Fair Tax Plan in the USA - Assignment Example

Fair Tax Plan in the USA The sixteenth amendment of the United States’ constitution states that “The congress shall have powers to lay and collect taxes on income, from any source derived without distribution among the several states in US, with no regard to any enumeration or census.” This amendment was passed by the congress in the year 1909, and the state approved it in the year 1913. The approval of this amendment overturned the 1895 United States Supreme Court’s decision that ruled a 2% federal flat tax on income over $4000 unconstitutional. Article one of the constitution states that, “Direct taxes will be distributed among several states in according to their particular numbers.” By a five-four vote the court in Pollock saw that the new income tax as a direct tax insofar (LLC Books, 2010). The decision was unpopular and took the public by surprise because a federal income tax levied during the United States civil war had not been stock down. Critics contended that the conservative majority on the Pollock court was seeking to protect the economic elite. Just after the amendment was approved, the congress established a new personal income tax with rates ranging from 1 to 7 percent on income in excess of $3000 for a single individual (LLC Books, 2010). The sixteenth amendment, was in large part, intended to skip any debate about whether an income tax is direct (which would require, under art 1 & 9 proportional distribution) or indirect (in which it would not require any apportionment). Fair Tax Plan By far, the piece of legislation that I am most passionate about is H.R. 25, the fair tax, and with good reason. It is the most exiting tax proposal to ever come before the American people. The reason for this is the fact that fair tax is not about simply tax; it is about the freedom, employment, smaller governments and the economies. Moreover, it entails returning power to people and finally finding a way to ensure that United States of America grow economically. In addition, it completely abolishes the IRS and strips the federal government of the opportunity to dig deeper and deeper in the people’s personal pocketbooks. Fair tax plan is a replacement, not a reform. It replaces federal income tax which includes personal security, estate security, Medicare, capital gains, alternative minimum, social security, self-employment and corporate taxes. The probate works in that all valid social security cardholders who are U.S. residents receive a monthly probate equivalent to the fair tax paid on essential goods and services. The probates paid in advance, in equal installments (Boortz & Linder, 2008). Exempting items by categories is neither fair nor simple. It doesn’t make a taxation scheme fair. Economists have shown that the wealthy spend much more on unprepared foods, clothing, housing, and medical care than do the poor. Exempting these goods, actually gives the wealthy a disproportionate benefit. Exempting one product or service, but not the other, opens the door to the army of lobbyists and special interest groups that plague and distort our taxation system today. The proper tax rate has been carefully worked out; 23% does the job of raising the same amount of federal funds as raised by the current system, paying the universal rebate and paying the collection fees to retailors and state governments. Unlike some other proposals, this rate has been independently confirmed by several nonpartisan organizations across the nation (Boortz & Linder, 2009). Comparison and Contrast between the Current Tax System and the Fair Tax System Fair tax refers to a comprehensive proposal which is replacing all the federal income and payroll- based taxes with an integrated approach that includes a progressive national sale tax. The fair tax taxes only on what we choose to spend on goods and services, not on what we earn. The fair tax is a fair, transparent, intelligent solution to the frustration and inequity of our current tax system, (fair tax minnosota). The fair tax system enables workers to keep their entire paychecks while the current tax system bars workers from accessing full information to enable them monitor their taxed income. Fair tax system enables retirees to keep their entire pension while the current tax system does not (Boortz & Linder, 2008). Fair tax system refunds in advance the tax on purchase of basic necessities while in the current tax system, there are no such refunds. The fair tax system brings transparency and accountability to the tax policy, while the current tax system tends to withhold certain information, treating it as confidential thus making the public to pay taxes without clearly understanding the entire tax policy. It ensures Medicare funding and social security while the current tax system involved payment of these services by an individual through income taxation (Boortz & Linder, 2009). Discussion Therefore, fair tax would have a positive effect on savings and investments because they are not taxed, ease of tax compliance, increasing economic growth, it could therefore be an incentive for international business to locate in the US which will increase US competitiveness. It may increase cost transparency for funding the federal government and supporters. In an open letter to the president, the congress and the people of America, eighty economists, including Nobel Laureate Vernom L. Smith, stated that the fair tax plan would boost the economy of U.S. Since the tax plan collects a lot of funds on purchase taxation, it is therefore in a position to meet government expenditures thus reducing the likelihood of the government borrowing fund hence reducing national debt (Boortz & Linder, 2008). In the current tax plan, social security funding comes from abroad, progressive sale tax, rather than a narrow, regressive payroll tax. If the fair tax does away with the payroll tax then where would the funding for social security come from? The answer is easy, the fair tax plan has a provision for collection of money to fund social security; it is collected as part of the overall retail sales tax instead of a more narrowly focused payroll tax on workers, broad based sales tax; the entire population funds social security every time they make purchases. Under the fair tax, purchase of goods at military exchange and commissionaires by consumers is taxable, because the fair tax is a federal sales tax. The fair tax repeats the entire federal income tax and payroll tax system so military personnel would no longer have to pay tax on benefit of any kind and they would get there whole paycheck. Since fair tax doesn’t tax savings and investments, it would therefore make U.S. a favorable destination for investors thus creating employment opportunities to the public. Fair tax is better than the current tax system. The present tax system is one of the reasons that people are finding it difficult to get ahead nowadays. It is also among the reasons the coming generations may not have a standard of living as high as this generation. Cars replaced the horses and buggy, the telephone replaced the telegraph and the fair tax replaced the income tax. Income tax was holding us back and made it more difficult than it needs to improve our families’ living standards. It makes it needlessly difficult for our business to compete in international market. It wastes vast resources on complying with unnecessary paperwork (Boortz & Linder, 2009). In conclusion, the fair tax system is fair because purchases of jewelry, cars, and houses are taxed while activities such as investment and construction job creating factories are not taxed because they assist in raising the living standards of the poor. References Boortz, N., & Linder, J. (2008). FairTax: The Truth: Answering the Critics. HarperCollins. Print Boortz, N., & Linder, J. (2009).The Fair Tax Book. HarperCollins. Print LLC Books. (2010). 1913 in the United States: Sixteenth Amendment to the United States Constitution, Seventeenth Amendment to the United States Constitution. General Books. Print. Read More