If you’ve experienced filing and paying taxes, you know how confusing and how much of a hassle it can be. Many people don’t only complain about the complex process, they also express that wealthy persons and families, businesses, and special interest groups pay less tax than they’re supposed to due to certain exemptions and loopholes.
Because of these frustrations, the Fair Tax Act is gaining a strong following. This plan aims to replace the federal income tax system with a flat national sales tax. Supporters of the plan believe this would help to evenly spread the tax burden, get rid of loopholes, and take away the hassle of collecting taxes without affecting federal tax revenues. However, not everyone believes this will be a helpful solution, and some say it might even worsen the tax problem.
Can the Fair Tax Act really solve tax issues? Evaluate its pros and cons and decide if this is a plan you would be comfortable to support.
List of Pros of the Fair Tax Act
1. It encourages better transparency.
Compared to the more than tens of thousands of pages of the U.S. tax code, the Fair Tax Act is only a little more than 100 pages. This means more people can get a better grasp of how taxation works and how much tax they have to pay, and they’ll be better aware of the exemptions they can take advantage of.
2. It means investments won’t be taxed.
Because of that, more money can be put into stocks, turning the markets around. As a result, the economy improves, providing more employment and investment opportunities.
3. It can encourage increased productivity.
People can be encouraged to work harder to earn more, knowing that their income won’t receive larger deductions due to taxes. And with increased productivity, there will also be increased profits for businesses, creating a positive cycle.
4. It motivates people to have more mindful and wiser spending practices.
With a national sales tax, you know that it will cost you more taxes if you spend more. Therefore, you’d think twice before using your credit card and purchasing more than you need. You can also be more motivated to pay off your credit card debts because these payments won’t be taxed.
List of Cons of the Fair Tax Act
1. It requires a pretty high sales tax.
In order for the government to bring in the same revenue as the current taxation system, the national sales tax would have to be pretty high. Naturally, this means the prices of products and services will increase and in turn affect the current financial state.
2. It can slow down the economy.
The U.S. economy is heavily reliant on consumerism. However, the Fair Tax Act will discourage people from spending more, and this is not good for a capitalist economy.
3. It creates more opportunities for tax evasion.
Since intermediate goods won’t be taxed, companies can claim that something is an intermediate good when it is really an end product just so they can take advantage of tax exemptions. Another method would be to trade with and purchase goods from other countries.
4. It harshly affects the middle and lower class sectors.
Most individuals and families from the middle and lower classes live from paycheck to paycheck, while wealthier people have the luxury of putting their earnings into savings or investments instead of immediately spending their money. This means that those with less income will end up paying a higher percentage of their wages in sales taxes.
With the current financial state of the country, more people are looking for solutions to lessen the burden of paying heavy taxes. But is the Fair Tax Act really the solution?