It's a bit roundabout how we got there, but Trixie and I began a back and forth email about the proposed Fair Tax. I know enough about it to be mildly informative to others. So, I copied the plain English summary from the Fair Tax website. I don't know if I'm gung ho for it, but isn't it worth a try?
The Fair Tax Act of 2005 – HR 25/S 25
plain English summary
The Act is called the “Fair Tax Act of 2005.”
As of Dec. 31, 2006, it repeals all income taxes and payroll taxes, specifically:
• The individual income tax (including capital gains taxes and the alternative minimum tax)
• The corporate income tax
• All individual and employer payroll taxes including Social Security, Medicare and federal
• The self-employment tax (a self employed person pays both the individual and the employer portions of Social Security and Medicare taxes)
• The estate and gift tax
Effective January 1, 2007 it replaces the above taxes with a national retail sales tax on all goods and services sold at retail, except that used goods are not taxed. The tax rate is set to be revenue neutral – at the level necessary to replace the revenues generated by the repealed taxes.
A 23-percent (of the tax-inclusive sales price) sales tax is imposed on all retail sales for personal
consumption of new goods and services. Exports and the purchase of inputs by businesses (i.e.,
intermediate sales) are not taxed. The sales tax must be separately stated and charged on the sales receipt.
This makes it clear to the consumer what the amount of the tax is and that he or she is paying it.
The FairTax provides every family with a rebate of the sales tax on spending up to the federal poverty level (plus an extra amount to prevent any marriage penalty). The rebate is paid monthly in advance. It allows a family of four to spend $25,660 tax free each year. The rebate for a married couple with two children is $492 per month ($5,902 annually). Therefore, no family pays federal sales tax on essential goods and services and middle-class families are effectively exempted on a big part of their annual spending.
Funding for Social Security and Medicare benefits remains the same. The Social Security and Medicare trust funds receive the same amount of money as they do under current law. The source of the trust fund revenue is a dedicated portion of sales tax revenue instead of payroll tax revenue.
States can elect to collect the federal sales tax on behalf of the federal government in exchange for a fee of one-quarter of one percent of gross collections. Retail businesses collecting the tax also get the same administrative fee.
Strong taxpayer rights provisions are incorporated into the Act. The burden of persuasion in disputes is on the government. A strong, independent problem resolution office is created. Taxpayers are entitled to professional fees in disputes unless the government establishes that its position was substantially justified.