What You Need to Know About the Fair Tax Act: The Good and the Bad

There is no doubt that the American tax system is complicated and not easy to understand. Many Americans feel that wealthy individuals and some exceptional groups take advantage of some tools at their disposals to evade taxes. As a result, there is a proposal to introduce the Fair Tax Plan.

The Fair Tax Plan is a system that has gained a lot of popularity in the recent past as it is set to swap the federal tax system with an even countrywide sales tax. Those in support of this move believe that it would aid in getting rid of tax evasion get-outs and stretch the tax weigh down evenly, among other reasons. The opponents on the other hand, are of the view that the Fair Tax Act would result in more tax strain to the middle class and the wealthy will end up with lighter tax burden.

The Fair Tax Act is legislation that recommends the cancellation of the collection of numerous income tax types by the central government. These taxes include: personal income tax, Medicare tax, Social Security tax, capital gains tax, Estate tax, Alternative minimum tax, as well as Self-employment tax.

To generate revenue, the government would instead, impose a national sales tax on most purchased commodities. The tax would then be gathered by businesses at the point of sale and send to the federal government. If this happens, the IRS would as a result be rendered absolute. Your net income will no longer be determined by the number of exemptions you can claim and as a result, you will receive your paycheck tax-free. The Federal government would have no right to impose income taxes when the Sixth Amendment is repealed by the related legislation. Local governments and states would however, be free to collect revenue through the income and sales taxes if they so wish.

The Advantages of this System:

Implementing this Act would lead to some benefits for both the Federal government and a section of the populace. Some of the advantages of this system are:

1. The system will favor high income earners where only the amount spent from the total income is taxed.

2. Good for investments due to the elimination of the capital gains tax which will result in individual investors enjoying tax-free compound growth.

3. Tax revenue will be easier to predict as a result of a more stable consumption rate than income.

4. This system would benefit businesses because of the elimination of double-taxation that would do away with payroll taxes on capital investments.

5. A more disciplined buying culture will develop as people will take control of their expenditures, especially via the use of credit cards since the more amounts you spend, the higher the taxes you are to pay.

6. It would mark the end of filing tax returns, rendering the IRS absolute.

7. Provision of prebates as the monthly check would help make up for some share of every household's tax sales payments, especially for those families below or close to the poverty line.

The Disadvantages:

Despite the aforementioned anticipated benefits, this tax plan carries a baggage with it that may end up weighing heavily on the lower income earners. Below are some of the cons of the Fair Tax Plan.

1. The middle and lower class people will bear the largest burden as it is a progressive tax, where those with less money will end up paying a large chunk of their income on taxes.

2. Potential for Tax Evasion would surely increase as many would opt to purchase goods in other countries because of the high sales taxes.

3. This proposal will decrease overall spending as it would be the best way to lower the tax burden, which is not so good for any capitalist economy.

4. Tax Deductions and Credits Elimination, which could result in a rise of the cost of home ownership for homeowners who itemize now and have large interest payments.

5. The state income will become a bigger burden to taxpayers as the State income tax would remain intact even though the federal income tax will be eliminated. Families in Los Angeles, for example that earn $100,000 are likely to pay over 40% in state taxes.

6. The lower income earners would be hurt as the Fair Tax is dependent on expenditure which it encourages and at the same time, discourages. Also, the rich will invest further, resulting in a vibrant economy, but the buyers usually in lower economic classes will feel the pinch.

7. Raised Immigration Costs as due to a prebate check scheme which will exclude non-U.S. citizens, resulting higher cost of living. Highly affected will be visa holders, permanent green cardholders, as well as lower income immigrants.

As much as the taxpayers feel overburdened by the current tax system, there is need to weigh the cons and pros of the Fair Tax system before adopting it.

Rob L Daniel and partners of Limon Whitaker & Morgan, for years have helped businesses and individuals Nationwide, with their delinquent IRS & State tax problems. The firm is based in Los Angeles, California USA. http://www.limonwhitaker.com / Tel:888.321.6188

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