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Is a 'Fair' Tax in America's Future?

No more federal income tax... if bill passes

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If you thought the Flat Tax was a good idea that failed, you're going to utterly love the FairTax. The latest "let's dump the Tax Code" idea from Washington's wishful well of best intentions we call Congress, the FairTax bill would abolish all federal income taxes, death taxes, capital gains taxes, and payroll taxes and replace them with a national retail sales tax.

No, there is not a space missing between Fair and Tax. FairTax is how Rep. John Linder (R-Georgia, 7th), sponsor of the Fair Tax Act of 2003 has chosen to market his innovative tax reform legislation.

"Momentum behind the FairTax continues to build," said Linder. "Not only do my colleagues recognize the harm done to the American people by the overly intrusive and burdensome income tax code, their constituents recognize it every April 15th."

To Rep. Linder, "momentum" means his Fair Tax Act has gained the support of several other lawmakers -- now including powerful House Majority Leader Tom DeLay (R-Texas, 22nd).

"The bill now has 21 co-sponsors – more than any other fundamental tax reform legislation in the House – and they represent a bipartisan coalition of members from across the nation," said Linder.

Overview of the Fair Tax
In place of all current federal taxes, the FairTax would place a 23 percent tax on the final sale of all goods and services. Exports and business inputs (i.e. intermediate sales) would not be taxed.

Individuals would file no tax return at all. Businesses would only need to deal with sales tax returns. The IRS and all 20,000 pages of IRS regulations would be abolished.

Under the FairTax, no federal taxes would be withheld from employees' paychecks. Social Security and Medicare would be funded by sales tax revenue.

Effect of FairTax on families
The FairTax would provide every family with a rebate of the sales tax equal to spending up to the federal poverty level. The rebate would be paid in advance and updated according to the Department of Health and Human Services poverty guidelines. Based on the 2003 guidelines, a family of four would be able to spend $24,240 annually tax free. They would receive a monthly rebate of $465 each and every month ($5,575 annually). Therefore, no family would pay tax on essential goods and services, and middle income families would be effectively exempt from tax on a large portion of their annual spending.

Why is the FairTax 'fair'?
According to Rep. Linder, the current tax code violates the principle of equality. Special rates for special circumstances violate the original Constitution and are unfair. Under the FairTax, all taxpayers would pay the same rate and control their liability through their spending. Tax paid would depend on the individual's chosen life style. Basically, the more you spend, the more tax you pay.

Will the FairTax pass?
Probably not, but it does have wider support in Congress than the Flat Tax ever managed to gather. The addition of DeLay and 14 other co-sponsors in the last month alone is just the latest positive news regarding the FairTax. In February, the annual report of the White House Council of Economic Advisers stated for the first time that elimination and replacement of the complex and arcane federal income tax code with a consumption tax would increase efficiency in the tax system and promote investment and growth. The report stated that a consumption tax, like the FairTax, could very well be the most suitable replacement for the income tax system.

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