Sunday, July 11, 2010

Saturday, July 10, 2010

FairTax can be better for the environment than the current income tax system

One of the many positives of the FairTax is that it helps the environment. Since the FairTax exempt purchases on used products, consumers have a bigger incentive to purchase used products to satisfy their wants and needs. Not only are used products priced lower than new products, the tax savings can also be significant when shopping for cars, appliances, recreation vehicles, exercise equipment, and many other costly goods.

FairTax can also reduce the demand for paper. According to one of the FairTax white paper, “What the federal tax system is costing you – besides taxes!”, over 130 million individual tax returns were filed and approximately 50 million business tax returns (includes corporations, partnerships, and sole proprieters) were filed. Under the FairTax, no individual tax returns would be filed other than a form to apply for prebates. Think about how much paper that saves (tax forms, instruction booklets). IRS still sends millions of tax booklets to households every year.

Businesses would no longer have to file complex income tax returns, saving any more paper. Since only businesses that sell goods or service at the retail level would have to file a sales tax return, more paper is saved. More paper saved means more trees and more room at the landfill.

Fuel would also be subject to the FairTax on top of the existing fuel taxes. I like to travel and would continue to do so under the FairTax; however, I will cut down on unnecessary trips. If the FairTax reduces demand for fuel, fuel prices would drop and the air would be cleaner.

Overall, the FairTax could have a significant drop in demand for natural resources. Environmental groups should be clamoring for the FairTax.

Thursday, July 8, 2010

IMF tells US to reduce budget deficit, suggests consumption tax to do it

In a Wall Street Journal article, the IMF is telling the United States to reduce its budget deficit. They recommended cutting entitlements such as social security, reducing the mortgage interest deduction, increase energy taxes, or implement a national consumption tax. The FairTax is a national consumption tax that would tax energy use and reduce the mortgage interest deduction by repealing the federal income tax code. Let’s make it happen.

Tuesday, July 6, 2010

My Attempt to Alleviate Concerns About the FairTax

Understandably, some people have concerns regarding the FairTax proposal. Here is my attempt to alleviate some of them:

Low income and middle class households will have to pay more under the FairTax than the income tax. That could be true if they spend all of their income on taxable goods. Since most of these households would be spending some of their income on house payments of older homes and used vehicles, both of which would be FairTax exempt purchases, their tax burden would be less. Also, the prebate offsets FairTaxes paid on purchases up to the poverty level.

Big corporations get all the breaks, while the U.S. consumer gets the shaft. Currently, big corporations already get tax breaks that small businesses could not take advantage of. Under the FairTax proposal, big and small companies alike would be exempt from paying the FairTax on purchases for business purchases. The tax savings would allow companies to price their products more competitively (giving the American consumer more purchasing power) or expand their business (creating more jobs).

The 23 percent tax rate would not be enough to replace income tax revenues. Granted, the top income tax rate for top earners is 35 percent, but that rate only applies to part of their income. Taxpayers in that tax bracket have found ways to shelter and/or hide income to avoid paying income taxes. The FairTax makes it hard for anyone to avoid paying taxes.

Americans will create sham businesses to make tax free purchases. Businesses would be exempt from paying the FairTax only on purchases for business purposes. Businesses would still be subject to audits, back taxes, and penalties, which would be the deterrent to invoking the exemption for personal use. Since citizens themselves would no longer be subject to audits, more focus would be on businesses to be compliant. Nevertheless, to those who do start a business for the purpose of avoiding the FairTax and can justify the business use of tax exempt purchases, more power to them! Businesses, after all, make huge contributions to the economy, and the FairTax helps businesses contribute their part.

Manufacturing and Retail Industries will suffer. Every time that I’m shopping for groceries or looking at steak prices on a menu, I never think about how much extra I’m paying for sales tax. When I’m shopping for a vehicle, though, I will take sales tax into consideration. If/when the FairTax passes and goes into effect, I’m sure shoppers will take the FairTax rate into consideration, especially the larger purchases. They, however, would have more purchasing power due to federal income taxes and FICA no longer taken out of their paychecks. There may be a noticeable shift in buying habits but not drastic.