The Fair Tax Act was introduced by Linder in 1999 to the 106th United States Congress. Recently, it was proposed by the current Congress as the answer to a complicated tax code.
JACKSONVILLE, FL, August 03, 2013 /24-7PressRelease/ -- The FairTax idea is not new; it has been around for over a decade. The Fair Tax Act was introduced by Linder in 1999 to the 106th United States Congress. Recently, it was proposed by the current Congress as the answer to a complicated tax code that has resulted in a waste of government resources trying to enforce.
What is FairTax?
FairTax is a tax system where income tax, including payroll taxes, estate taxes, and gift taxes, is replaced by a single tax on the consumption of goods and services. The basic idea is instead of taxing a taxpayer's income, each state taxes spending.
The FairTax Act, if implemented, will require the elimination of the IRS and the establishment of two bureaus: Excise Tax Bureau and Sales Tax Bureau. The state will have the power to collect the revenue and give it to the Treasury. Americans for Fair Taxation (AFFT), a political advocacy group dedicated to fundamental tax code replacement, designed the FairTax along with economists.
How Will FairTax Affect Taxpayers and Businesses?
As taxes are charged on spending, taxpayers would pay a 23 percent tax rate on any good or service they bought. There would be no taxes withheld from their wages. The proposal includes a monthly payment, the Family Consumption Allowance, a prebate (a rebate given in advance) paid to all households of U.S. citizens up to the poverty level. The amount of the allowance is based on family size, irrespective of income level.
Businesses will charge added taxes on the commodities they sell to include the consumption tax. Each state will collect taxes from businesses and pay the Treasury, as consumers will not be required to file taxes.
Why FairTax? The Great Debate
Whether FairTax is the answer to the complicated tax code is not easily determined, as it has its advantages and limitations. Those who oppose FairTax quote that unlike the present progressive tax system, FairTax will enable the high-income earners to pay fewer taxes than middle-income and lower-income groups. They contend that the implementation, enforcement and collection of taxes will be very difficult, which may lead to rampant tax evasion. They believe FairTax would raise less revenue than the current income tax system.
Supporters of the FairTax state that the new tax will increase savings and investment, broaden the tax base, give individual taxpayers control over their tax rates, and remove all complexities from the tax system.
The FairTax is a proposal as of now. The bill will need to be included in the final version of the tax legislation from the U.S. House Committee on Ways and Means, and then pass both the House and the Senate to finally be signed by the President before it becomes law.
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