ACC 617 – Tax Policy
The Fair Tax The Fair Tax is a proposal to replace our current tax system with a consumption tax. This would eliminate all taxes, including income, corporate, estate, and gift taxes. The tax would be only on new goods and services, and would be 23%. For example, a good that costs $77 would have $23 of tax, so 23% of the total of $100 is tax. This is more commonly thought of as just a 30% tax on the goods ($23/$77 = 30%). A few of the arguments against the fair tax include how easily it would be to evade the tax. A person would just need to purchase used goods in order to avoid the sales tax. This could cause the underground economy to grow significantly. Another argument against the fair tax is that the tax isn’t high enough to fund the government. With no other revenue source, this tax would need to fund all functions of government, including Social Security and Medicare. Some economists even say the tax would need to be much higher in order to fund all the functions of government. Supporters of the fair tax say it is a better alternative because it is simpler than our current tax system. Most average American’s don’t understand all the regulations of the current tax system, and having a system they can better understand would help them make more sound financial decisions. Another advantage of the fair tax system would be that it is fair. Every American is treated the same in this system, regardless of income level. Overall, the fair tax has many advantages and disadvantages, but implementing this complete overhaul of the current tax system would be nearly impossible. Although many Americans would agree a change in the tax system is a need, most people do not like major changes, which the fair tax would be. A consumption tax like the fair tax may be the answer, but the fair tax specifically has many flaws that would require changing