Many people lay claim to the belief that taxes need to be progressive, not regressive, since those who make less are generally considered less able to pay taxes. So is the FAIRtax actually a more progressive tax system than the current income tax system?
Let’s take the example of a family of four who earns and spends $58,000 a year with no savings and no purchases of any used items. After their $9,729 prebate, they will pay a net $3,611 in FAIRtax. That’s a rate of 6.2%. That’s less than they would pay in payroll taxes alone under the current system. The current payroll tax is 7.65% and is applied to every dollar earned. In addition, part of this family’s income would be taxed at 12% with the remainder falling into the 22% bracket.
The FAIRtax un-taxes basic necessities through the prebate and removes the payroll tax which is the most regressive element of our current system. This allows workers to keep their paycheck without any federal income tax while causing real wages to rise. When purchasing new items under the FAIRtax, workers will be using pre-taxed (not post-taxed) dollars.
Payroll and income taxes imposed on businesses are just another cost of doing business and they are passed along to the consumer in the price of their products and services. The FAIRtax removes these hidden taxes. In addition, employers won’t need to “match” the 7.65% payroll tax of each employee reducing the cost of business all through the supply chain. Studies
indicate that, depending on the industry, costs of retail goods will drop from 10% to 25% with the FAIRtax.
The current tax system is a disaster for American companies producing goods for export and is a primary reason so many manufacturing jobs have gone overseas. Most of our foreign competitors operate in countries with a value added tax (VAT) which is added at every stage of a products assembly. When those competitors produce for export, their governments refund all the VAT that has accumulated along the production chain. The result is that these products can be offered at a much lower price than US based products as our items still contain all the embedded costs of our income/payroll tax system. By removing those embedded costs, the FAIRtax puts American manufacturing back on an even playing field with our foreign competitors and helps our blue-collar factory workers.
For more information, please go to FAIRtax.org.
