Pros and Cons of the Fair Tax Act

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Let’s start out by examining what the Fair Tax Act is. The Fair Tax Act is a tax designed to replace all federal income taxes. The plan was created by Americans for Fair Taxation, an advocacy group formed to change the tax system, this group states that, together with economists, it developed the plan and the name “Fair Tax”, based on the desires of the general public. Because the word “fair” is subjective, the name of the plan has been criticized as deceptive advertising by some, while being publicized as true to its name by others.

The Fair Tax Act has a lot of arguments going both ways, some of which are for it while others are completely against it. The following are some arguments in favor of the Fair Tax Act:

  • Federal income taxes will be completely eliminated, and in its place a single broad national consumption tax on retail sales.
  • With the repeal of federal income taxes, the IRS would basically cease to exist.
  • The Fair Tax will not punish businesses for expanding and creating more jobs, investing in research and development, or donating to charity.
  • All current government services will continue to be fully funded, such as Social Security and Medicare.
  • Because this tax system is consumption-based rather than income-based, people will be able to exercise a certain amount of control over how much tax they pay.
  • Tax evasion will be reduced because people who currently resist paying income taxes and derive their income from black market sources would be taxed automatically at the point of sale whenever they purchase new goods and services.
  • The bottom price of goods and services will be lower because the embedded costs of the present income tax system will no longer be a factor.
  • A national sales tax such as this will be much more transparent than the current tax system. The people of America will be able to see the amount of taxation, and hopefully cut down on wasteful spending, corruption, and inefficiency in the government.

These things all lined up may make the Fair Tax Act seem to be quite a deal but before the American people decide they should also examine some of the following the arguments that are made against the Fair Tax Act:

  • If the income tax is not fully repealed as promised or a future president or perhaps even Congress decides to replace some part of the income tax code we could end up with a national sales tax and an income tax, which would be catastrophic for our economic liberty.
  • The national sales tax proposal is not indexed for inflation, meaning that as inflation increases the base price of goods and services will also increase.
  • People who have paid into the Social Security system and private savings accounts for retirement will be effectively double taxed when they begin withdrawing their money and spending it, because all the money that they have managed to save up has already been taxed by the present tax system.
  • The retail price of new goods and services will increase, and the first sight of apparently higher prices could have a diminishing effect on the economy.
  • Because tax rates will be under the national sales tax system, this could allow the government to raise the tax rate on certain items that it deems “unhealthy” or “dangerous”.
  • The “prebate” in the Fair Tax system could actually do a lot of harm over time, possibly causing people to rely to heavily on the government.
  • If the Fair Tax becomes really high, this could urge more people to enter the black market in order to avoid the tax.
  • The Fair Tax does nothing to fix the main cause of high taxation, which is extreme government spending. Simply changing the method of taxation is not going to change the root causes of unfair taxes.

As can be seen there are two sides to the coin, which needs careful consideration by the American people before we just permit the government to make all the decisions. If mistakes are made in allowing this bill in, there could very possibly be bad repercussions in the future.

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