Ah, tax day. So exciting isn’t it? The US doesn’t need a tax day. Basically, the US has a “tax year”. Every time you turn around you get taxed. Cue the song Taxman by the Beatles.
I have joined the Advisory Board for the FairTax organization. Believe it or not, we are making some headway. We have had discussions with Congressional people who support the Fair Tax. This is a movement in its early days. You can join too. All donations are tax-deductible. Kind of funny typing that in a Fair Tax blog post! One of the first things movements like this need is to educate people. Once people understand the tax and its implications, it will be an easy transition.
You can listen to Steven and Chad talk about the Fair Tax here. Thanks to Dan, Amy, and Quin for having them on.
With your help, it could happen.
What is it? It is a consumption tax. You purchase a new good or service, you pay. Every other tax you can think of goes away and there are a lot of them. You are taxed in ways you don’t realize. These are indirect taxes. For example, corporate taxes aren’t paid by the corporation. They are paid by the consumer in the form of higher prices. Corporations aggregate the tax and remit it to the IRS.
The entire incentive system in the US economy would change.
recently wrote about this in his acceptance of the Adam Smith Award. Economics is a series of incentives. There are costs, and opportunity costs. Taxes are disincentives. Tax something and the price goes up while demand goes down.People in the US pay taxes in ways they don’t even see, even when they don’t think they are paying them. You pay dividend taxes even if you don’t get dividends. How? When corporations don’t pay dividends there are fewer dollars available for reinvestment into the economy. That damps job opportunities for you and your children.
Here is something unfair about taxes. If you work, you pay social security taxes. People who don’t work don’t pay, yet they receive social security checks. They receive transfer payments from the government, and the government is taxing me and you to send them. How many of those payments are sent simply to curry political favor?
Here is another interesting incentive that would change if America instituted a Fair Tax.
The tax applies to new goods and services, not used goods. Hence for the greenies out there the Fair Tax incentivizes the green economy. There will be an incentive to rehab durable and other goods, along with a market for them.
That means less junk going to landfills.
But, there are underlying incentives that will change. Here is an example.
You have a cell phone. It works. You can call people on it. Every year, cell phone manufacturers come out with a new cell phone. It has a slightly better camera. Sometimes it often has slightly better battery life. Maybe it looks slightly different.
Those innovations are marginal.
What might happen under a Fair Tax system?
The phone manufacturer would have to come up with real ground-breaking innovations to incentivize you to buy a phone. Why? Are you going to part with your phone that works fine to purchase a new one when you have to shoulder the tax?
How much better would the new phone have to be for you to exchange it?
Durable goods producers like car companies would have to be super innovative. But, we would benefit because engineers inside those companies would be incentivized to dream bigger and innovate faster. That’s great for you!
Illegal aliens and the underground economy have to pay the tax. There is no avoidance like there is today. Using cash doesn’t avoid the tax. The wealthy pay more in taxes because all wealth is eventually consumed.
Critics will say current savers are punished. They are and there are ways to help that small minority of people navigate the transition. Some critics say retirees are punished but that’s only if they have saved a large chunk of money outside of a retirement plan. In fact, now they won’t pay tax on retirement withdrawals but you will pay tax on purchases.
No more tax day. No more arguing about taxes. No more tax breaks for special interests. No more tax freedom day. The Fair Tax takes power out of the hands of all the Rich Men of Richmond in Washington DC and puts it into the hand of a private individual. You decide when you want to consume, what you want to consume, and when you pay a tax.
The only way to avoid the tax is barter and barter is hard. Barter is inefficient. It is why ancient men came up with coins as a medium of exchange. The other way to avoid the tax is by being poor and no one has an incentive to be poor. Poor people don’t pay because they get a pre-bate. They also don’t lose a lot of benefits when they earn more income like they do under the current system. Once they go over a certain income threshold, they pay just like you but they get to keep more of their money! Great economic incentive to work.
This tax system turns everything on its head. It rewards work and productivity. It rewards industriousness and it incentivizes innovation.
Our current tax system doesn’t.
Write or call your congressperson and tell them to support the Fair Tax.
https://www.atlanticplaybook.com/p/why-the-fair-tax-act-works-for-american?utm_source=share&utm_medium=android&r=1pwlhv&triedRedirect=true with an actual graph!
Even worse than income taxes are property taxes. At least the serfs worked 4 days per week.