Fair Taxes in Context of Macroeconomics and Microeconomics - Essay Example

? FairTax December 3, FairTax is a kind of sales tax presented by some US house members & supported by some of the Americans. It says that a 23% sales tax should be implemented on all items cutting off all other federal taxes. There has been a great debate since its presentation as it has equally good & worse aspects regarding the economy. The revenue collection may become less or the consumption may grow more. FairTax The term “FairTax” has been in a vast debate since its arrival, as it equally contains some relaxations & some controversies for the masses. The people of US are fully aware of the deductions made in the name of federal government taxes; they are now facing a new & unique kind of tax, which is being sponsored by 21 members from the house. This unique & novel specie of tax was proposed in the house of Republic of Georgia by John Linder & Rob Woodall by the name of FairTax Act of 2003, which states that the Americans are gifted with a single “national retail sales tax” in place of all other federal government taxes which include income taxes, capital gains taxes, death taxes, payroll taxes like social security & Medicare taxes etc. This sales tax comes with an amount of 23% of the original cost on all products in their final sale. Thus every American has to pay a 23% more of the original cost of any product in which way they simply get rid of every other sort of tax (FairTax official website 2011). Every American has his/her own reservations & concerns against this bill. None of them is very sure that this act is actually going to change their lives in terms of betterment or not. They are under the concept of a single but huge kind of tax which is going to cover the rest of all other taxes. On the other hand, Rep. John Linder named it FairTax as according to him, other federally administered taxes were not fairly distributed among the high earners & low earners, while FairTax emphasizes that the more one spends, the more he/she pay the tax (the more one spends the more he/she has to pay in terms of taxation). Hence he made his point clear that high earners will surely spend more as compared to low earners, so the imposed tax will become “Fair” corresponding to everyone. According to a survey in the year 2009, 43% Americans are in favor of this bill, while 38% of them wanted to settle for the ongoing taxes. Hence overall less than a half population is in favor of the bill which clearly indicates its low level of appreciation & acceptance among the general public. (Boortz & Linder. 2005). However, for this bill to become a permanent act in US constitution, it has to go a long way. It must be passed by the U.S. House Committee on Ways and Means, both the House and the Senate and then finally signed by the President. In the year 2005, an advisor committee made by President George W. Bush indicated severe concerns regarding this bill. The most important issue was that the federally administered funds like retirement funds or gratuities etc have to be paid from the revenue gained by FairTax, which is very difficult to administer. Many critics also say that this bill would have harmful effects on the economy of the country as the revenue collected by it would be very less than currently enforced taxes, thus the government will either have to reduce its own expenses or else would face a great deficit in budget. Since the investments like exports, business transactions, savings or education tuition expenses would not be taxed as they are not considered to be a final consumption; there will be a huge setback for the economy. Hence many economists & advisory & advocacy groups strongly disagree with the idea of implementing FairTax bill as a revenue-neutral act for the government. (Hoagland. 2010). On the other hand, there are economists who are in a great support of this bill as according to them; it will boost US economy in the coming years. By doing some calculations with the rate of FairTax, The Beacon Hill Institute estimated that the GDP would increase over time and so would the domestic investment by 86.3%, employment by 10.7%, real wages by 10.2% capital stock by 9.3% and consumption by 1.8%, thus concluding that about $346.51 billion can be saved in administrative costs by applying FairTax & it will prove to be more efficient & effective taxation system. They also claim that the interest rates will fall by 25–35% by implementing FairTax (David et al 2007). Many European and Asian companies said that they would move their business to US if this bill would be implemented since it is free of investment taxes. Thus there is a tug of war kind of situation amongst the supporters & the opponents of this bill. Now take a brief view of the effects of this bill on general public & the consumer. Most economists say that the FairTax is considered progressive on the consumption point of view as it would have a positive effect on savings and investments & thus would effectively decrease tax burdens. But when it comes to higher income levels, it would become regressive instead as more tax burden will be relieved from high earners correspondingly. Most of the high earners already belong to the group of business & investments; hence they get rid of their income taxes smoothly & enjoy the quality of life as much as they can, whereas the low or intermediate earners would have to suffer whenever they buy something for the run of life. The high earners can abide by the FairTax by simply shopping from outside US as they make continuous trips to other parts of the world, while the rest of the community will tend to have a motto of “spend less, save more”. Hence the upper class will surely win in this race as they can manage to escape from the tax implications & leave it to the rest of community & the government. (FairTax - Income Taxes vs. Sales Taxes 2011). Speaking of family problems, the senior citizens of the society will be the most ruthless victim of this bill. Their whole lives have been spent by paying income tax & other federal government applied taxes. Now after their retirement, they are forced to pay an equal amount of sales tax over the products they choose to buy. The lowest class of earners will also suffer as they also have to pay an equal amount of sales tax as the rest of population around. By paying income tax, they are comparatively paying fewer amounts as compare to others, hence such people are the great opponents of FairTax bill. They will certainly loose & would have to live hand to mouth if this bill becomes a law & is enforced (FairTax - Income Taxes vs. Sales Taxes 2011). The supporters of FairTax argue that in order to help the above mentioned class of people, the bill contains a rebate plan for such low earning families, which provides a certain amount of advance money to such families to meet their needs. The purpose of this rebate check is to assist poor families so that the amount they have to spend in form of sales tax would cover up from the money provided. Obviously the money comes from the tax revenue & will be upgraded according to the Department of Health and Human Services poverty guidelines, hence everyone will has to pay a higher tax corresponding to the allowance made for the poor, in order to cover government expenditure. According to proposed 2011 FairTax rebate schedule, the monthly rebate of a family with two children & one adult house hold should be $355, & with two adult house hold it becomes $564 (FairTax official website 2011). Concluding, it can be clearly stated that FairTax bill is not in the complete form of enforcement. It has many reservations & concerns regarding the country’s economy & also with an individual’s households. Although it contains features like rebate system & the strongest point is the implication of same amount of tax over everyone, yet something is still missing in order to avoid a big deficit in government’s annual budget since the revenue would not match the expenses. It may improve the long term economy but for some five to seven years after its implication, the government must manage & control its own expenses so as to serve its people in a smooth way. People today are not a simple task to handle; they know their own tactics to avoid the deductions & taxes from them. They may shop from foreign or may make investments as much as possible, and the government must have to take actions to keep the circulating money in its own hands. Then may be after a decade or so, the FairTax act becomes the assistant to government itself in collecting big revenues from the people & in boosting country’s economy. Bibliography FairTax official website www.fairtax.org, retrieved on 3/12/2011 The Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model. David et al 2007. < http://www.fairtax.org/PDF/TheEconomicEffectsoftheFairTax-ResultsfromBHI.pdf> FairTax - Income Taxes vs. Sales Taxes. retrieved on 3/12/2011 Boortz, N., & Linder, J. (2005). The FairTax book: Saying goodbye to the income tax and the IRS. New York: Regan Books. Hoagland, K. (2010). The FairTax solution: Financial justice for all Americans. New York: Sentinel. Read More