The FairTax would be Simple The FairTax is a simple tax. Individuals who are not in business would have absolutely no compliance burden, nor would they be subject to the discretionary interpretation of the current convoluted tax code. As for businesses, it puts many fewer administrative burdens on businesses. In fact, filling out The FairTax tax return is comparable to filling out line one (gross revenue) of an income tax return. There would be no more alternative minimum tax, no more depreciation schedules, no more complex employee benefit rules, no more complex qualified account and pension rules, no more complex income sourcing and expense allocation rules, no more foreign tax credit, no more complex rules governing corporate acquisitions, divisions and other reorganizations, no more uniform capitalization requirements, no more complex tax inventory accounting rules, no more income and payroll tax withholding and the list goes on. Businesses would simply need to keep track of how much they sold to consumers.
Compliance costs would, therefore, fall under The FairTax. Today, according to the Tax Foundation, we spend about $250 billion each year filling out forms, hiring tax lawyers, accountants, benefits consultants, collecting information needed only for tax purposes and the like. These unnecessary costs amount to about $850 for every man, woman and child in America. To the extent these costs are incurred by businesses, they must be recovered and consequentlyare embedded in the cost of everything we buy. The money we spend on unnecessary compliance costs is money we might as well burn for all of the good it does us. The Tax Foundation has estimated that compliance costs would drop by about 90 percent under a national sales tax.
The FairTax would be Neutral
Under The FairTax, all consumption would be treated equally. The tax code punishes those who save and rewards consumption. Under The FairTax, no longer would the tax system be in the business of picking winners and losers. The tax code would be neutral in the choice between savings and consumption, neutral between types of savings and investments and neutral between types of consumption.
The FairTax would be Visible
The FairTax is highly visible, because there would be only one tax rate Congress could modify on all taxpayers at the same time. Moreover, all citizens would be subject to any tax increases, not just a targeted few. It would be much harder for Congress to adopt the typical divide-and-conquer, hide-and-disguise tax increase strategy it uses today. The FairTax would explicitly state the contribution to the Federal government each and every time a good or service is purchased.
The FairTax would be Stable
The FairTax would be more stable than the present system for two reasons. First, because it is so simple and transparent, it would not invite tinkering in the way that the current system with its thousands of pages of code and regulations does. People would resist attempts to make it more complex and attempts to favor special interests because they would understand what is going on. Second, taxing consumption is a more stable source of revenue than taxing income. There are fewer fluctuations in the consumption base than in the income base.
A recent study showed that for the years 1959 to 1995, a national sales tax base was less variable than the income tax base. Why? When times are unusually good, people will usually save a little more. People tend to smooth out their consumption over their lifetime. They borrow when young, save in middle age and spend more than their income in retirement.
Impact on Businesses
Businesses would utilize a zero corporate tax rate to create new jobs, grow their businesses, and be more competitive in the global market place. Their shareholders would not be taxed on dividends received from the corporation, or taxed on capital gains made on their investment in the business. This would stimulate business investments, creating more opportunities for working Americans. Compliance costs would be lower. Moreover, over time, most states would make their sales taxes conform to the federal sales tax, reducing the costs of complying with multiple rules in each state and political subdivisions.
If people were willing and able to purchase more goods and services in a healthy economy, they would spend more money at retailers. Spending and shopping is no longer a luxury activity, it is a part of our way of life. There is nothing that hurts businesses more than a slow economy and nothing that helps them more than a good economy. In this sense, The FairTax would help all businesses.
Currently, consumption purchases must be made with after-income-tax and after-payroll-tax dollars. The primary difference between a sales tax and an income tax is that the income tax doubles, triples or sometimes quadruples taxes on savings. Consumers would see their paychecks increase by nearly two trillion dollars. Since The FairTax is not a tax increase but is revenue neutral, the repeal of the income and payroll taxes, plus the decrease in consumer prices would provide consumers with the money necessary to pay for The FairTax.
Instead of having to comply with the complexities of the income tax, payroll tax, and various excise taxes, there would be one sales tax on all goods and services. Period. Retail businesses would simply need to calculate on a monthly basis its total retail sales. Retailers would receive an administrative fee (1/4 of one percent) for collecting the sales tax.
In summary, The FairTax would be a “win, win, win” for businesses, citizens, and government. Just consider the compelling nature of the advantages discussed earlier.
I realize that there are political and public hurdles to making such a change to how we fund our government. In fact, many people simply don’t believe that it can happen. They have given up on our government’s ability to do what is in the best interest of its people and our nation. To those people I ask, where would we be today if George Washington and the founding fathers had given up the fight to become an independent nation? We owe it to them, to ourselves, and most importantly to our children to correct a system that has gotten out of control.