FairTax
The FairTax is a tax proposal that would replace all federal income taxes -- including corporate, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self employment taxes -- with a federal sales tax. The tax would be paid on the purchase of all new goods and services, and would be immediately collected at point of sale. [1]
Thus, instead of taxing "income", the Fair Tax would tax expenses. This is known as a consumption tax. The estimated rate for the Fair Tax would be 23 percent[2], although some critics say it would be closer to 33%.[3]
Though frequently advertised by supporters as a "voluntary" tax, this is not entirely true. Consumers can indeed forestall the tax by choosing not to spend money, or by electing to purchase only second-hand goods (which are not taxed under this proposal). However, at some point, all consumers must purchase new goods and services, including various necessities such as health care, food, fuel, phone service, etc., at which point the tax would no longer be "voluntary" but mandatory. To help counter this effect -- and to make the tax more "fair" -- expenses such as those listed would be offset to a certain degree by a "prebate" -- a monthly check issued by the government to each worker. However, given the income level of most Americans, the vast majority of citizens (about 85%) would end up paying some measure of tax on these items, prebate or no. The Fair Tax would therefore operate in direct conflict with the Constitution, which prohibits Direct taxes (those paid on the necessities of life, or on any unalienable right) without apportionment. Legal challenges to the tax would probably emerge shortly after its passage and lead to nullification by the U.S. Supreme Court for violating Article I, Section 9. (See Criticism below.)
Contents
Proposal
If passed, the Fair Tax would accomplish the following[4]:
- Abolish the Internal Revenue Service (IRS).
- Abolish personal income taxes.
- Repeal the 16th Amendment.
- Provide each worker a monthly prebate, equal to the tax on "poverty level" income. [5]
- Close many loopholes under the current system.
- Enable retirees to receive their full pension, untaxed, until they spend it.
- Enable workers to keep their entire paycheck, untaxed, until they spend it.
History
1986-2005
The Fair Tax was originally the brain-child of the Scientologists, as part of their ongoing battle with the IRS. The most popular of initial plans for the Fair Tax was designed by Americans for Fair Taxation (AFFT), which is led by businessman Leo Linbeck[6]. Linbeck stated that Americans have to pressure the government to come up with a better way of taxation, he said, “It is painfully obvious that Washington, D.C. insiders so closely linked with the status quo cannot be trusted to overturn the corrupt system of federal taxation. This effort will have to be driven by the American people[7]." The organization hired experts to look into an idea for a better tax system, they spent 23 million dollars in coming up with the idea of the Fair Tax. Their findings were combined into a book, “The FairTax Book: Saying Goodbye to the Income Tax and the IRS,” which Linbeck co-authored with Republican Congressman John Linder[8].
The Fair Tax became popular among free market conservatives, libertarians, and some economist in recent years. The complication and wasted bureaucracy of the Internal Revenue Service, government pressure on citizens to reveal information and records, and the loopholes in the current tax system created the incentive to look for a new way of taxation in the United States. Some Democrats also sought a tax system that would rid them current income tax, which they claim to be discriminate.
In the last 20 years the United States tax system has been changed over 14,000 times, this has led to an abundance of complexities which lead to its being an inefficient system. In 2003, United States Senator Saxby Chambliss, a Republican, and Senator Zell Miller a Democrat; introduced a by-partisan version of the Fair Tax. Although the bill had some support in the Senate, it eventually lost in a 50-50. Senator Sam Brownback later stated the challenges of tax reform, “When you take (the tax code) on straight on, you take on every lobbyist,"
2005-2007
Former Federal Reserve Chairman, Alan Greenspan, called for a federal sales tax to replace the broken income tax in 2005. "Since the exemplary 1986 reform, the tax code has drifted back to be overly complicated and burdened by higher marginal rates and by many special provisions that have undesirably narrowed the tax base," Greenspan stated at a Presidential Advisory counsel[9].
In 2005 congress created a bill to enact the Fair Tax (H.R. 25; Senate Bill 1943), it had the support of more then 54 co-sponsors, and both Senate and House minority leaders Dennis Hassert and Tom DeLay[10]. Although the bill received the most support ever for any fundamental tax reform bill, it failed to pass. After the elections of 2004, Georgia Republican Congressman, John Linder, reintroduced the FairTax on the first day of the 109th congress[11]. Congressman Linder stated before congress, “The time is ripe for fundamental tax and a completely new Federal tax regime. I am pleased to reintroduce my Fair Tax proposal today reform, and look forward to the Congress creating a fairer, simpler tax system that advances our core goals of lower taxes and more freedom for our citizens."[12].”
In 2007 support for the FairTax bill grew to include 60 co-sponsors[13].
One of the most outspoken supporters of the Fair Tax is Republican presidential candidate, Mike Huckabee. Huckabee has said that the Fair Tax would "put the IRS out of business, but put Americans in business[14]."
Support
Most of the support for the FairTax comes from the Republican Party and the Libertarians. A significant number of Conservatives want Republican presidential candidates to support the FairTax, including one Indiana group called ‘Hoosiers for Fair Taxation’[15]. [16]. Former Arkansas governor and presidential candidate Mike Huckabee made passage of a national sales tax a part of his platform during his recent bid for office. Former Federal Reserve chief Alan Greenspan also exhibited support for the FairTax in a recent interview.[17]
Proponents of the FairTax argue it would be more practical than the current system, which includes over 60,000 pages of tax code.[18].
Criticism
Republican presidential candidate Rudy Giuliani criticized the Fair Tax when addressing a group at the University of Florida in July, 2007[19]: "I don't think a Fair Tax is realistic change for America. Our economy is dependent upon the way our tax system operates[20]."
None of the 2008 Democratic presidential candidates support the Fair Tax either, although Mike Gravel has indicated he supports a new kind of system based around consumption (expense) rather than income.
Aside from political criticism, however, the FairTax suffers from serious constitutional infirmities. Supporters have tried to paint the tax as an "excise". But this is flat wrong. The constitutional definition of an excise is a tax that is strictly limited to privileged or luxury goods and activities. The writings of the Founding Fathers, as well as numerous U.S. Supreme Court and lower court rulings, confirm this definition.[21] However, the FairTax encumbers necessities in addition to privilege and luxury items, thus making it a Direct tax within the constitutional meaning of the term. Unlike true excises, the FairTax cannot be "avoided" because it taxes things which are necessary to live. These include food, clothing, housing, transportation, medicine, health care, arms for self-defense, phone service, sundries, education, etc. Any tax that encumbers such items must be apportioned among the states, or it violates the Constitution.
Although proponents suggest that necessities are effectively relieved from the tax by virtue of the prebate, the fact remains that necessities are taxed. Furthermore, once an individual's spending on necessities exceeds the poverty level, the prebate no longer offsets the tax, and the tax operates fully as an unapportioned Direct tax, in violation of the Constitution. In Brushaber v. Union Pacific Railroad Co. (1916), the Supreme Court ruled that whenever any "excise" morphs into a tax on items of common right (such as anything necessary to preserve and carry out a normal life) "the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it." Regardless of whether the FairTax is called an "excise," it is, in substance, a Direct tax which cannot be apportioned among the states. It is therefore unconstitutional.
Finally, the FairTax shares a major flaw with the current income tax system: There is no cap on the rate that Congress may impose. Initially, that rate might be established at 23%. But nothing in the FairTax proposal prevents Congress from raising the rate to 30%, or even higher. Given the government's proclivity for spending money, an eventual increase in the FairTax rate, were the tax to become law, seems inevitable.
Another complaint is that a sales tax will not effect overseas purchases, or money from investments, encouraging hoarding.
External Links
References
- ↑ Americans For Fair Taxation, “About the FairTax,” http://www.fairtax.org/site/PageServer?pagename=about_main
- ↑ "Embedded Taxes Change Fair Tax Analysis",http://www.roanoke.com/editorials/commentary/wb/wb/xp-51569
- ↑ http://www.factcheck.org/taxes/unspinning_the_fairtax.html
- ↑ American For Fair Taxation, http://www.fairtax.org/site/PageServer?pagename=about_main
- ↑ Just how fair is the ‘Fair Tax’ CNN Money, September 2005, http://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/
- ↑ Just how fair is the ‘FairTax’ CNN Money, September 2005, http://money.cnn.com/2005/09/06/pf/taxes/consumptiontax_0510/
- ↑ Americans For Fair Taxation http://boortz.com/nuze/200510/10132005.html
- ↑ “The Fair Tax Book”,2005, http://www.amazon.com/Fair-Tax-Book-Saying-Goodbye/dp/0060875496/ref=sr_1_1/102-3275846-3467353?ie=UTF8&s=books&qid=1184106196&sr=1-1
- ↑ Greenspan: "Consumption Tax COuld Help Economy",http://www.foxnews.com/story/0,2933,149298,00.html
- ↑ “The FairTax: A Trogan Horse For America,” Jews For Preservation of Firearms Ownership, http://www.jpfo.org/fairtax.htm#fn1
- ↑ “Linder Reintroduces FairTax Legislation”, http://www.johnlinder.com/News_Details.asp?NewsID=128
- ↑ “Linder Reintroduces FairTax Legislation”, http://www.johnlinder.com/News_Details.asp?NewsID=128
- ↑ FairTax Gains Support, http://www.fairtaxblog.com/20070508/record-sixty-co-sponsors-for-fairtax-bill-hr-25/
- ↑ Massachusetts For Mike Huckabee, http://massachusettsforhuckabee.blogspot.com/search/label/Tax%20Plan
- ↑ ”FairTax Supporters Vent Frustration”, June 2007, http://www.theindychannel.com/news/13651607/detail.html
- ↑ ”FairTaxer's continue to “flex their muscles”, July 2007, http://www.fairtax.org/site/PageServer?pagename=news_feature
- ↑ Greenspan: Consumption Tax could Help Economy, Fox News, March 2005, http://www.foxnews.com/story/0,2933,149298,00.html
- ↑ 67,204-Page Code Confounds Taxpayers, Yet Congress Sits By, USA Today, http://www.usatoday.com/news/opinion/2007-04-03-edit_N.htm?csp=34
- ↑ “Giuliani Jeered For Opposing Flat Tax”, Associated Press, July 2007, http://www.forbes.com/feeds/ap/2007/07/07/ap3891710.html
- ↑ “Giuliani Jeered For Opposing Flat Tax”, Associated Press, July 2007, http://www.forbes.com/feeds/ap/2007/07/07/ap3891710.html
- ↑ http://www.conservapedia.com/Excise