Long answer is it will do 3 main things more beneficial then current system.
1. Eliminates the main problem of illegal immigration, that being they pay no taxes.
2. Makes running a business easier as sales tax is already compiled for states. It would free up millions (if not billions) of accounting hours every year. Think how much money you would save simply by not having to deal with income taxes every year. Think of the stress of it all as well. Its a freaking nightmare for any one self-employed or running any business.
3. No need for 3, 1 and 2 were plenty but it also would reduce corruption. Most lobbying in Washington is to influence the tax code. Kickbacks are arranged for lower tax rates in exchange for funding of political campaigns. Nothing comes close to introducing the amount of tainted money into the political process like the tax code.
Another point that is lost on people is taxes end up getting paid by the all of us collectively somehow. When I as a business person know my taxes are going up I am naturally going to increase my prices (and so will my competiton). If I can't sell at those higher prices I close my business. I'm not going to work for less just because the gov't increases my taxes.
The same thing happens when taxes are lowered. Not by the goodness of my heart but through competitive pressure.
Over time no one would notice a standard of life difference just because the tax system changed.
Gov't spending is the real problem. It all comes out of the private economy somewhere so every dollar spent by the gov't means one less in everyone's pocket that's not making money from the gov't.
This system couldn't be more broke if your 5 year old got a hold of it. So yes of course it would be more "equitable".
There would be no loopholes for the very greedy rich ones (not that all rich people are greedy, but some are, and cheat) and every illegal alien, every criminal, everyone fraudulently receiving public aid would pay. Meanwhile, those people who are actually poor would not pay more than their share because sales tax never applies to necessities like groceries.
There is so much in the media about tax havens and tax evasion. It's so easy at this time to lie or cheat on your taxes but if we had a FST there would be no way to cheat and if implemented properly a sales tax would not be applied to essentials such as food, clothing, school supplies and such. People below poverty could even get a rebate depending on income. Since there would be no tax on essentials which is basically all lower income people have money to buy then they would end up with more money in their pockets to buy the essentials. You would be able to get rid of the IRS and the countless expensive lawsuits it takes to enforce the current income tax system. Since wealthy people have more money and spend more they would still end up paying the majority of the tax.
This is the fair and affordable way to go!
Not to mention that we would not need the IRS any longer which would save a ton. We would just have to think of an option for homes, cars, boats, etc...
Seems to have bailed Russia out and we can't keep doing what we are doing and expecting it to get any better right? Simply crazy to me that the tax system we have now gets mishandled the way that it does. This could also fund no cost hospitals the way Brazil has. You can have insurance and go to the state of the art hospitals or walk into a free county hospital.
With the removal of the income tax and potentially other taxes ; a uniform sales tax placed on ALL purchases, including purchases for manufactured goods would be in the final product would be the same no matter who purchases it. Those with grater incomes would purchase more and hence pay more taxes. The end idea would be to tax based on use. If a person doesn't purchase a high dollar SUV they would not pay that expense. Perhaps they purchase a small economy car, they sales tax they pay on that would be equal to what they consume/purchase.
In contrast with income tax, there are rates applied differently at different levels of income. There are loop holes and deposits of income to countries outside the US to prevent being taxed. There are thousands of employees of a non-governmental bureaucracy that do nothing but add to the cost of taxation and have been know to apply tax laws differently. The fact that there are even many many tax laws should show how bloated this agency is.
In short a Uniform Sales Tax would equally be applied to everyone with a "tax what you consume" mentality
Instead of paying an income tax, people would only be paying a tax for items they bought. This allows the government to receive "tax" money from EVERY person buying items in the United States. Now take that in to consideration for a moment. If every person buying items paid a sales tax, that would include all of the tourists that enter the country, people who avoid taxes in the first place, and last but not least, illegal aliens.
Most people against this idea feel it would hurt the poor and benefit the rich. If you exempt the basic items that the poor consume, then it is possible for the poor not to pay any of the tax. For example, you could exempt milk, eggs, bread, fruits and vegetables, etc., to encourage people to eat healthy and not paying the tax for the incentive. Any behavior that we want to encourage our society to engage in could be exempt from the tax, thus giving the incentive to engage in that behavior, and the opposite would also be true. Any behavior that we want to discourage could be taxed, even at a higher rate, for example illegal drugs to discourage the behavior or to generate revenue to provide medical services to those that need it, instead of putting them in jail, which would be a cost savings.
The Federal Government spending is out of control. If the Federal sales tax rate was voted on by the citizens instead of by the politicians then the power of this country would be restored to the people. The money spent in the so called shadow market, including legalized drugs and all other retail sales would create enough tax revenue to run the Federal Government.
Yes for it would put an end to loopholes and everyone would be supporting our nation. Instead of just a few, would save government money by cutting down on materials used, employees, to run the way it is now and people would have their own money that they earned. Won't go into all the details but it would be better and millions of dollars saved.
The argument is that the top 1% wealth holders account for 25% of spending in our economy. They use this to justify the trickle down theory. The challenge is two-fold. For one, tax codes are written to help the wealthy shelter their income from taxation. This has created a very complicated and burdensome tax code and has also increased costs associated with the administration and enforcement of it. The simple saving to the federal government from just collecting sales tax (the mechanism is already in place at the state level) is staggering. More importantly, those buying big ticket items will pay tax. Currently, if a $5 million home is bought or $250,000 car is acquired by the wealthy, they have corporations and shelters set up to minimize the taxable value of these assets. They personally do not own the Bentley, their corporation does. By playing this tax shell game, they legally avoid taxes. Federal sales tax means they are forced to pay for their spending: all of it. For those worried about the poor, here is an option, have them save their receipts and at the end of the year those that fall below 60% of the federal median income for the country can file to get it back. Keep in mind, you champions of the poor, the states that collect sales tax do not rebate anything to the income-challenged.
The leak is in spending; fix the leak and then we'll figure out how to decrease taxes. Otherwise, this is just an alternative way to raise money that will be wasted. Many people confuse *lower* taxes with *fair* taxes - which is an oxymoron in the first place: "fair" and "tax" shouldn't even be in the same phrase.
If you actually do the math, you'll find that this doesn't lower anything; just moves the costs from the rich to the poor. I think those who earn their money should keep it - including the rich. But creating a vast economic gap between the rich and the poor is not exactly the way to avoid a 1780 France. Do we really want to eat cake?
Think about it. Say, someone makes $30,000/year. Under current (2014) brackets, they'll pay income tax (15%) on $21,074 of it. That's a $3161.10 tax liability. Fair Tax is going to be about 23%. Let's say they spend $1300/month on rent, utilities, and groceries (all supposedly exempt from a nation-wide tax...But since when has our government agreed to permanently exempt anything?), and the remaining $1200/month goes to gas, clothes, non-grocery items, furniture, electronics, entertainment, and dining out. That's $14400/year, which, in a 23% tax comes to a $3312 tax liability.
And that's if our notoriously waffling government keeps it at 23%.
Besides hurting those with lower income, we're tempting people to buy internationally, producing a shortage of American jobs - and tempting people not to buy at all, which is good for long-term economy, but fatal short-term. We shouldn't punish for earning money, but should we punish for providing the means for people to earn money - i.E., buying? We're supposedly putting the IRS out of business, which sounds great, except we're transferring the workload from them to the shoulders of the sales tax collectors - businesses. That will be doable for the large retail stores, but small businesses spend hours every month (I know; I used to be a bookkeeper for a small store) filing taxes. Do we really want to make it harder for them to make ends meet?
The tax system needs serious work. But I think people are so in love with the "Fair Tax" name, they aren't paying attention to the ramifications.
In the past few years, the income of the top 1% has increased 275%, and the flat tax would just worsen this! The rich would have no income tax, and the sales tax would be a mere part of their yearly income. In addition, why should we tax those making $50,000 yearly the same amount as those making $1,000,000 yearly? Furthermore, if we decrease the salary of the poor, a chain reaction will occur, as they will be forced to use more healthcare provided for them.
Many people buy things in the store, including kids. With sales tax, kids would have to pay more for the things they like. A little kid also doesn't have to pay income tax, seeing how they don't make money. I think that federal income tax is the better way to go.
No matter how gleefully supporters argue that a federal sales tax will encourage people to save, they are merely obfuscating the fact that this saving comes at the expense of spending that creates demand, and it is always demand that creates economic growth. Nothing supply-siders say about giving businesses money to "create jobs" addresses the basic economic fact that it is demand that creates jobs.
People do not create businesses in order to add jobs to the economy, they crate businesses to make money, and the only way they can make money in a capitalist system is by meeting demand. No demand, no business. No demand, no new jobs.
Therefore any, and all, arguments supporting supply-side stimulus are merely ideological, and are not accurate.
Federal sales tax sounds like a good idea at first, but there are many problems with it. Among these problems would be that it discourages consumption, which in the long run, hurts our economy. It is also unfair because it taxes the poor at a much higher rate than anyone else. If a poor person has to spend 100% of their pay check to get by, then they get taxed on 100% of their pay check. Whereas a rich person might only spend 20% or 30% of it, leaving them largely untaxed.
There are basic needs that every person, rich or poor, must have. To tax heavily the basic needs and services that everyone must purchase is to place an undue burden on the poor. Certain basic things would become completely unaffordable for those who didn't have much money. The rich and poor would basically be paying the same taxes, but it would cripple the poor while not affecting the richest. This is not a humane concept.
If income taxes were eliminated and replaced with sales taxes, the hardest hit would be the lower class, who can't afford to save money and have to spend everything they have simply to keep on going from day to day. The wealthy, by contrast, would save all their money, investing it in ways that wouldn't be taxable, thus maintaining a 'rich get richer' feedback loop that would ultimately destroy the economy.
Everyone (rich and poor) needs to buy things like food, clothes, utilities and these expenses often take up the majority of poorer peoples income. If they are paying the same tax levels on these as those who earn a lot more money, their percentage of tax paid is going to be much higher than those on higher incomes which is unfair. Income taxes also have their problems but ideally under this system those in poverty should pay less tax and is thus a more equitable system.
I live in a state where there is no income tax, but we pay a 9.25% sales tax on everything we buy. The problem with sales tax is that the people who can least afford to pay it have to carry the burden of it. Those who are able to pay the extra, might not seem bothered by it. I can understand the temptation to use a sales tax, especially on unessential items. But, when you buy $100 dollars worth of groceries, then have to pay an extra $9.25 on top of that, it will bust your budget if you have a limited income. Now, suddenly, you are out of the $10 you needed to buy diapers for the kids. This is the kind of regressiveness that a sales tax can cause.
A sales tax appears to be equal across the board. It is not, however, due to the fact that there is a certain amount of things that are necessities that everybody must purchase. If the income tax is abolished, lower income people will pay a greater percentage of their income in tax than higher income people, simply because lower income people spend a greater percentage of their income than higher income people do.