Your Opinion: Calculations show Fair Tax fairness
Wednesday, May 11, 2011
This response is to the April 21 letter to the editor regarding the so-called unfair burden created under the Fair Tax to people with different incomes.
The Fair Tax would eliminate corporation income tax, personal income, capital gains, gift, estate, AMT, Social Security and Medicare taxes for all taxpayers. It would replace these taxes with a 23 percent sales tax on new goods and services.
A taxpayer would receive a prebate (rebate) to cover the sales tax spent up to the federal poverty level. This would be $2,494 per year refunded. This means the first $10,800 yearly you spend is tax-free.
Let’s use the example of a person that is a single wage earner, with standard deductions. Under our current tax system a $20,000/year income pays $1,180 income tax + $1,530 Social Security/Medicare tax = $2,710 taxes paid annually.
Under the Fair Tax a $20,000 income - $10,800 prebate = $2,116 taxes paid annually; 22 percent less taxes paid.
How about with a $40,000/ year income? They currently pay $4,180 income tax + $3,060 Social Security/Medicare tax = $7,240 taxes paid annually.
Under the Fair Tax $40,000 income - $10,800 prebate = $6,716 taxes paid annually; 7.24 percent less taxes paid.
For $100,000/year income they currently pay $19,092.50 income tax + $7,650 Social Security/Medicare tax = $26,742.50 taxes paid annually.
Under the Fair Tax $100,000 income -$10,800 prebate = $20,516 taxes paid annually; 23 percent less taxes paid.
What about the person who pays no taxes because they work illegally for cash? Perfect example is a drug dealer or illegal aliens. They will be taxed on everything they spend. Under our current system they are paying nothing. This is the only class of U.S. residents who will have to pay more taxes under the Fair Tax.
In addition, under the Fair Tax you do not have to file Income taxes every year. How can the Fair Tax not be better for all classes of taxpayers? The alternative is we can keep the income tax system as it is and everyone will keep paying more and keep filing income tax forms.
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