my first choice is to do away with the IRS altogether as Ron Paul wants to do,
but as far as a fair tax, it is better than the current tax system :
Pros:
1. A national sales tax discourages consumption, leading to a conservation of resources.
2. The removal of an income tax encourages saving and investing, which is the key to job growth.
3. Individuals would have an extra incentive to work hard and earn income, leading to a far more productive nation.
4. A sales tax would be a much simpler system, eliminating the need for individuals to comply with complex tax reporting requirements and freeing up all the money & time lost on the income tax process.
5. Tax rates can be targeted to encourage or discourage the consumption of certain items.
6. Consumer prices of certain items would fall since labor and tax compliance costs would be cheaper to businesses.
7.It would allow a greater collection of tax money from those carrying out illegal transactions, since their income is hid from the income tax system but will be taxed when they spend it in a sales tax.
8. It's a tax system consistent with a free society; i.e. Americans have a choice regarding their taxes, unlike our current confiscation system.
1. A national sales tax discourages consumption, leading to a conservation of resources. One of the biggest complaints other countries around the world have about the U.S. is that we consume more than 25 percent of the world's resources despite comprising less than 4 percent of the population. Especially when it comes to scarce, non-renewable resources such as oil, few people would argue that we need to cut wasteful consumption. The basic economic law of supply & demand says that as prices go up for an item, demand will go down. Thus, as a society, our national consumption should decrease with a national sales tax.
2. The removal of an income tax encourages saving and investing, which is the key to job growth. The national savings rate is currently a putrid 4 percent of income. When Americans increase saving & investing, interest rates go down and the economy expands since banks and corporations have more funds to invest in new projects, new stores, new businesses, etc. A national sales tax would encourage increased saving & investing for two reasons: 1) Earnings from investments wouldn't be taxed; thus, the effective rate of return would increase; 2) Americans are never taxed unless they spend money, which they would have to do on much more expensive consumer goods; thus, they have extra incentive to refrain from frivolous spending.
3. Individuals would have an extra incentive to work hard and earn income, leading to a far more productive nation. Our tax system is completely backwards when you consider the fact that the majority of government revenues come from tax on our earned income. National employment drives the productivity of the country. Since we tax personal incomes, we are actually punishing people for working. What's worse is that we have a "progressive" tax system, meaning rates go up as you make more. This in effect punishes the most successful and the hardest workers. Corporations, which provide the greatest amount of national jobs, are even taxed twice: once at the corporate level plus a second time when earnings are distributed to shareholders. If you take away the income tax, you give every worker in America a raise (except those that don't pay an income tax), which encourages citizens to work more hours. Think about it, if your take-home pay was $20 per hour instead of $14 per hour, would you be willing to work more hours?
4. A sales tax would be a much simpler system, eliminating the need for individuals to comply with complex tax reporting requirements and freeing up all the money & time lost on the income tax process. Hundreds of billions of dollars are spent every year and billions of hours wasted complying with the incredibly complex American income tax system. Replacing the income tax with a national sales tax would free up all the resources necessary to fulfill those tax requirements. Only businesses that sell goods would be required to file federal tax returns, and the system would be much simpler since they would only have to multiply each sale by the specified rate. As a nation, we would no longer have to waste time & money figuring out depreciation recapture, itemized deduction phase-outs, alternative minimum taxes, charitable deduction caps, and so on. Think about how happy the environmentalists will be when they hear about all the trees that will be saved from the elimination of all those tax forms & schedules!
5. Tax rates can be targeted to encourage or discourage the consumption of certain items. A national sales tax doesn't mean one standard rate for every consumer good sold in the country. We can customize the rates to help the poor provide for basic necessities as well as discourage or encourage the consumption of certain items. For example, food and lower-priced clothing could be tax-free. Gasoline, cigarettes, fast food, alcohol, and fuel-guzzling automobiles could face steep tax rates. Hydrogen & electric-powered cars, equipment used in a business, and home improvement material could be given minimal tax rates. Get the picture? Once again, the economic law of supply & demand will increase/decrease consumption of particular items.
6. Consumer prices of certain items would fall since labor and tax compliance costs would be cheaper to businesses. Every cent that goes into producing a product or service is reflected in it's price. For example, if a law firm pays a clerk $25 per hour to service a client, it must charge the client at least that much to avoid losing money. Any business will usually add a certain markup to ensure an adequate profit for the effort and risk. Thus, if you cut the underlying cost, you cut the final price charged to consumers. Elimination of the income tax means a reduction in payroll taxes for businesses as well as the elimination of the need for much of the human resource & payroll departments. Consequently, the cost of offering related products & services drops.
7. It would allow a greater collection of tax money from those carrying out illegal transactions, since their income is hid from the income tax system but will be taxed when they spend it in a sales tax. Drug dealers, prostitutes, black market dealers, and bookies are examples of people who earn income illegally. Since these and others engaging in illegal transactions obviously don't want the government to know about their activities, the income generated won't be reported on income tax returns. Thus, none of that money is subject to tax. However, with a sales tax, it doesn't matter how money is earned, since the tax is collected immediately by the seller.
8. It's a tax system consistent with a free society; i.e. Americans have a choice regarding their taxes, unlike our current confiscation system. Our Founding Fathers went to war with England in large part to get away from a stifling tax system like that which we currently face. The U.S.A. is supposed to be a free country with little government interference. However, in our current tax system, we must pay a significant portion of our earnings regardless if we use government services or not. Since our income is taxed and we all have to generate earnings to survive, we don't have a choice. If we institute a national sales tax, the amount of tax we pay is completely up to the individual. We aren't taxed a penny until we go out and spend. Thus, a national sales tax is consistent with the very idea and foundation of America.
