The FairTax Act is a proposed tax reform in the United States that would replace the current federal income tax, payroll tax, and estate and gift taxes with a national retail sales tax. Here are some of the positives often cited by its proponents:
Simplicity:
It eliminates the need for individual income tax returns, simplifying tax compliance for individuals and businesses.
Transparency:
Taxes are collected at the point of purchase, making the tax system more transparent to consumers who can see exactly how much tax they are paying.
Economic Growth:
By removing taxes on savings and investment, it is argued that the FairTax could encourage investment, leading to economic growth. Businesses would no longer have to deal with the complexities of the current tax code, potentially reducing costs and encouraging job creation.
Equity:
Every citizen would receive a prebate (a monthly payment) to cover the sales tax on purchases up to the poverty level, which theoretically ensures that the poor are not disproportionately affected. This mechanism aims to make the tax progressive by giving more back to those who spend less.
Tourism and Exports:
Since the FairTax does not apply to exports, American exports could become more competitive in the global market. Additionally, tourism could increase as there would be no tax on lodging and meals for tourists, though this might be offset by the tax on other goods and services.
Privacy:
With the abolition of the IRS as currently known, the government would have less access to individual financial information, potentially enhancing privacy.
Reduction in Tax Avoidance:
Since consumption is harder to hide than income, there might be less opportunity for tax evasion or avoidance, though this depends on effective enforcement at the retail level.
Encouragement of Saving:
By taxing consumption rather than income, there’s an incentive for individuals to save more, as savings are not taxed.
Government Efficiency:
The cost and complexity of tax collection could be significantly reduced, with the burden shifting primarily to states which already have sales tax collection systems in place.
Increased Compliance:
Since everyone pays the same rate on new goods and services, there might be higher compliance rates due to the visibility and fairness of the system.