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Is the Fair Tax fair?
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IRS Commissioner Douglas Shulman talks about 75,000 U. S. tax cheats
At a recent meeting of the Henry County Republican Party, most people in the room raised their hand when asked to show if they supported a Fair Tax. Some of the people who did not raise their hands said later that they were not sure what the Fair Tax proposal is all about. They did not want to claim support for something they did not know about. For people who are not sure about it, here are some facts:
The Fair tax is a proposal to change federal tax law so that all federal income taxes would be eliminated and replaced by a national sales tax. As it was presented by Georgia Republicans John Linder and Saxby Chambliss more than ten years ago, the Fair Tax Act (H.R. 25/S. 296) would be levied once at the point of purchase on all new goods and services for personal consumption. The sales tax rate, as defined in the legislation would be equivalent to a 30 percent sales tax
Supporters of the plan say that a consumption tax would have a positive effect on savings and investment, that it would ease tax compliance, that the tax would result in increased economic growth and incentives for international business to locate in the U.S. Moreover, those in favor of the Fair Tax say that the plan would decrease tax burdens by broadening the tax base, effectively taxing wealth, and increasing purchasing power.
There is some debate, however, as to whether a national sales tax would raise less revenue than the current tax system, leading to an increased budget deficit, and also whether a large consumption tax would be more difficult to collect than the current income tax.
Investors have expressed concern about how the elimination of the federal income tax would effect the current tax advantages and tax credits of state and local bonds holders and also if incentives on the use of credit would be loss, such as deductions for mortgage interest.
Since there has been no action by the U. S. Congress, some state legislators have been making noises about changing state laws. The federal bill was re-introduced as the Fair Tax Act of 2003 (H2556) and got 54 co-sponsors. That bill would amend the Internal Revenue Code, repeal income taxes, estate and gift taxes, and employment taxes. It would impose a tax on the use or consumption in the United States of taxable property or services.
The bill was referred to the House Committee on Ways and Means in May 2004, but was never reported out of committee. Congressman John Linder and talk show host Neal Boortz wrote a book about the Fair Tax in 2006. Former Presidential candidate and former Governor Mike Huckabee has been talking about the Fair Tax on Fox Business.
Whether more than ten years of talk can be truned into a change in the federal tax law remains to be seen.
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