Last time, I lined out essentially what the Fair Tax system is: replacing the federal income tax with an across-the-board increase in sales tax. It would get up to twenty three percent, to be exact. Now I will explain why I believe the Fair Tax system might be the best alternative to the currently-used progressive tax system.
First and foremost: the Fair Tax is, well, fair. People are essentially responsible for paying their own taxes through their own consumption. The more you spend, the more you pay to Uncle Sam. Therefore, instead of taxing, and therefore disincentivizing, incomes, the government would then be taxing consumption across the board. Of course, people below the poverty line would more than likely be exempt from the changes. The tax also makes illegal immigrants pay taxes. This way, the Fair Tax system streamlines the tax process and makes the individual responsible for how much he pays to the government.
I believe that the Progressive Tax system punishes successful people and businesses. Considering that these people are, for the most part, the ones who own businesses and, therefore, hire people to give them jobs, the system might not be the best for the economy. Also in this system, it requires knowledge of one’s income in order to place them into tax brackets. Since illegal immigrants don’t seem to be getting in line for citizenship, Fair Tax would make them responsible for paying their taxes through consumption.
Additionally, since Fair Tax merely taxes consumption and not hard work, Fair Tax could theoretically prevent people from spending beyond their means. When consumption costs much more than it does today, people might be less likely to buy things they cannot afford and turn to their credit cards. This means that people might be forced to budget their expenses and make better financial decisions. In the end, businesses need only pay taxes for consumption instead of being punished for being successful.
Opponents of Fair Tax believe that this would lead to a decrease amount of income for the federal government in the form of taxes. While this fact is probably true, I believe the government needs to figure out how to spend taxpayers’ money more efficiently. Perhaps the Fair Tax would give the government the fresh start it needs in terms of figuring out efficient appropriation of funding.
In general, Fair Tax is controversial mainly because of its extreme change to the status quo. I believe a fear of such overhauling change is really behind the strong opposition to it. I believe Fair Tax is a great candidate for taxation reform.