Fair Tax: What is the Fair Tax? Myths and Facts

Introduction

The fair tax is a proposed change to all federal tax laws in the United States, which would replace all income taxes with a single national retail sales tax levied at 23%. Under this act the tax code would be simplified from its current 60,000 pages to around 128 pages. Also, instead of taxing production, the act would tax consumption of goods which would allow the economy to grow at a faster rate. Imagine, if all people in America were able to keep every cent they make, how much more money they would be able to spend.

“To promote freedom and fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national sales tax to be administered primarily by the States”-Preamble: Fair Tax Act (HR 25)

 

History of Taxation in the United States

 

Before the income tax most of the government was funded by tariffs on products, after World War I, the tariffs were replaced by income taxes. The first income tax ever imposed was during the Civil War from 1861-1862. At that time a 3% tax was levied on anyone who made above $18,250 (adjusted for inflation) and a 5% tax for anyone who made above $228,000 (adjusted for inflation). This income tax was used only because the federal government needed money for this critical time in our nations history, the tax was repealed in 1872.

After this tax was repealed all other attempts at imposing direct income taxes were fought out in courts. At this time the United States Constitution specified that Congress could impose a direct tax only if it was apportioned among the states according to the census population of each state. To keep these lawsuits from happening, Congress proposed the 16th amendment in 1909, which was later ratified in 1913. This amendment gave Congress the power to, at will, impose direct income taxes on all wages, earnings, and savings. Originally the tax code was only 14 pages and was only levied on the top 1% income earners. Now that same power granted to Congress in 1913 has given our government the power to collect more than one-third an average American’s income. 

Benefits of a Fair Tax

1. Fair taxes would provide more freedom and equality to Americans when it comes to taxes.

2. The tax code would be much simpler to understand.

3. There would be MORE revenue to the federal government.

4. Our economy would go through an enormous period of growth.

Myths and Facts:

Myth: Under the fair tax: Social Security, Medicare, and Medicaid would be abolished, because there would be no payroll tax.

Fact: There will still be Social Security, Medicare, and Medicaid because revenue from the payroll tax would not be abolished, the way revenue is attained would be changed.

Myth: The fair tax is not revenue neutral.

Fact: After repealing ALL income taxes, the fair tax would be levied at 23% on consumption, which would provide enough revenue for the government. Some analysts estimate that it would collect up to $385 billion more than our current taxation system.

Myth: The Fair Tax is regressive and shifts the tax burden onto lower and middle income people.

Fact: The Fair Tax eliminates and reimburses all federal taxes for those below the poverty line. This is achieved through eliminating the highly regressive payroll tax.

Let’s, as Americans unite and put the going out of business sign on the Internal Revenue Service.

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