{"id":663,"date":"2015-04-07T15:04:17","date_gmt":"2015-04-07T19:04:17","guid":{"rendered":"http:\/\/www.musingsbymichael.com\/blog\/?p=663"},"modified":"2015-04-07T15:04:17","modified_gmt":"2015-04-07T19:04:17","slug":"the-fair-tax-is-it-what-we-need","status":"publish","type":"post","link":"http:\/\/www.musingsbymichael.com\/blog\/2015\/04\/07\/the-fair-tax-is-it-what-we-need\/","title":{"rendered":"The Fair Tax is it what we need?"},"content":{"rendered":"

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The Fair Tax is it what we need?<\/h1>\n

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Since your Federal Income Taxes are coming due in the very near future; I thought a blog about an alternative tax system would be appropriate. It is called the Fair Tax<\/a> and has very vocal proponents who say it is the solution to a much fairer tax system.<\/span><\/p>\n

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What is this thing called the Fair Tax? Well to put it simply it means that the Federal Government would collect a national sales tax on the things that you buy. To further elaborate on this I am going to quote what the website FairTax.org says:<\/span><\/p>\n

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\u201cThe current federal income tax system is clearly broken \u2014 unfair, overly complex, and almost impossible for most Americans to understand. But there is a reasonable, nonpartisan alternative before Congress that is both fair and easy to understand. A system that allows you to keep your whole paycheck and only pay taxes on what you spend.<\/span><\/p>\n

The FairTax is a national sales tax that treats every person equally and allows American businesses to thrive, while generating the same tax revenue as the current four-million-word-plus tax code. Under the FairTax, every person living in the United States pays a sales tax on purchases of new goods and services, excluding necessities due to the prebate. The FairTax rate after necessities is 23% compared to combining the 15% income tax bracket\u00a0 with the 7.65% of employee payroll taxes under the current system — both of which will be eliminated!<\/span><\/p>\n

Important to note: the FairTax is the only tax plan currently being proposed that includes the removal of the payroll tax.\u201d<\/em><\/span><\/p>\n

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There is legislation in Congress, Fair Tax Act of 2015 (HR 25<\/a>), which is being discussed in the House of Representatives. This is a very real proposal and it has many backers that want the Internal Revenue Service (IRS) dissolved and the way they see to do that is by implementing the Fair Tax.<\/span><\/p>\n

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Here is an example of how it would work; this is from the website Money Crashers<\/a>:<\/span><\/p>\n

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\u201cThe proposed sales tax would amount to 23% of the total payment on just about all purchases. Sounds like you\u2019d simply pay a 23% sales tax, right? Not quite. Basically, this works out to be a 30% sales tax rate, because you wouldn\u2019t pay the tax at the register, like you do now.<\/span><\/p>\n

For example, an item marked $100 would already include the sales tax within it \u2013 in this case, $23. This is called an inclusive tax. In other words, the cost of the item without the tax would be $77. But $23 paid on a $77 purchase is roughly 30%, the way we\u2019re used to calculating it. While 30% is steep, you\u2019d be working with a much larger paycheck, because no federal tax would have been withheld.<\/span><\/p>\n

Further, the Fair Tax plan attempts to solve the issue of double-taxation. Currently, businesses must pay sales tax on the materials they use to create the goods they sell, which then get taxed again. In effect, the same material gets taxed twice. But under the proposed legislation, items purchased directly by businesses could avoid the sales tax and thereby avoid being double-taxed. This should bring the wholesale cost of your purchase down, and, in theory, it should reduce the retail price as well.<\/span><\/p>\n

Lastly, used items would not be subject to the federal sales tax.\u201d<\/span><\/p>\n

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While the idea of getting rid of the payroll tax and the IRS sounds like a good idea, there may be a real problem with the Fair Tax. One can we really get rid of the IRS? After all the IRS is now also involved in the regulation of Obama Care. Plus how about the problems of collecting this tax; Forbes Magazine<\/a> wrote about this in 2011 and said \u201cThe basic and simple problem is that trying to charge 25% or so in one single step at that point of final retail sale is too high a tax rate for it to be regularly achievable. You would almost immediately have a spate of long firm frauds<\/a>. Plus a general move towards a grey, cash based, economy which simply ignored the existence of the tax.\u201d<\/span><\/p>\n

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Having an underground economy is what happened when they forced this country to go dry; alcohol was made illegal to buy by the 18th<\/sup> Amendment, known as the Volstead Act<\/a> to the Constitution. What happened is the emergence of the mobsters and organized crime. Everyone ignored the law and drank what they wanted in open defiance of the law.<\/span><\/p>\n

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Most likely this is what would happen if the Fair Tax were passed and our criminal element would grow even more. No one wants that! So, for now at least it would be a very good idea to simplify the income tax system we have now.<\/span><\/p>\n

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That is my opinion- Jumpin Jersey Mike<\/span><\/p>\n

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