A fairer way for the U.S. collect taxes

Imagine if you woke up one day to the news that the IRS was abolished, along with the income tax, and April 15 would now just be another nice spring day. Imagine that you would be getting your full paycheck without the Federal deductions.

No federal income, no Social Security and no Medicare taxes taken. Then a few days later you receive a check from the federal government for $300 along with the explanation that you will now be receiving this amount every month.

Then, what if on top of all this good fortune you found out that the price of everything you pay money for would be reduced by nearly 20 percent?

Would you be willing to pay a 23 percent sales tax on every dollar you spend to have all those things happen? That’s the promise made to you by the “fair tax” movement.

It began after a businessman from Houston spent the whole day at board meetings and realized that 80 percent of what was discussed was the tax implications of nearly every business decision being made. When he complained to friends about it, they challenged him to do something about it.

So the call went out for donations and several million dollars were raised to fund the effort to find a solution. He started a group called Americans For Fair Taxation and began soliciting proposals from major universities and research centers to study how best to reform our tax system. The fair tax is a result of that effort.

It gathered supporters and was eventually introduced as a bill by Georgia Congressman John Linder in 1999 and it has been re-introduced into every Congress since, gathering support slowly. Granted, it is radical, but it promises to radically change America’s prospects as we go forward in ways that should give hope to the next generation.

Back to the plan itself. In place of all the taxes people pay, the fair tax puts a 23 percent sales tax on every new item (no tax on used goods, cars included). To make up for taxing food and necessities, every head of household will get a monthly check called a prebate starting at $300 and going up by family size and circumstance.

The 23 percent tax is calculated to be the amount necessary to remain revenue neutral – it will provide enough money to replace all of the money no longer being collected by the IRS, Social Security and Medicare. Don’t be put off by the 23 percent sales tax; it is estimated that the plan will reduce the cost of all goods and services by at least 20 percent, which would keep prices about the same.

There is so much to tell about all the good things that can come from the fair tax that it would take five articles this size, but let’s just look at the most contested element – the 23 percent sales tax.

The first thing you should know is that the fair tax is an inclusive sales tax, which means that you don’t pay it on top of your purchase; the retailer pays it as a percentage of the sale. If you bought a coat for $100 dollars under the old system, it doesn’t cost $125 under the fair tax. It still costs $100. The seller pays the $23 tax to the government.

Wouldn’t the business raise the price to recoup the tax, you ask? He might want to, but he wouldn’t have to because remember he has been freed from all the taxes he has to pay, which now increases his net profits.

Also consider this: The product he buys to resell will now be a lot cheaper for him to buy because it is free of all the hidden embedded income taxes. Embedded in the cost of every product is the income tax paid by every person having a hand in its creation, from the person who mined the raw materials to the person working in the factory making it to the factory owners to the wholesaler who stocked it, to the delivery driver who delivered it, all the way to the businessman you buy it from. Studies have shown that all goods and services will be reduced in cost by about 20 percent.

Also consider the underground economy estimated to be over $350 billion dollars a year. There are millions of people who receive unreported income, including drug dealers, who will now do their share in helping fund our government every time they buy something.

There is so much to tell and so many questions you must have. Please go to www.fairtax.org to learn how this exciting plan could make America more free and prosperous.

Moadus is a Girard resident. Email him at editorial@tribtoday.com