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The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an a progressive national retail sales tax.
Mike Gravel's PositionEdit
Mike Gravel is for real tax reform : abolish the income tax and set up a progressive sales tax.
It’s called a FAIR TAXEdit
The way in which a government raises revenue is a critical indication of how fair it will be to its citizens.
The U.S. Income Tax system is unfair to its citizens and crippling to the economy. Both the Income Tax and the Sales Tax systems are generically progressive:
- with Income, you’re taxed on what you earn;
- with Sales, you’re taxed on what you spend.
But the U.S. Income Tax system is unfair and regressive because Americans earning less than $97,400 pay a larger portion of their income in taxes than those who earn more than $97,400.
The following applies to both Income and Sales tax systems:
- To be fair, a tax system must have total transparency––each taxpayer must know what s/he is paying and what everyone else is paying.
- To be fair, a tax system cannot have any exceptions. One exception opens the door to those who can afford to game the system.
- To be fair, a tax system must be simple. The more complex it is, the easier it is to game the system.
Our income tax code is riddled with exceptions and incentives that the 30,000 lobbyists in Washington have secured and continue to secure for their clients. Little wonder the code is incomprehensible and has a compliance cost to the private sector of $270 billion a year. After serving eight years on the Senate Finance Committee, my choice to meet the fairness criteria is to junk the income tax with all its exceptions, close the IRS, and establish a sales tax––without exceptions.
Much demagoguery swirls around issues of taxation:
- “Soak the rich” is one approach, but it never happens regardless of whether the liberals or conservatives hold political power. The wealthy have the money to game the system.
- “Tax the corporations” is another approach, but corporate taxes are built into the cost of products or services, so consumers are actually paying those taxes, too. It’s a hidden sales tax.
Mike Gravel subscribes to a sales tax system, most of which is included in what is called the Fair Tax. The Fair Tax meets the fairness criteria: simplicity, transparency and no exceptions.
What sales tax rate will be applied to all new products and services? The goal is to keep tax reform revenue-neutral. It is not a tax-cut program. Whatever the tax rate on new goods and services that will produce the same amount of money currently raised by the income tax is the sales tax rate. Best estimates indicate that the rate would be somewhere between 20 and 25%. Also, best estimates indicate that it would take a year to transition from one system to the other.
One of the most exciting features of the Fair Tax is the monthly payments to individuals and/or families to reimburse them for the tax they pay on the essentials of life (food, shelter, clothing, medicine) called a prebate.
The amount of the Prebate is calculated by multiplying the cost of essentials by the tax rate. The resulting tax is divided into 12 equal payments and sent on the first of each month to consumers who have registered annually for the program. The progressiveness of the Fair Tax can be determined by adjusting the amounts selected for the prices paid for essentials, which should not be taxed in the first place. However, giving these essentials an exception from the sales tax opens the door for wealth to game the system and we are back with the problems we have in the income tax system.
The Congress will never enact such a radical reform because it dilutes their power to control and focus the economy to accomplish social goals and, of course, limits the ability of Congress to reward their special-interest friends who donate money to their political campaigns. In my judgment, Americans will have to vote to enact the National Initiative (www.nationalinitiative.us), becoming legislators like their elected lawmakers, in order to make the Fair Tax the law of the land.
Fair Tax FactsEdit
- Taxes you on what you spend––not on what you earn. So American consumers with low
or moderate incomes will automatically pay less in taxes.
- Government revenues from individuals are presently funded by payroll deductions from 110 million workers, and from corporate taxes. Under the Fair Tax, government revenues will be funded by more than 300 million consumers, including visiting tourists, and tax cheats who previously reported little or nothing to the IRS.
- Eliminates federal deductions on your paycheck for income taxes, Social Security and Medicare.
- Restores individual privacy. The government no longer needs to know where you work, what you earn, or what you do with your earnings.
- Saves up to $270 billion per year that federal tax compliance currently costs our economy. Dramatically reduces the price of new products and services, estimated at 20-25%, because corporations no longer need to hide these costs in the retail prices that are now passed on to consumers. This reduction equals the present income taxes being paid.
- Creates jobs and economic growth in the U.S. by reducing operating costs to companies. Encourages international investment in the American economy.
- Businesses, and state and local governments collecting the sales tax will keep a small percentage to reimburse themselves for the cost of collecting and forwarding the funds to the U.S. Treasury.
- Encourages the re-use of products and the purchase of tax-free, pre-owned products. Changes our consumption-based economy to a savings-based economy, warding off the oncoming fiscal crisis over commercial and private debt.
- Saves about 300,000 trees each year that are currently needed to produce all the paperwork for IRS compliance and tax forms.
- Makes U.S. goods more competitive overseas and more affordable at home, thereby increasing job creation while reducing our balance of payments deficit.
- Eliminates corporate taxes and the costs of compliance. These costs are currently hidden in the price consumers pay for the company’s product or services.
- Changes the American economy – the largest economic entity in the world – into the largest tax haven in the world, enticing international investments in the American economy. Also creates a level of growth (estimated at 10%) and prosperity that will permit the nation to lower government debt and balance the budget, better finance education, health care, transportation, and the rebuilding of our national infrastructure.
- Why Democrats Should Love the FairTax. by Dr. Laurence J. Kotlikoff, Professor of Economics at Boston University. (February 24, 2008). The Boston Globe.
Fair Tax Advocacy GroupsEdit
- Americans For Fair Taxation