The recent global economic recession, the slow recovery, and the looming threat of a “double dip” recession have left most Americans bewildered. The issues are complex. The way ahead is unclear and fraught with danger. No one in seems to be quite sure what to do. Politics bicker over ideological talking points while nine percent of their constituents can’t find a job. The price of food, housing, and healthcare rise but wages remain stagnant. The housing market continues to flounder while interest rates hover near zero. While the debate about over the nation’s debt rages across Capitol Hill, our leaders seem unable to address the problem in a meaningful way. Most of them, however will agree that we do have a problem. The President’s 2010 Debt Commission reported that the United States tax code must be drastically reformed in order to avert a long term economic crisis. The report stated that:
The tax code is rife with inefficiencies, loopholes, incentives, tax earmarks, and baffling complexity. We need to lower tax rates, broaden the base, simplify the tax code, and bring down the deficit. We need to reform the corporate tax system to make America the best place to start and grow a business and create jobs.
The President himself has called for simplification of the tax code. Lost in the debate is any popular proposal for real tax reform. Proposals such as the Flat Tax, the Fair Tax, and the Value Added Tax where hotly debated during the 2008 political campaign cycle. Now they seem all but forgotten. Any drastic tax reform might be preferable to the status quo, but the Fair Tax is by far the most promising.
The Fair Tax Act, a proposal to replace all existing federal taxes with a national sales tax, would spur the economic growth which we so desperately need. The plan proposes to eliminate all federal income, corporate, payroll, and excise taxes and replace them with a 23% national sales tax on all new goods and services sold in the United States. All sales taxes would be paid by the consumer at the time of purchase. The plan is designed to be revenue neutral, meaning that the federal government would raise the same revenue that it would under the income tax. All federal programs, such as Social Security and Medicare would continue to be funded. Finally, so that no one pays taxes on the basic necessities, the federal government would provide each taxpayer with a subsidy called a “prebate”. The prebate would be equal to the tax that would be paid for goods and services up to the poverty level. The plan would encourage savings and investment, increased production, and job growth.
The Elimination of the income tax, Social Security and Medicare taxes would allow income earners to keep their entire paychecks, thus allowing them to spend and invest more money in our economy. Federal tax withholdings take around 15% of an average U.S. employee’s earnings. Without them, workers could and would use this money to buy goods and services. They could...