Everything about Fair Tax Explained (With Pros and Cons)
Among the public revenues that the State and other Public Administrations have to use in order to finance the needs of the public, taxes stand out the most. These are monetary payments that citizens are obliged by law to contribute to the government.
In the history of the Modern World, few activities are so important and necessary and at the same time hated, as those that have to do with the responsibility of paying taxes. Most people want fair tax and feel that it is not so easy for those who don’t earn enough.
The Fair Tax Plan was proposed to replace the income tax structure as US has it today. It refers to sales taxes and proposes that all federal, personal and corporate income taxes are abolished , as well as alternative minimum tax. All taxes on estates, gifts, capital gains, Medicare, Social Security and self-employment wouldn’t exist anymore as well.
Instead, the plan suggests a 23% federal retail sale tax which would not apply to imports, used goods or commodities used in production. The Fair Tax Act of 2003 was developed by a group called Americans for Fair Taxation. This sales tax percentage is regressive because the poor are impacted the most, but to make it more progressive, the Act suggests all Americans get a monthly prebate, which would equal the 23% tax on the monthly cost of living at the poverty level.
Advantages
This plan would boost income and probably consumer spending. It also eliminates IRS and the need for annual tax preparation as well as costs connected to that.
Disdvantages
On the other hand, the Fair Tax Act is not so fair to seniors who already paid income taxes all their lives and now would have to pay much higher sales taxes as well. A new agency would also need to be established in order to enforce this act. Finally, the sales tax would be high to replace all the lost revenue.
Tax Collection
It is largely from the collection of taxes that a State can collect and carry out different responsibilities for the communities or make decisions, especially in those related to the redistribution of wealth; including tax-free opportunities. Its importance is focused on allowing the most vulnerable sectors to have some kind of government assistance. Although it seems obvious, the first thing to understand is that taxes will always exist. The States have the capacity to establish taxes. Paying taxes is an obligation of all citizens to contribute to the support of public spending.
Tax Delegation
Of course, in all states, there are different levels of fair tax delegation. There are autonomous communities and local entities, such as municipalities and county councils. In each state, there are usually rules to delimit the jurisdiction of the various powers related to taxes. The State cannot come and say to each citizen: "since you are obliged to support public expenses, you are going to pay me so much so that I can spend." Something concrete must be established, and that obligation must be specified. This obligation can only be established by means of a law approved by Congress.
The Importance of Taxes
Taxes are contributions that must be made by people and companies required by law, so that the state has sufficient resources to provide the public goods and services that the citizens need.
Taxes are important because the state can obtain the resources to provide education, health, security, justice, and public works, combating poverty and promoting economic sectors that are fundamental for the growth of the country's economy. The state use taxes to seek equal opportunities that contribute to the welfare of others, which is a way of participating in community affairs.
Failure to Pay Taxes
Failure to pay fair tax prevents the government from allocating those resources to cover the needs of society and so it is essential that you comply with this obligation. You may have often heard that people do not like to pay taxes. Of course, most people think that it is an unpleasant act to part with their income to comply with a tax obligation. However, it is essential for the fundamental rights of freedom, life, property, and security.
Higher Taxes
These days, taxes are used for everything politicians come up with, including redistribution and "social engineering." They justify tax increases to provide social services, but high taxes destroy incentives, so people invest less. Then there are the negative consequences of having high tax rates, such as the weakening of property rights. If the government takes 40% of what is yours from you, it should come as no surprise that other people want to take something from you as well. In turn, politicians seek votes by offering special benefits to certain groups, encouraging corruption. Those exaggeratedly high taxes are an invitation to evasion. And, when taxes are high, people stop investing in the most effective way and prefer to do it in a way that reduces the taxes they have to pay as much as possible.
Don't Stress over Taxes! We Help You Find the Best Offer.
The Remedy
The tax tips or remedy is quite simple: it is fair to pay low taxes as long as you are not earning a high income. It is empirically established that lower taxes reduce tax evasion rates, which means greater support for the rule of law, which is an indispensable ingredient for economic growth. Fair taxes frees up money to reinvest and give money to charity. When people are able to retain more of what they earn, they are often more generous and less likely to abdicate their responsibility to their neighbors. Low taxes for low-income earners are not just fairer and better for the economy, but they are also good for our moral health.
Social Security Tax Contributions
You also pay social security taxes from your wages so that when you retire, you are entitled to a pension. Yes, Social Security contributions are, in a way, in an intermediate category. It is true that Social Security contributions are paid to be able to receive contributory Social Security benefits. This means that if they are not paid, the right to receive these benefits will not be generated. It is true that the payment of contributions does not imply that the citizen can claim a specific benefit from the State. For example, a citizen can contribute and, later, possibly fall into unemployment for a long time. This affects future pension.
Tax Preferences
In turn, the taxes are classified into rates and special contributions. Taxes are mandatory for U.S. citizens as long as they are working in some form of employment. Taxes help to pay for things like garbage collection and parks and recreations; things that U.S. citizens utilize. The tax preference that people depend on is when they are presented as percentages or amounts. For this reason, people will have different views about what is fair and what is not.
Taxes should be considered fair once they make the public systems sustainable from a budgetary standpoint. In many ways, taxes are determined and established by the political party in power at any given time. That alone affects the fairness of taxes. If you want a tax preference, then as a U.S. citizen, it is important to vote for the political party that will consider fair tax in their governing.
the Consideration
If you want tax fairness, there are two things necessary for consideration:
- Taxes must be proportional to one’s income. It must not be linear. It must respect the fact that citizens want a decent standard of living; especially those who are low-income earners. The citizens that have a socio-economic advantage should pay more taxes.
- Taxes should be managed with the utmost transparency so citizens can feel good about paying what is owed to the government. It should benefit the majority of citizens in an ethical manner.
The tax rates are usually a problem for many people. If tax rates for the wealthy are less than those of regular citizens, then it cannot be fair. In addition, those who have a small business or large corporations benefit more because they are allowed to write off things that reduce their taxes. The regular citizens who are working at regular jobs do not have that kind of advantage. Therefore, the regular citizens are going to feel disenfranchised and left out.
While taxes are a necessity for everyone, it is not fair that the people with the most money end up paying less than those who are less fortunate. Taxes should be managed better, across the board so that it can be fair for everyone who has to pay their taxes. This means that tax laws may have to change to give lower-income citizens a chance at paying less tax. In other words, since big corporations get large tax breaks, why not let them pay more taxes so that public services can be handled and regular citizens can benefit.
Tax Burden
When regular citizens have to carry the tax burden, this is known as “Regressive Taxation.” This kind of tax system is deemed not fair by many people. One example of regressive taxation is paying state sales tax. For example, people who earn a lower income pay the same for one gallon of milk that the high income earned pays. Yet, they are in different tax brackets. The low earner has less money to invest afterward while the high-income earner buys the gallon of milk and still has lots of money left over for savings and investments.
An Example
Another example of a regressive tax is the income tax or sales tax paid. For instance, if there is a flat fair tax of 15% and one family makes an income of $60K per year and another family makes $180K per year, both of these families will usually pay an estimated $10K annually for food and the same for health insurance. These are fixed costs or expenses because none of these families have the option of negotiating a reduced price for the same goods. When the year ends, the first family with the lower income will have $51K to spend and the higher income family will be left with $153K for savings or investments. Do you see the disparity here? Is that fair? The higher income earner will always be four times ahead.
For poor citizens, progressive taxes allow them to pay lower taxes while at the same time, the tax rates will be increased once someone’s income level goes up. The government has a poverty level that is used to determine how much poor people should be taxed. In some cases, progressive taxes have certain exemptions that help taxpayers reduce their tax burden; especially taxpayers who have demonstrated dire financial need or those who fall in the poverty level. This is demonstrated in Earn Income Credit or EIC where families that fall below a specific income threshold may not pay any taxes or even get money back from the government. High-income earners do not get this benefit and this might not ‘sit well’ with them.
A flat or proportional fair tax is when you pay the same amount. Many people believe that the flat tax is fairer than the progressive tax because they think that higher-income earners get rewarded for their hard work. They also think that the progressive tax is punishment to high-income earners. Is that fair? Flat sales tax seem to be fairer since it does not matter your income, you still have to pay for the items at the same price as the lower-income earner.
Those who don’t care for redistributive taxes have the argument and debate that where capital and wealth is concentrated, it remains taxes and is not fluid enough to affect the economy or stimulate financial growth.
Conclusion
Do you care about fair tax? If you care about fairness as it relates to the tax system structure, everyone should be pulling their own weight and that includes both low and high-income earners. There is a disproportion in how wealth is acquired and the taxes that are taken from ‘big money.’ The wealthy organizations and individuals tend to have the system set up in such a way for them to cheat the system. It is not fair for low-income earners to pay taxes and buy the same products at the same sales tax rate as high-income earners do. It is not a level playing field.
However, in the grand scheme of things, taxes have to be paid and there are more low-income earners than high-income earners. Therefore, low-income earners will always pay more taxes.