Depending on what statistics you believe, American taxpayers are shelling out around $400-500 billion to pay their rightful share of taxes to the IRS. Or, ensure they receive a refund of taxes collected inclusively (withheld) from their paychecks before they ever take any hard-earned money home. That’s $.5 trillion dollars to pay to pay. What a waste!

It’s time to completely replace this expensive and wasteful tax collection system and the IRS with a new and much simpler system---a bold experiment: The Fair Tax. Somewhere in Congress there are bills H.R.25 and S.R.25 which do propose such a dramatic change. The bill, developed by Congressman John Linder of Georgia, has garnered 57-58 cosponsors across party lines. Also, Linder collaborated with radio talk host Neal Boortz (Atlanta) producing a book, “The FairTax Book” with subtitle, “Saying Goodbye to the Income tax and the IRS.”

So what is the Fair Tax? A few elements:

** All working citizens would take home all their pay (except for specific allotments). All withholding for federal income taxes, Social Security and Medicare taxes would stop! Take a look at your wage statements, add up your withheld federal, Social Security and Medicare taxes, add them to your paychecks and see how much more you would take home.

** Instead of having those inclusive taxes withheld from our earnings upfront --- we will pay an inclusive consumption tax on everything we purchase, goods and services. You mean, tacked on like the state sales taxes? No. That is exclusive. Fair Tax will be included with the price of the product or service.

** How will it work? First, we must all understand that right this minute, every purchase we make includes an average 22 percent corporate tax embedded in the price we pay. As Linder and Boortz point out: We already pay that tax but we don’t realize it! Corporations do not pay taxes --- they pass them on to the taxpaying consumers in the price of the product.With the passage of the Fair Tax Act, corporate taxes and withholding taxes from incomes would stop! The corporate tax average of 22 percent would be replaced with an average 23 percent Fair Tax inclusive on all goods and services.There has been some debate on whether the Fair Tax is 23 percent or 30 percent. Those of us who like to play with numbers (doesn’t make us math whizzes!) see the confusion in two ways.

** One: People have a difficult time (including congressional representatives) understanding that prices for goods and services are not going to change that much. The Fair Tax is not an exclusive sales tax; It is an inclusive tax, added in with the price of the product. And will appear as a Total Price on the tag.Second: The simplest example: Pay $100 at the register. Of that purchase price, the Fair Tax is already included. Product Price: $77.00 plus 23 percent of product price = $17.71. Right? No. What is figured is 23 percent on the total price of $100 including the product and tax. Poor examples have been used with little explanation. Boortz book Example: Buy $45 of groceries. The Fair Tax is already included in the price. When you receive your receipt of purchase, it will read:

Product Cost: $35.10 (after 22 percent embedded corporate tax is subtracted.)
Tax: $10.48 (How was this tax figured?)***
Total: $45.58

The nitty-gritty math appears to be more than 23 percent tax. ***Boortz adds a tax of $10.48 to $35.10 to get a total price of $45.58. ($10.48 equals 29.9 percent of $35.10.) But if you take 23 percent of both the product and the new tax added together: $45.58 x .23 = $10.48. Well, no matter how you look at it, that is 29.9 percent of product price included in total price of $45.58, not 23 percent.

<><>Boortz starts from where product prices-costs including corporate taxes are now. The Fair Tax should be figured starting with the basic bottom-line cost of product produced (plus profit margin) and multiply by 23 percent ($35.10 worth of groceries x.23 = $8.07). Or, change the tax to what it really is: 29.9 percent ($35.10 product cost x .299 = 10.48).

<><>If the Fair Tax is 23 percent or $23 of every $100 spent or paid at the register, then that includes paying a tax on tax and product together. But until we receive clarity on exactly how the Fair Tax will be figured, then doubts remain. Taxpayers would certainly save more in the long run.

All else about this new FairTax system is great.

© 2007 Bonnie Alba

Comments: tttalba@hotmail.com

Resources:
www.fairtax.org (grassroots org.)