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The FairTax (H.R.25/S.1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax), payroll taxes (including Social Security and Medicare taxes), corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level. The sales tax rate, as defined in the legislation, is 23% of the total register price (23垄 of every $1鈥攃alculated the same way as income taxes), which is comparable to a 30% traditional state sales tax (30垄 on top of every $1). Because the U.S. tax system has a hidden effect on prices, it is expected that moving to the FairTax would decrease production costs from the removal of business taxes and compliance costs, which is predicted to offset a portion of the FairTax effect on prices.
With the rebate taken into consideration, the effective tax rate would be progressive on consumption and could result in a tax burden of zero or less for some taxpayers. However, opponents assert that while progressive on consumption, the tax could be regressive on income. Opponents claim it would decrease the tax burden on high income earners and increase the tax burden on the middle class, while the plan's supporters argue that it would increase purchasing power, and decrease tax burdens by broadening the tax base and effectively taxing wealth. Many mainstream economists and tax experts believe consumption taxes, such as the FairTax, would have a positive impact on savings and investment (not taxed), ease of tax compliance, increased economic growth, incentives for international business to locate in the U.S., and increased U.S. international competitiveness (border tax adjustment in global trade). However, critics argue that it could be difficult to collect, having challenges with tax evasion, and that it may not yield enough money for the government, resulting in cutbacks in spending, a larger deficit, or a higher sales tax rate.
The FairTax has generated a large grassroots tax reform movement in recent years, led by the non-partisan group Americans For Fair Taxation. Increased support was created after talk radio personality Neal Boortz and Georgia Congressman John Linder published The FairTax Book in 2005 and additional visibility is being gained in the 2008 presidential campaign. While the proposed bill has yet to have a major effect on the tax system, the Fair Tax Act has the highest number of cosponsors among tax reform proposals (attracting 72 in the 110th United States Congress), gathering much stronger support than popular flat tax legislation. A number of congressional committees have heard testimony on the FairTax; however, it has not been voted on in either Chamber. The plan is expected to increase cost transparency for funding the federal government and supporters believe it would have positive effects on civil liberties and advantages with taxing illegal activity and illegal immigrants. Because the FairTax plan would remove taxes on income, tax deductions would have no meaning or value, which concerns some law makers about losing this method of social incentive. The legislation calls for an aggressive repeal of the Sixteenth Amendment, in order to prevent Congress from introducing new income tax legislation in the future.
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| Income tax 路 Payroll tax Alternative Minimum Tax Estate tax 路 Excise tax Gift tax 路 Corporate tax Capital gains tax | ||||||||||||||||||
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| FairTax 路 Flat tax | ||||||||||||||||||
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Taxation by country
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