Issue 58 A Fairer Tax: The Fair Tax April 18 2013

Another alternative to the tax code.  One that creates true equality.  Hope you enjoy :)
 

What Is the Fair Tax: The Fair Tax is a tax designed to bring business back to America and turn our country from a consumer nation back into a producer nation. It eradicates all current taxes, and I mean all of them, and replace them with a sales tax that only applies at the retail level. That means you are only taxed on what you buy at say CVS, Walgreens, or your local mom and pop store. Its not just products, but services like when you hire a lawyer you are being taxed as well. So it is everything you buy that is being taxed. What is not taxed are the processes that lead up to the retail level. So when the iron is bought by the steel mill from the iron mine it is not taxed. The steel is not taxed when bought by the car manufacturer. However, when the consumer, like you and me, buy the car we are taxed. The estimated tax on all these goods and services bought at the consumer level is 23% (estimated for the American market). Some are saying that that amount is outrageous, but they are forgetting one important thing. There are no other taxes so you have more money in your pocket. You keep all of your paycheck. Not just you though, the businesses too. This leads to four possible outcomes; one, because a businesses has more money to spend it can lower its prices leading to cheaper goods, homes or even lawyers. Two, more money goes into the pockets of average working Americans. That’s right; you may get a raise, in some cases higher than the minimum wage. The third which is a combination of the first two: lower prices and larger pay. Fourth, the one that people will dread happening, is the employer becoming greedy and keeping all the savings for themselves.

Preventing Greed: People will certainly be scared of greedy employers who keep all the savings created by the fair tax, so how is such a situation prevented. Well, it comes down to competition for the money in your wallet. If they don’t lower there price in comparison to a direct competitor, then they loose business, "your business." Thus, it’s either lower the cost of the goods you sell or possibly go out of business. Also, there is another safety net against bad employers, the workers themselves. If they see a job which pays more, they will seek to acquire that job. At the same time new workers will be deterred from working for the bad employers business because they don’t pay as well as there competitors. The result is the bad employer getting less skilled and/or experienced workers who did not make the cut at the higher paying industry. So the bad employer gets the leftovers while the higher skilled/more experienced workers work for the higher paying company. An employer wants skilled workers who do not need to be trained as much, can do the job both efficiently and effectively and are most importantly professionals. If you have employees of the aforementioned ability then you will generally have a successful business. Those with the leftovers I wish them good luck.

  

 The Poor: Ok, we got the biggest worry out of the way.  With little to no taxes, businesses are free to grow and expand and you keep your whole paycheck.  So that 23% tax is now very meager in comparison to your now untouched paycheck.  Some though are probably concerned about the poor who may not see all of the benefits of this new tax system.  Well, the legislation (located at Fairtax.org) has something called a pre-bate.  This gives money to the lowest income earners so they can afford what they need most.  Best of all, they will still be paying taxes, so everyone is contributing to the system for the countries prosperity. 

My Concern:  I have a concern though.  Like Milton Freedman’s negative income tax, I worry that these “poor” people will spend the pre-bate on everything but the essentials.  Therefore I suggest we make it a voucher limiting how the pre-bate can be spent.  However, I would only recommend this change to incentivize the poor earn more money so they will no longer need the pre-bate.

Funding the pre-bate: I see the pre-bate as a form of welfare which could replace many other forms of financial assistance programs, including food stamps and unemployment.  This is only a possibility though.  This new tax code does not affect Medicare and Social Security, except how it is funded.  Since you are no longer paying the payroll tax, America’s two favorite programs will need to be funded out of the Federal Governments general revenues.  So aside from how Social Security and Medicare are funded, the programs will be generally untouched with the possibility of forcing congress to be more fiscally responsible with these programs.

 No way to two Tax codes: Some are thinking that the politicians may try to pull a fast one and keep the Federal income tax.  It can’t because in the Fair Tax legislation it has a mandate that repeals the 16^th amendment to the Constitution that gives the government the authority to tax our income.  So that goes bye-bye.  Is this new system constitutional?  Yes under article 1 section 8 of the U.S. Constitution which allows congress to implement taxes to fund the government.  To my knowledge this form of taxation falls as a combination of impost and excises taxes.  This also means that all taxes under the fair tax must be uniform as dictated by the Constitution which governs the implementation of impost and excises taxes.  So there’s no funny business of charging only certain goods and services while excluding others which is a form of corruption.

Conclusion:  This is the Fair Tax.  It taxes everything equally, provides for your keeping your wealth and everyone paying taxes ensuring fair and equal treatment under the law as dictated in the Constitution.  The poor are still looked after and creates more opportunities for businesses to grow. Sure that 23% looks nauseating, but you have more wealth in your pocket and you determine how much you pay in taxes by how much you buy as it is mandatory that on your receipt to show how much went to the Federal Government.  A "Fair Tax" for a country that loves a fair deal.