OCALA, Fla., February 7, 2014 — Replacing the income tax is an idea that has been around for quite awhile. It probably began over one hundred years ago, on the day that Woodrow Wilson signed the Revenue Act of 1913 into law.
A leading alternative to the income tax is called the “fair tax”, which would be levied on purchases within the United States. There is far more to the fair tax than this simple definition, though.
For starters, how might a national sales tax be of benefit to consumers?
“Consumers would gain control of their tax burden,” former New Mexico Governor Gary Johnson explains to Communities Digital News. One of America’s foremost libertarian voices, he stood as a candidate for the 2012 Republican presidential nomination. He ultimately left the GOP to run as the Libertarian Party’s standard-bearer. Today, Gov. Johnson continues his advocacy for individualist public policy.
He continues: “They would receive their full pay without federal deductions, and their purchases of necessities would be exempt from taxation by way of the “prebate”. Then, they would only be paying federal taxes when they choose to spend. Savings and investment would not be taxed. With regard to the cost of consumer goods, most people don’t realize how much federal tax is embedded in prices they pay today.
“The Fair Tax would eliminate those embedded taxes and replace them with a transparent single sales tax.”
Dan Mastromarco is an Annapolis-based attorney who has been leading the charge for years on fair tax-related matters. He tells CDN that “(t)he economic growth prospect means consumers have more money to spend. Microeconomic simulations show in the long-run, low-income households experience a 26.7 percent welfare gain, middle-income experiences a 10.9 percent gain, and high-income experiences a 4.7 percent gain. And that’s before savings from compliance costs.
“By 2015, Americans will waste $430.1 billion a year complying with 74,608 pages of incomprehensible tax code. Taxpayers with less than $50,000 of AGI shoulder 54 percent of the total compliance cost. The FT reduces compliance costs by an estimated 90%, knowing taxpayers want to spend their money on a vacation rather vs. H.R. Block.”
If all Americans were subject to a national sales tax, might most actually pay more to the federal government than they do now?
“No, in fact, projections are that most people would actually pay less,” Gov. Johnson says. “Right now, people in the lowest bracket are taxed at a 15% rate on income plus a 7.65% payroll tax. That is almost 23%, with an effective rate of about 17% after deductions, etc. However, with the Fair Tax prebate, that same taxpayer will only be paying, on average, about 15% of their income in federal taxes.”
Mastomarco also believes the fair tax will ease Americans’ burden. He notes that “(o)ne reason Congress gets away with ever increasing tax revenues is that — while nearly every adult can vote — almost half aren’t vested in the tax system (43 percent do not pay income taxes). And when we do pay income taxes, hidden taxes are buried in prices of goods and services. This explains why politicians clamor for corporations to pay more, ignoring that they must pass them along to the voter in the form of higher priced goods.
“The FT will vest everyone with the civic duty to pay taxes made visible for the first time. This simple act — conveying the cost of government on every receipt – places downward pressure on the tax burden. The resistance to a 23-percent marginal FT rate (lower than the rates paid today) is testament that people do not grasp their full tax burden. Additionally, the Ways and Means and Finance Committees – caretakers of the modern-day Tammany Hall– sell the tax base to the politically well connected. The FT requires tax lobbyists to find real jobs.”