The Fair Tax would have a slight positive impact on the poorest Americans, a slight negative impact on the middle class, a huge positive impact on self-made millionaires and a slight negative impact on people who are rich but aren't working. This doesn't even out, so to make up the lost revenue, two new sources are tapped: Illegal immigrants and foreign tourists.
Illegal immigrants currently do not pay taxes - but it's likely that the majority of them would pay very little under the new scheme. Under the Fair Tax, they'd be hit with the new 23% consumption tax, and wouldn't get the benefit of the prebate to help the poor, putting them in a much worse off position than they are currently. Foreign tourists would also be hit with the tax, but wouldn't get any benefit of the general services of the government.
Lack of Tax-Credits to Focus Economy
Under the current system, individuals may qualify for deductions or "tax credits" if they can spend their money in ways the government is trying to encourage. These ways include: donating to charity, making mortgage payments on a home, refitting a home with energy efficient infrastructure, purchasing an energy efficient car, paying medical expenses, paying a certain amount of college tuition, among many other potential uses for income. Without the income tax, there are no much such tax credits and the government loses the ability to focus spending in certain directions.
Is the Fair Tax Fair to the Economy?
Almost everyone recognizes that foreign tourism to the US helps the American economy. Far more controversial is the claim that illegal immigration helps the economy, but today even conservative economists are finally admitting that this is true as well.
Since the Fair Tax would discourage both, it is only fair to assume that it would have some negative impact on the economy. The loss of the tax credit system also prevents the government from focusing demands on important services vital to our overall economic prosperity or other national interest. Furthermore, it incentivizes who have the opportunity to buy outside the US and avoid paying the tax.
The Fair Tax, while not inherently regressive or flat, does have the effect of discouraging tourism and immigration, both of which boost the economy. It reduces the tools the government has to focus consumer spending to encourage charity. It also creates a strong incentive for wealthy individuals to buy what they need outside America. For these reasons, the Fair Tax may be a fair deal for some, but it is not a Fair Tax for our economy or our nation as a whole.
Source: www.fairtax.org
Jared Plotkin - I recently graduated from UC Irvine and I am trying to make a career out of freelance writing. I enjoy writing about a wide variety of ...
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