The Fair Tax part IV: Solving the problems of the Income Tax

Eric Hydrick / Web Editor

After having gone over just two of the many problems inherent with the income tax, including its original unconstitutionality, it’s time to look at just how the Fair Tax would solve those problems.    

The first issue is the unfairness of the income tax. From part II of this Fair Tax series, you can see that a few people are paying far more than their fair share, while half of the people in the U.S. are paying 3.464 percent of the total taxes.  However, this wouldn’t happen under the Fair Tax. The Fair Tax calls for a repeal on all federal taxes (income tax, Medicare tax, Social Security tax, estate/death tax, etc.), and replaces them with a 23 percent imbedded sales tax.  By “imbedded sales tax,” I mean that the federal sales tax must be included in the price of the item. For instance, if a box of cereal at the grocery store costs $1 (not accurate at all, but it keeps the math easy to understand), then that $1 includes the 23 cents in federal taxes to be paid for that purchase.

In other words, people are paying taxes based on how much they spend, not on whether or not they have the money to be taken from them by the government. It will still be progressive, seeing as how the rich spend more money than the poor and thus will pay more taxes. However, the Fair Tax won’t put over half of the cost of government on 5 percent of the population. Now, the tax burden will be spread more equally throughout the population, instead of about half the country getting a virtual free ride.

Not only that, but wages and salaries businesses offer prospective employees will actually be representative of what they’ll really make, rather than forcing them to guess what their actual earnings will be after taxes.” An Elon graduate offered a $30,000 job will make $30,000 a year. Wouldn’t it be nice to be paid what you were promised? After all, if you’re working for $30,000 a year, shouldn’t you actually get $30,000 a year?

The Fair Tax also resolves the issue of double-charging people for taxes. Under the Fair Tax, instead of paying a tax for making money and then paying for more taxes for spending the money that you make, you pay taxes once, when you purchase a product or service at the retail level. That’s it—that’s the only time you pay any federal tax whatsoever. Likewise, the cost for that retail-level good or service will no longer include the income taxes, Medicare taxes, Social Security taxes, etc. of anybody involved providing that good or service, nor will they include any other federal taxes to be disguised and passed onto an unsuspecting consumer.

Under the Fair Tax, the U.S. will finally have a tax code that is honest about making individuals pay for the cost of doing government, not one that plays number games and hides an individual’s tax burden in the costs of the goods and services that he or she purchases every day. Not only that, but without the embedded tax costs of goods and services on the market, it will cost businesses about 22 percent or so less to provide those goods and services to consumers. Combine that with the imbedded 23 percent sales tax, and consumers would conceivably break even.

But wait, under the Fair Tax, there is no money taken out of your paycheck for income taxes. That means you now have more money, with the costs of goods and services remaining about the same. This will raise the income level of virtually every American household, enabling them to spend more, which means the government will get more money in tax revenues.    

Under the Fair Tax, everybody wins. Individual citizens win by being able to keep all of the money that they rightfully earn. Businesses win by having the costs of doing business reduced by 22 percent or more. Lastly, the government wins by still being able to collect taxes from a buying public with even more buying power thanks to an increase in the amount of money they have. Clearly, the decision to go with the Fair Tax is a no-brainer. Contact your representative and senators today to make sure they understand just how good of a deal this is for everybody.

Contact Eric Hydrick at pendulum@elon.edu or 278-7247.