Fair Tax Pros and Cons

The taxes and duties of any nation significantly contribute to the revenue of the treasury. The taxation and duties structure always tends be complex, and there is always an impending question, is the current system proper, fair to people and is it good enough. These questions, which have been probed generation after generation, have led to an aptitude of dynamic decision-making among public administrators, policy makers and officials in the government who are concerned with public finances and accountability towards the citizens. The Fair tax act, also sometimes referred to as the FairTax, point out to the advantages and disadvantages of the Fair Tax proposal. Tax reform is needed, and hence, Fair Tax pros and cons do matter a lot.

What is Fair Tax Plan

Before we discuss the Fair tax act pros and cons, let us get a quick overview of the basic provisions. The major change that would take place, as a result of the tax is that the current direct taxation system of income tax would be replaced by a system that would instead tax consumption at single point. There are two major factions of this single point taxation system. Firstly, the tax would be levied at point of consumption, that is during the purchase of goods or services, exactly like a single point sales tax. The second provision is that all family households would be paid a rebate, or 'prebate' of the total sum paid as Fair tax, till it does not exceed the poverty level, on a monthly basis. This basically implies that the tax paid below the total poverty level would be refunded and the consumption/expenditure above the poverty level would be taxed. The rate of taxation and assessment along with the computation of total amount payable would be also modified, with the proposed rate of taxation being 23%. The assessment of the payable Fair tax however, indicates that the tax that is payable, would value to 30% of the transaction value. The fact about the assessment is largely debated and computation procedures have not yet been passed as a law from the Fair tax bill, which of course leaves a certain connotation for the probability of a better computation and assessment coming into being.

Pros and Cons of Fair Tax

Here are some advantages and problems with the fair tax proposal let's have a look from the general prospective.

Pros of the Fair Tax Proposal
The first instant positive aspect of the proposal is that the taxation system would become centric around the principle that pay for what you spend, instead of pay for what you earn. This would significantly change social faction of the economy, firstly, saving habits would be substantially encouraged and a non materialist approach would be imbibed, in the people. Secondly, the paycheck would not have any deductions, which would prevent people from deploying evasive measures. The third significant advantage is that since the Fair tax is progressive, it would affect spending transactions instead of all transactions. This would eventually led to cubing of all unfair tax. The assessment of the tax is such that the total revenue would be unaffected and services such as Social Service and MediCare would not be abolished. The last advantage that can be pointed out is that the fair tax shall bring down the costs of production substantially, as several taxes which are included in the production process would not be present.

People have often gleefully assumed that Internal Revenue Service (IRS) would cease to exist, however this would not be the case, as the tax on consumption would require an equally strong and powerful body for governance.

Cons of the Fair Tax Proposal
The big drawback of the system is that it would result into the loss of revenue for the government as there are several direct taxes that will cease to exist. The second immediate consequence is that a small price in any faction of the economy will inflate the price of all related goods due to taxation. The overall cost of goods will stay low, however a small increase even in one cost will have sudden and high inflationary effect. The small price rise would drastically affect the sales and sustaining the loss of sales would prove to be difficult for producers. Changing tax rates and controlling the existent ones would prove to be more difficult. The consumption point taxation would also lead to cash based, unrecognized transactions, black markets and cash transactions. Supporters however argue that the retail price levels would not be affected. The last con is that there is bound to be multi point taxation which would result into repetitive taxation.

Though there are bound to be pros and cons, there are several positive aspects of the Fair tax system and it is much friendlier towards common people. The big problem, is how does one implement it?