The Fair Tax Act  H.R. 25/S. 1025

"To promote freedom, fairness and economic opportunity
by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national 
sales tax administered primarily by the States."

Sen. Sponsor: Saxby Chambliss (R-GA) - 4 Co-Sponsors
Status: Referred to the Finance Committee

 House Sponsor: John Linder (R-GA) - 70 Co-Sponsors
 Status: Referred to the Ways and Means Committee 

 

The Flat Tax - With this plan, introduced by several Senators and preferred by Steve Forbes, every taxpayer would pay the same percentage of income tax - usually estimated between 17 and 20%.

The Fair Tax, championed by Governor Mike Huckabee and discussed below eliminates taxes on income altogether and replaces the revenues with a National Sales Tax.

The Bill

Taxes are one of the most controversial issues in politics - and always have been. Our own American Revolution was due, at least in part, to unfair taxes.

In the U.S., government traditionally collected taxes based on property values or added excise taxes to items like tobacco and tea. The first tax on income was instituted during the Civil War and was later abolished. Then, to fund U.S. participation in WW I, in 1913, the 16th Amendment to the Constitution was added, giving Congress the authority to tax income it has today.

The number of pages in the U. S. tax code nearly tripled in the last 30 years

Proponents say the simplicity and fairness of this plan is obvious. Each individual and family chooses what to purchase and every purchase is taxed at the same rate, regardless of where the money came from or who spends it. It protects the poor, encourages savings, and empowers American businesses.

Opponents say the plan is unrealistic. They object to the new bureaucracy created by the sales tax and the Prebate idea that puts every American on the government payroll. Furthermore, once politicians make exemptions for things like food and housing, the tax rate could go up to 40, 50 or even 60%.

So what do you think? Is this plan fair to YOU?

· Voice your opinion by
   placing a comment.
· Vote your conscience in
   the voting booth above.
· Tell Congress what you
   think with a customized
   letter:    

“Even though this bill will all but end my 10-year-old income tax preparation business, I love it, I love it, I love it!”
E.N.
Pittsburg, CA

“This would be the perfect way to boost our economy and let us have our money while the government still gets theirs.”
K.N.
Troy, OH

“We need to find a way to tax the illegals and the people who deal on the black market.”
B.N.B.
Mary Esther, FL

"Tax reform, yes.  But this just trades one bureaucracy for another and makes every family expect a monthly government check."
PAO
Atlanta, GA

“We all want to pay less in taxes, but if the government still needs the same amount of money, how is that going to happen? If I pay less, then you will have to pay more. It's a zero-sum game.”
J.W.
NJ

The present tax code is too complicated and a change is necessary and inevitable. … According to statistics, American taxpayers pay more for the cost of the I.R.S. than the C.I.A. and F.B.I. combined.”
R.E.S.
Houston, TX

“We need reform, but I don't think a sales tax is the right way to go.”
D.L.S.
Akron, OH

“It would eliminate all the unfairness posed by special interest provisions and it would “value” savings not consumption. Not in favor of the rebates and credits. Keep it simple.”
F.C.
Salt Lake City, UT

“Anyone who opposes the Fair Tax … does not understand the impact that will be made for everyone in the U.S.”
Billy H.
Collinsville, OK

“I would not support it (but) … If it came to my desk, obviously I would sign anything that would simplify our tax code.”
John McCain (R-AZ)
Presidential Candidate

“It would reduce taxes for wealthier Americans, but would not help to improve tax fairness and would significantly worsen the federal deficit.”
Barack Obama (D-IL)
Presidential Candidate

“This bill could result in a more regressive tax policy that disadvantages middle and working class families.”
Hillary Clinton (D-NY)
Sen. + X-Pres Candidate

“The Fair Tax will instantly make American products 12 to 25% more competitive because the cost of those goods will no longer be inflated by corporate taxes, costs of tax compliance and Social Security.”
Mike Huckabee (R-AK)
X Gov & Pres Candidate

“You would need two other bureaucracies and they could be huge.  One to enforce the sales tax. You'd also need a bureaucracy to administer the biggest welfare system ever devised which would give every American a Prebate to make up for the effects of this tax on low income people.”
Bill Gale
Dir. of Economic Studies
Brookings Institute

“The Fair Tax is a fair, efficient, transparent and intelligent solution to the frustration and inequity of our current tax system.”
FairTax.org

“We found that while there are several good economic arguments for the FairTax, unless you earn more than $200,000 per year, fairness is not one of them.”
FactCheck.org

“After serving 8 years on the Senate Finance Committee, my choice to meet the fairness criteria is to junk the income tax with all its exceptions, close the IRS and establish a sales tax without exceptions.”
Mike Gravel (Liberatian, Former D-AK)
X Sen + Pres Candidate

The % of income tax 
paid by U.S. taxpayers
has expanded 6-fold

Most politicians propose their own series of tweaks to this code, hoping to redistribute wealth or encourage things like energy efficiency, education and home ownership. However, two proposals gaining traction in recent years would fundamentally change the whole tax structure.

The Fair Tax Act starts by repealing all federal income taxes for individuals and corporations. Every dollar you make, you keep - and so does the company that employs you. The I.R.S. is gone along with all taxes on:
· Personal income
· Corporate income
· Resold goods and services 
· Exports
· Investments
· Gifts/Estates

Of course that also means there would be no deductions for home interest or business losses or charity or children because there won't be any tax returns to file.

Instead, the money needed to run government will be raised through a National Sales Tax. Every purchase that's made in the U.S. will be taxed - whether it's a product or a service. So in addition to taxes on merchandise, everything from hair cuts to health care consultations will now be taxed as well.

However this only applies to the purchase of new goods. The idea is “To tax all consumption of goods and services in the United States once, without exception, but only once.” So used goods and services are not subject to the National Sales Tax.

EXAMPLE: If you buy a new house or car, you pay tax. But then the tax has been paid forever. So when you buy or sell a used home or car, it's tax free

Following that same principle, the materials and supplies that corporations purchase and use to produce their goods or services are also tax-free. So the company that makes your DVR doesn't have to pay tax on the chips it buys and builds into the final product. All taxes are paid when the item is sold to the consumer.

When products are exported, there are no taxes other than whatever tariffs apply. This could make U.S. prices more competitive and strengthen the positions of U.S. companies in the global marketplace.

According to this plan, the added tax will not increase the retail price consumers pay here in the U.S. because embedded corporate taxes will be eliminated. As it works now, companies build their taxes into the cost of the products they sell us. If we eliminate these “embedded” taxes, the cost of goods will come down - and the price paid at the point of purchase should be a wash.

EXAMPLE: If the jeans you want cost $100 now, when you take out corporate taxes, they might only cost $75. You would then pay 30%- or $22.50 in National Sales Tax (not including any State tax) so your total purchase price is $97.50.

The percentage of the tax has been a matter of great debate. The tax itself is 30% of the price - but that only amounts to 23% of the total cost you paid. (23% of $97.50 is $22.50) Of that 30%, 14.91% goes to General Revenue and the other 15.09% toward Social Security and Medicare (FICA).

It's fair because everyone pays the same rate on their purchases. Since everyone buys things, the tax burden will be spread among more people - and not just the people earning income. The trust fund baby, the drug dealer and the tourist will all pay taxes as well.

The catch comes when you look at how much National Sales Tax you pay as a percentage of your annual income - and that can vary widely.   That's because investments and savings are not taxed by this Act; rather they are encouraged.

To offset this regressive effect, The Fair Tax Act creates “Prebates.” Every family will be given an annual credit equal to the taxes paid on a poverty level income. Families register annually; then every month the government mails or electronically deposits a rebate check into your account.

Corporations also receive monthly rebates and can earn credits for things like administrative efficiency, export sales, bad debts and insurance proceeds. As a result, business rebates will vary month to month and from business to business.

The National Sales Tax would be collected at the point of sale - at the grocery store or car lot or hair dresser's salon. Businesses that sell goods and services simply add the tax into the cost of their products. Large sellers (those who will pay over $100,000 in tax and sell more than $435,000 a year) must make tax deposits weekly.

It's up to the States to collect the money since 45 out of 50 already have collection systems for State sales taxes. To compensate for their administrative costs, 00.25% of the taxes collected will be used to reimburse the States.

EXAMPLE:  If you're in a low to middle income category and you spend every dollar you make, you will pay 30% of your total income in taxes. If you make a million dollars and only spend half, you would only be taxed on half and your real tax rate would be 15%.

To manage it all, a new Sales Tax Bureau will be set up on the federal level with oversight given to the Secretary of the Treasury. A separate department will be set up for excise taxes and taxes on alcohol and tobacco will continue to be collected by the Bureau of Alcohol, Tobacco and Firearms. This bill does not affect excise taxes, nor any state, local or property taxes.

YOU PAY A 30% TAX

$ 75.00  Purchase Price
x   30%  Tax Rate
$ 22.50  Tax Due
+ 75.00  Purchase Price
$ 97.50  Total Due

WHICH EQUALS
23% OF THE TOTAL PRICE

$ 22.50  Tax Paid
÷ 97.50  Purchase Price
     23%   % of Total That's Tax

In Favor of
H.R. 25/S. 1025

Or click here to get LINKS to other websites on this issue.

The initial tax was progressive, starting at 1% and topping out at 7%. Through the decades the percentages were raised and lowered, raised and lowered. Today, the top rate is 35% but most of us don't pay that much.  Approximately 40% of us pay 15% of our modified income in taxes. About 30% of us pay more, 30% less. That's just income taxes. We also pay FICA taxes which were added in 1935 to fund the Social Security and Medicare programs. Currently, the employee portion of that rate is 7.5% of the first $99,500 you make in 2008. Your employer pays an equal amount of FICA. Corporations also pay income taxes.

With both corporate and individual returns, there are hundreds of details and deductions that can affect your rate. As a result, the U.S. tax code which explains all those rules and regulations has become an astounding 60,000 pages long.

Opposed to
H.R. 25/S. 1025

Are you in favor of a National Sales Tax?