In my last few blogs, I’ve been looking at the history and forms of the American taxation system. I also compared the mainstream tax systems in the world – Flat Tax and Progressive Tax. In this blog, I plan on exploring one of the most discussed taxation systems right now – the Fair Tax system.
The Fair Tax system not only is one of the most talked about alterations of economic policies, but it’s also one of the most controversial. It has rabid supporters but equally as rabid opponents. At its basest, the Fair Tax system involves completely ridding the nation of the national income tax – and replace it with a hefty consumption tax.
Specifically, the legislation that proposes the Fair Tax would levy a twenty three percent added tax cost onto any purchases.
What effect does this have on American society? Proponents believe that the wealthy would incur most of the tax burden – they have the most wealth with which to make purchases, but the law falls short on demanding that those with higher incomes pay a greater portion of taxation. Instead, people choose to pay taxes simply by making purchases. It might also decrease tax evasion and would make charge taxes onto illegal immigrants in the country. Due to the tax on consumption, proponents argue, the economy would see the benefits of increased savings and investments. It would also ease the tax burden from businesses and encourage international corporations to do business in America instead of outsourcing to nations with more lax regulations.
Opponents have a different view, however. They believe that the decreased tax burden on the rich would increase it for the middle class, and that Fair Tax would additionally cause a greater budget deficit on a national level. Being me, however, I would argue that decreased tax incomes do not create budget deficits – Congresses with less-than-fiscal-conservative policies do.
The Fair Tax system is arguably far more complicated than what I have made it out to be here. However, I believe it makes more sense than the current Progressive Tax system in this country – more on that in the next blog.