The Truth About the FairTax
Like my cohort mentioned in his last post, Democrats in Georgia (and likely in other states as well) are using inaccurate or incomplete information regarding the FairTax to misrepresent their opponents position regarding taxes. Since many Americans simply don’t bother to educate themselves on the issues in an election, most will see this ad and think that Saxby Chambliss wants to increases taxes by increasing the sales tax. And that’s not the case. Here’s a brief explanation of the FairTax. Eventually, I’ll do a detailed post (maybe around April 15th), but for now, here’s the basics.
The first thing you should know is our current tax code is incredibly complex. If you don’t believe me, try doing your taxes by hand next year (using Turbo Tax doesn’t count as “by hand”). The code is written in several thousand pages and can be confusing even for the smartest CPA’s to follow and know all the ins and outs of the code. The FairTax would eliminate all those complexities. It’s very simple to understand and easy to follow. When signed into law, the FairTax would repeal the: individual income tax, the alternative minimum tax (AMT), corporate and business income taxes, capital gains taxes, social security taxes, medicare taxes, the self-employment tax, estate taxes and gift taxes. All of those taxes (and the associated tax codes) would be replaced by a simple consumption tax – a single-rate sales tax on new goods and services.
This single-rate tax will be about 23%. Consumers will pay an embedded personal consumption tax (the 23%) at the retail level (it will not be imposed on the sale of used goods). Now you are probably saying “So the price of goods will go up 23% – how is this good?” Well, that’s not the case. Under the current tax code, companies are required to pay a corporate income tax. I hate to break it to you, but companies don’t pay income taxes – you pay them for the company. Companies embed their taxes in the price of the goods they sell (much like your trash pick-up company passed along the increased cost of gas to you by raising rates), so they are able to pass along their tax burden to you.
Under the FairTax, companies would no longer pay corporate income taxes. If they aren’t paying those taxes, then they have nothing to pass along to the consumer (you and I). By not having these corporate taxes (and some other stuff) embedded in the price of the goods you buy, the price of goods would drop by roughly 23%. Now where have we heard 23% before? That’s right! The tax rate of the FairTax is 23%. So, while you would see a 23% sales tax on goods, the price of goods would not increase (they would most likely drop slightly) under the FairTax plan.
Now, I haven’t gone through the full FairTax plan, but that’s by design. I just wanted to address the incomplete information in Jim Martin’s campaign ad. Jim Martin is correct that the FairTax plan supported by Saxby Chambliss will implement a 23% increase on everything we buy. What it leaves out is that this same plan will abolish the income tax burden on corporations – a burden they pass along to you and I. By eliminating this, the prices of goods and services will drop by roughly 23% (if not more). So the 23% would be a wash in terms of the price you will be charged for retail goods.
Be on the aware America – politicians are trying to deceive you. They will use your ignorance against you by passing off lies and half-truths as fact. Don’t let them get away with this – be informed about the issues. Time to educate yourself, America.
(PS – I’ll do my best to educate you, so check back later for a complete break down on the FairTax. In the mean time, check out www.fairtax.org or The FairTax Book by John Linder and Neal Boortz.)