Tuesday, February 22, 2011
Fair Tax: Why America Needs It
The Fair Tax replaces all forms of federal income and other tax structures, with a national consumption tax. The use of a fair tax, or national consumption tax, is the only logical way to level the playing field and create a tax structure that is pro-growth. Because the fair tax eliminates all federal taxes, the employer (or consumer) earns one hundred percent of their pay (no withholding). This means the employees (consumer) has more income to inject into the economy through higher purchasing power.
The fair tax is dollar for dollar replacement of the current inane progressive, actually regressive tax structure. The current tax code consists of over 60,000 pages which is too complex for the average American to understand. Most Americans spend billions annually on tax preparation, only to probably come up short for a refund.
From business perspective, the employer wins as well as they will no longer have to pay taxes to hire and retain an employee. Employer taxes on income, Social Security and Medicare will be eliminated. The employer gets to keep one hundred percent of what he earns and only pays a national sales tax on what is consumed.
Now you see how this have a direct positive impact on the economy. Multiply that higher purchasing power across all American workers, undocumented workers and tourists who spend in the American economy. Because the national sales tax is based on consumption of goods and services, the tax structure is income level neutral. Only what is spent on goods and services is taxed, not how much one earns. If you make more, you will spend more because you have more disposable income.
Initially the fair tax will be slow to produce a real tangible benefit other than less stress during tax season. But as consumers spend more due to higher disposable income, and businesses hire more due to higher demand of goods and services, the economy will improve. It is expected that if fair tax is implemented that within two years, the unemployment rate will drop four to five percent, and move towards perfect employment. As the shift to perfect employment occurs, wage increases become a reality again accelerating the consumer buying power even more. As this occurs, the negative effects of the progressive tax structure are but a distant memory.
AS more consumption is done, the government revenue is increased. Because the fair tax is a dollar for dollar replacement of the current revenue stream and because it eliminates the ethical challenges of the current progressive tax structure, elected officials can focuses on spending reform and not bickering over revenue shortfalls. Now imagine that kind of problem for our elected officials in Washington.
Labels: Fair Tax