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1) What is the FairTax?
The FairTax is a proposed federal sales tax that would replace the federal income tax and the IRS. It is not sponsored by either party and is neither a Democrat or Republican issue. It would benefit every taxpayer and business. It will make life better for every American, because it is simple and fair, unlike the our current income tax system.
It will replace the federal income tax as well as Social Security and Medicare taxes. This means that no longer will these three taxes be taken from your pay check before you get it. It will raise the same amount of tax as the income tax does now. This allows us to fund the Federal Government as well as Social Security and Medicare, but without all the hassle, paperwork and worry of the current tax system.
In other words, it replaces a complicated, expensive, and time consuming income tax with a simple sales tax.
The FairTax is a sales tax and is collected only on the purchases of new goods and services for personal use. It taxes all new retail products purchased for personal use such as cars, boats, french fries, hairbrushes and your new pet goldfish. It taxes “retail” services including barbers/hairdressers, dentists, lawyers, or going to a movie. (Hold on you'll see how it works a little later). The FairTax applies only to new products, not used.
Under our current tax system one earns income. The IRS then “penalizes” you. This penalty is called income tax. The more you make, the more you pay! Why should you be penalized for making or producing things that people want or for providing a needed service? Really, does it make sense? We feel that it is counter-productive to tax you for what you contribute to society.
On the other hand the FairTax applies to what you buy and use. It taxes only what you consume (take out of society). We feel this makes more sense.
It is common knowledge that you get more of what you reward and less of what you penalize. The more you work under the current system, the more tax you pay. Penalizing work and production does not encourage it. The FairTax does not tax work or production, it taxes consumption (products and services). This way we get more production because it's not penalized.
Under the FairTax you choose how much tax you pay. The more you buy, the more tax you pay. The less you buy, the less you pay. You may also choose to buy used goods which are not taxed under the FairTax plan.
The FairTax only affects final retail products or services which are bought for personal use. It does not tax “business to business” purchases that are used for making or producing retail products or services. The FairTax is added only once at the retail level.
Since income is not taxed you receive your whole paycheck with no federal taxes taken out. You may save or invest tax free. Investing in stocks, bonds or a business would not be taxed. Profits made from investments would not be taxed. Only retail consumption is taxed.
Under the FairTax, education (whether for oneself or for a business,) is an investment. Education, being an investment, is not taxed.
The FairTax does not tax basic necessities, protecting low income individuals and families. (see section 14- "what about the prebate" for further explanation)
Simply put, The FairTax replaces 55,000 pages of complicated, confusing, costly, and contradictory income tax laws with a 133 page simple sales tax on new products and services
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