There is currently a bill in committee in the US HoReps (H.R. 25) and a companion to it in the Senate (S.R. 25) called the Fair Tax Bill. Essentially, it would eliminate the Federal Income tax (and the IRS), the alternate minimum tax, corporate taxes, the death tax, the gift tax, and Social Security and Medicare withholdings, and replace them with a flat-rate consumption tax on goods and services. I've read quite a bit about it, and can't see any downside, other than all those IRS and H&R Block workers that would be out of work. It is revenue neutral, that is, the rate (currently proposed to be 23%), would exactly replace the revenue generated under the current system. It would replace the US Federal tax regulations, which run over 54,000 pages and well over a million words, with a tax plan that could be completely described on a 3x5 note card (one side, only). The bill also calls for the repeal of the 16th ammendment to the US Constitution.
Economists estimate that the economic growth that would be stimulated by the enactment of HR/SR 25 would be on the order of 10% annually. There is an interesting feature of the bill that address the concern that poor people would have to pay more taxes. Everyone would recieve a prebate check each month, that would in effect cover the fed consumption tax on essentials. Let's say the poverty level for a household of a certain size is a $20,000 annual salary. That household would receive a monthly check in the amount of 1/12 of $20,000 x 0.23, or approximately $383. Every registered household would recieve this, regardless of income, so that no one would be pay the tax on the necessities of life.
The tax would only be on new retail goods and services, not on used items or inventories, for example. It is not a value added tax, such as many European countries use. It is paid one time, and the point of retail sale. Your reciept would reflect how much tax you paid, and it would be complelely up to you how much tax you pay (since you decide what new goods and services you purchase).
The CBO recently estimated that US business and individuals pay as much as $500 BILLION annualy to comply with the federal tax laws. Add to that the fact that no company (and few individuals) make any major business decision without computing the tax liability, and you can see just the tip of the iceberg of the positive effect passage of this bill would imbue to the economy.
What do you guys think?
