Inflation is often described as “too few dollars chasing too few goods” While that may be an oversimplification of a complex issue, it captures an important truth: prices rise when the supply of money and purchasing power grows faster than the supply of products and services available for purchase. Let’s see how the FAIRtax addresses the “too few goods” side of that equation by encouraging more production.
The current income/ payroll tax system taxes wages, profits, interest, dividends, capital gains and business income. The FAIRtax removes federal taxes from the production process and places the tax at the point of final retail sale. By doing so, the FAIRtax would stop penalizing work, savings, investment and business expansion.
Under our present system, businesses face corporate income taxes, payroll taxes, tax compliance costs, depreciation rules and other federal burdens that raise the cost of producing goods. Those costs are built into the prices we pay. They also discourage investment that would otherwise increase factories, equipment, inventory, transportation capacity and employment. As the saying goes, “the more something is taxed, the less you get of it”.
Under the FAIRtax, companies earn profits without federal income/payroll taxes and workers earn wages without federal income/payroll taxes. When the current tax code goes away, businesses will invest in new machinery, expand facilities, hire workers and bring production back to the U.S.. Investors will also have greater incentive to fund production because capital gains will no longer be reduced by federal income taxation. More investment means more output and more output means more products to buy. When shelves are stocked, supply chains are stronger and domestic producers can respond more quickly to demands and inflationary pressure is reduced.
By removing tax barriers to production, the FAIRtax would attack one of inflation’s root causes: scarcity. If inflation is “too many dollars chasing too few goods”, then a tax system that helps create more goods is a powerful anti-inflation reform.
For more information, go to FAIRTAX.ORG
