Revenue Neutrality Of The Fair Tax
The Fair Tax Act (H.R. 25/S. 1025) is a bill in the United States Congress for changing tax laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax), payroll taxes (including Social Security and Medicare taxes), corporate taxes, capital gains taxes, gift taxes, and estate taxes with a national retail sales tax, to be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level.
A key question surrounding the FairTax rate is the ability to be revenue-neutral; that is, whether it would result in an increase or reduction in overall federal tax revenues. Economists, advisory groups, and political advocacy groups disagree about the tax rate required for the FairTax to be truly revenue-neutral. Different researchers use different time frames and methodologies that make direct comparison among estimates difficult. The choice between static or dynamic scoring further complicates any estimate of revenue-neutral rates.
Proponents offer studies that calculate the tax rate consistent with the legislation (23% inclusive), while critics argue that the rate would need to be much higher and offer competing studies. Supporters argue that if the rate seems too high or is otherwise higher, it brings to light the cost of the federal government and the true tax burden Congress has levied on the American taxpayer. Bruce Bartlett has stated that "public opinion polls have long shown that support for flat-rate tax reforms is extremely sensitive to the proposed rate, with support dropping off sharply at a rate higher than 23%." When the FairTax is calculated like U.S. state sales taxes (tax-exclusive), the rate would be presented as 30%. Opponents argue the 30% tax-exclusive figure is better understood by the general populace and that the use of the 23% tax-inclusive number is deceptive and misleading. Proponents state that the 23% presentation is easier to compare to the inclusive income tax rates being replaced.
Read more about Revenue Neutrality Of The Fair Tax: Tax Rate For Revenue Neutrality, See Also
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