I am starting to think so. Right now, I am reading “The FairTax Book: Saying Goodbye to the Income Tax and the IRS“ by Neal Boortz and Congressman John Linder. Basically the book is how about how we should replace the IRS and all the associated taxes it takes out of our paychecks with a consumption tax on everything we buy. No longer would individuals or companies pay income taxes…your paycheck would be your paycheck. If you make $25 per hour and work 40 hours per week, your paycheck would actually be $1,000…not $1,000 minus taxes. Sounds good right?
The only concern I had about this before I started reading the book was “Jeez, I don’t really want a loaf of bread to cost $5.00 because of the consumption tax” but the authors explained why this would not happen. See, we don’t normally think about it, but consumers actually pay the corporate taxes as we buy things….businesses just act as a pass-through – passing their tax on to us, and it is reflected in the price of goods. From the guy that grows the seeds for the bread all the way up to the grocery store, the tax on each step along the way is just tacked on to the price of each step, meaning we end up paying the entire tax bill once the bread reaches our dinner table. With the FairTax act, none of the steps would be taxed…just the final product. So the price of bread would remain the same at the end once all the taxes along the way are removed, meaning we wouldn’t really pay any more for the same product then we do now. Interesting, no?
In theory, I imagine most people pay about 33% of their paycheck to the government, but the FairTax would be a flat tax on consumer goods of 22%. Of course, you would think then that companies would just keep that 22% as profit instead, but the authors say that due to market forces and competition, companies would not be able to keep that much as they fight for your dollar, so the price of goods would come down.
I am not finished with the book yet, I am only about half way done…but so far, every question I come up with is slowly being answered and I am in support of the FairTax idea. Anyone out there read or heard of this idea? If so, I would appreciate your thoughts on it and maybe we can have a nice dialog about the pros and cons.