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The Future is the FairTax
April 15, 2001
During the debate over tax relief this year, we have sought to rework our tax system. Tax relief is important, but the current debate obscures the fact that our tax system is broken and tinkering around the edges won’t fix it.
What began in 1913 as a single two-page form backed up by 14 pages of law, has become a nightmare of complexity that punishes work, saving, investment, risk-taking, and entrepreneurship.
The tax code has become so complex that even the IRS cannot understand it, and the problem is getting worse. In 1997, reporters from Money magazine received inaccurate or incomplete information 22 % of the time when calling the IRS's toll-free hot line. Despite efforts to correct the problem, wrong answers given to Treasury Department investigators during the 2001 filing season increased to 47 %. Taxpayer Assistance Centers didn’t do much better. Investigators visited Taxpayer Assistance Centers in 11 states and received incorrect answers 49 % of the time. If trained IRS employees can’t understand the tax code, how can we expect average citizens to understand it? It is no wonder that Dr. Arthur Hall, an economist for the Tax Foundation, estimated compliance costs of the income tax to be an astounding $225,000,000,000 for the year 1996.
There is only one real solution to the quagmire of our federal tax system: fundamental tax reform. We need to get rid of the current code entirely and build a new system of taxation that is better for taxpayers and for our economy.
The solution to our tax problems is the FairTax, created from years of work with consumer focus groups, forums with small business owners, and application research from America’s top economic minds—including professors from Harvard, Stanford, and Boston University. Although we relied on economists for the numbers, we relied on the America people for the FairTax concept. We found that Americans wanted a system that was fair, easy to understand and easy to implement, and that there should be no exceptions and no special treatment.
We put all of these ideas into the FairTax to create a fairer, simpler code that is revenue neutral and makes no policy decisions. We simply abolish the federal income tax, the payroll tax, the self-employment tax, the capital gains tax, and the estate and gift tax; and we replace these with a revenue-neutral sales tax, currently calculated at 23%. No exceptions. No exemptions. Just one tax paid on every final retail sale.
Though less discussed than the income tax, the payroll tax is more burdensome for most Americans. Amounting to 15.3 % of every paycheck, this money comes out of the paycheck before the worker ever sees it. With the FairTax, you would get to keep your entire paycheck. You can still rely on Social Security, however. It will be fully funded through the sales tax.
To ensure fairness to low-income families, we include a sales tax rebate, mailed to each family monthly, allowing all purchases up to the poverty level to be made completely tax-free. In this way, all of the basic necessities of life are bought without any tax burden.
And we mean “without any tax burden.” Today, taxes are hidden in the price of everything you buy. Corporate income taxes, payroll taxes, tax compliance costs, and more are all hidden in the price of every loaf of bread and every gallon of milk that American families bring home. Our team of economists has calculated these hidden taxes to be an average of 20% of the cost of goods. Eliminating these hidden taxes could lower the price of goods at home and lower the cost of our exports, as well.
The combined effect of the sales tax, along with its associated rebate and the removal of currently imbedded taxes, will be that all Americans will pay significantly less for purchases up to the poverty level and approximately the same for purchases above that level. No one will benefit more from this change in public policy than those at the lower end of the economic ladder.
Passing the FairTax will be no small task. We are working with both sides of the aisle, on both sides of the Hill, and throughout the country to make this bill a reality. We now have more than 400,000 supporters and that number continues to grow each day. And when the day comes that we pass the FairTax into law, every American will have more control over their lives, more opportunities, and more individual freedom.
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