www.fairtax.org. Your support of this new tax reform law will be greatly appreciated.