The IRS-Hitman Takes Aim at the Fair Tax

There has been a growing movement toward tax reform called the Fair Tax. I'm sure you've heard that word before and heard at least one or two of the potential Presidential candidates talking about it.

What is the fair tax exactly? In a nutshell, the Fair Tax is an elimination of the current income tax system and replaces it with taxation based solely on sales tax. Proponents of the Fair Tax state that all of the taxes normally taken out of your paycheck will no longer be removed, leaving you with the actual amount of money you earned. There wouldn't be any additional taxes taken out for overtime or bonuses, which they say will reward hard work rather than penalize it.

So how can the government work on sales tax alone? Well, there would be a federal sales tax of around 23%, which is roughly equivalent to what many currently have taken out of your paycheck each week in federal income taxes (the average rate is around 15%). The idea is that the Fair Tax rewards those who work hard and save money.

Proponents also state that the Fair Tax will be far simpler than the current IRS tax code. No one would have to fill out income tax returns at the end of the year.

It doesn't sound too bad, right? Well, the IRS-Hitman has a few questions of his own, and I didn't find any answers out there.

The fair tax is designed to be used at the federal level right? But I haven't found any evidence about how it works with the states. States have their own individual sales and income taxes.

Couldn't this actually be a detriment to consumers, and especially the middle class? Because now you have to pay a 23% federal sales tax, plus state/local sales tax, plus possible state income tax.

Additionally, what happens when consumers do spend less? Wouldn't there end up being a tax deficit? Proponents say that under the fair tax, the IRS wouldn't be needed and the money used for the IRS could be put back into the hands of consumers.

How about small businesses? Higher sales tax means they have to pay back the government that much more money. But ideally, they wouldn't have to pay 941 payroll taxes either.

On paper, the fair tax seems like a good idea, but Communism looks like a good idea on paper too. The IRS-Hitman wants to know your opinion, and some answers to my questions. For more information, you can visit http://www.fairtax.org/.

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