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What is a Fair Tax System?

October 4th, 2012 by Melissa Rager

The term Fair Tax seems somewhat of an oxymoron to most Americans.  Do any of us really feel that the taxes we pay are fair or think we should pay more?   Recently, the House passed a bill known as the Buffett Rule Act, enabling individuals to pay more in taxes than they owe… if they choose.  I’m not sure how well that will turn out, but I’m thinking there won’t be a surplus of extra money rolling in from the Warren Buffetts of the world.  It’s hard not to evaluate our tax laws with the upcoming election.  The nonstop advertisements, news updates and TV broadcasts detailing each candidate’s strategies on the U.S. tax system are constant reminders of who will pay more in taxes and who will receive tax cuts.  Neither President Barrack Obama nor Governor Mitt Romney mentions the possibility of a Fair Tax system, but there is one candidate who can’t say enough about it: New Mexico Governor Gary Johnson.  Like many of you readers out there, I was not familiar with Governor Johnson until recently.  His Libertarian status has not afforded him the same publicity as Obama and Romney, but his views, nonetheless, are something to discuss.

One view in particular, the idea of a fair tax, is a complete 180 from our current taxing situation.  The main differences, and probably the most intriguing, are that it removes income taxes at the Federal level as well as payroll taxes; even taxes on unearned income are eliminated.  I know what you’re thinking…WHAT?  Every person is afforded the ability to take home exactly what they earn.  Taxes are then paid on new purchases of goods, with the exception of necessities, to an extent.  It is similar to retailers withholding sales tax and remitting it to the states.  A tax will be withheld when you make a purchase and then released to the U.S. Treasury.  The idea may seem farfetched, but it would result in every individual paying taxes based on their lifestyle choices, not their income.

Johnson suggests the tax would be around 23% on certain purchases, which is, on average, the amount of federal income tax most Americans already pay (assuming a 15% income tax rate plus 7.65% payroll).  The more money you have, the more luxury purchases you make, and thus the more taxes you would pay.  While the details are a bit more extensive, the basic idea is pretty simple.  If the Fair Tax system was, in fact, adopted, it might be the first time someone could say they understood the U.S. Tax Code.

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