I was reading on msn money today and there was an article on the "Fair" tax aka federal sales tax. Let me say that I am a supporter of this. I think the current system of "Income" tax has gotten way too complicated and lopsided. Yes, there are definitely good and bad sides to this form of taxation, but to me it does seem a more fair way of spreading the taxation and a way to definitely keep the congress from sneaking in a new hike on our taxes while telling us that they are only targeting the "rich"...which of course does not include them!
I have a very big problem with this article though. It has new math. Correct me if I am wrong, but the tax percentage added onto the price of what we are purchasing is in addition to what we buy. This article, "Is the Fair Tax really fair?" has the following paragraph:
"Say you make a $100 purchase. Of that, 23%, or $23, would be the tax. But if the tax was $23, then the price of the goods would be $77 ($100 minus $23). A tax of $23 on a purchase of $77 is really a 30% rate. State and city sales taxes could be levied in addition to the Fair Tax."
The rest of this article goes on with the assumption that the new rate is 30% and the proposed 23% is never mentioned again. Stae and city taxes WILL be levied also, that will not go away.
When I go to the store and buy $100 worth of clothes, I do not expect to pay only what the price tag says and then the store takes out the taxes from that price, do you? According to this statement that's exactly what they expect. With the federal sales tax, you would take your stuff to the cashier and they add it up and the proposed 23% is then calculated and added to the purchase. You are still getting that $100 worth of stuff, but you are also paying the extra $23 for taxes for a total of $123. Oh, and don't forget that there will still be the other state and city sales taxes added in also which in my area is 8.25% which would make it 31.25% for a total of $131.25 for that $100 worth of stuff. You may argue that that is too much, but if you look at what comes out of your paycheck (my take out is currently 23% and I make less than $100k) then I would be getting more money if the groceries still are not taxed because that is what I buy the most of every week. I would happily pay the extra for things that are currently taxed anyway. I would still end up with more money in my pocket.
There is still plenty of room for the government to play with the numbers though because they are also saying that there would be a "rebate" that you could file monthly based on your income. So this so called sales tax would still be based on income somewhat. I agree that maybe the groceries that we buy still should not be taxed and therefore the lower income people still wouldn't be paying taxes on essentials. They could also file for these rebates that are proposed or there could be some sort of card they could carry that could be swiped to make tax free purchases on things such as clothing up to an alloted amount each month. That is just a thought on my part there, I have not read any such idea anywhere.
The biggest problem with this federal sales tax that will make it impossible to come to be is the fact that all the congress and senate will not be able to avoid this taxation unless they make themselves exempt from it. The other huge problem is the fact that the IRS would no longer be needed. That is A LOT of jobs there. You cannot disband that organization and think that it will not have a detrimental effect on the economy. You may argue that there would be a new department then to regulate the federal sales tax but when you look at the monumental change this whole thing requires, you will realize that this will never come to pass. We will not get rid of the current system, we will only continue to make it more complicated until it collapses on it's own. We have built a house of cards with this tax system and we have grown so big that it has become next to impossible to change it. I hope that we will find a solution, but I don't expect it will be in my working lifetime.
Nothing is more feared than change. And the bigger the change, the more fearsome.
