Tag Archives: Reform

The FairTax Act | My Research and Thoughts

In 2005, the bi-partisan President’s Advisory Panel for Federal Tax Reform, formed by then-President George W. Bush, criticized the current U.S. tax system as being exceedingly complex, requiring detailed record-keeping, lengthy instructions, and complicated schedules, worksheets, and forms (“Executive Order” and “Members”). The panel contended that the U.S.’s current tax system penalizes labor, discourages saving and investment, and encumbers U.S. business competition (“Executive Order” and Rhodes).

Currently, there are two leading tax reform proposals that address the varying problems with the existing U.S. tax system. The first of these two proposals is referred to as the Flat Tax; this is a consumption tax model. The Flat Tax would “require citizens to file tax returns as they do now, paying tax on all spent money” (Hodge). The Flat Tax would eliminate estate and capital gains taxes, eliminate double taxation via a single tax rate system, and reduce compliance costs and “the tax system’s dead-weight loss to the economy” (Hodge).

However, it is the second of the two proposals that has gained the most ground in recent years. Many U.S. citizens and politicians have called for the elimination of U.S. federal payroll taxes, personal income taxes, corporate income taxes, and estate taxes, and these same individuals have called for the implementation of a national consumption tax, also known as a national retail tax or a national sales tax. Unlike the aforementioned tax reform model, this model “solely relies on transaction-based consumption tax” (Dalsgaard). The leading proposal for a federal consumption tax is H.R. 25/S. 296, known better to the public as the FairTax Act (“FairTax”). The sales tax rate, as defined in the proposed legislation and expressed inclusively, would be 23 percent of the total payment including the tax—or, $23 of every $100 spent in total (Regnier).

This begs a question; should the U.S. replace the federal payroll, personal income, corporate income, and estate taxes with a national consumption tax, namely the FairTax Act?

Part II to come.

Works cited to come.

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