The Fair Tax Act Essay

1733 words - 7 pages

In “The Federalist No. 21” Alexander Hamilton addresses the citizens of New York concerning the issue of taxation. Hamilton (1787) writes, “It is a single advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.” The advice given by Hamilton in 1787 is the backbone of the FairTax Act. The FairTax or bill H.R. 25 is not a flat tax or a VAT tax. It is a tax on consumption. The FairTax is a twenty-three percent sales tax levied on all new goods and services. The FairTax replaces all current federal taxes imposed on the people of the United States. This includes all personal and corporate income taxes. The twenty-three percent tax is not imposed on old or used items. It is applied only to new items. The FairTax is levied on all services, even on doctor’s visits. Educational institutions are the only exceptions to the rule. The FairTax is revenue neutral, meaning it provides the same amount of federal income as the current system. To prevent the FairTax from becoming an undue burden on the poor, a monthly prebate is paid to every family (Americans For Fair Taxation 1007). The prebate is equal to the amount of taxes a family pays on all purchases up to the poverty level. For instance, if a family was estimated to spend $26,400 a year on basic necessities, based on a 23% sales tax, their annual tax burden would be $6,072. This tax burden is paid to the family in monthly installments at the beginning of each month. With this prebate, all families living under the poverty level will pay no federal taxes (Boortz & Linder 2005). Arguably, the most appealing aspect of the FairTax proposal is that it rids the American people of the dreaded IRS.
The current tax system punishes hard work, deters business, and handicaps the American economy. The FairTax proposal is a surefire remedy to the aforementioned ailments. Although the Fair Tax has been defeated in Congress for the past eleven years, for its alleged inability to generate a revenue neutral federal income, it is a better method of taxation than the current system because it will bring transparency to the tax system, increase the Grosse Domestic Product by bringing businesses to America and broaden the tax base while shrinking the tax burden.
Although most people believe the United States utilizes an income based tax system, it can more accurately be described as a hybrid tax system. That is to say that Americans are taxed, from the federal level, on their consumption as well as their income (Adruin, Laffer & Moore 2006). Sadly, the majority of Americans don’t understand this. Boortz & Linder (2005) estimate that every purchase an American makes contains a twenty-two percent corporate income tax. Many Americans applaud the government for raising taxes on corporations instead of on individuals. Unfortunately...

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