The fair tax act was proposed in first proposed in 2003 by Representative John Linder of Georgia. It has recently been reintroduced to congress as the Fair Tax Act of 2013. The simplest way to describe the Fair Tax Act is that it would get rid of all national income tax, and instead a higher sales tax would be used. Those who favor this proposal have many reasons for doing so. Some of the benefits include no longer having individuals send in income tax, but have businesses collect taxes and send them to the government. This would eliminate the need for the IRS, while some tax collection agency would be needed, the amount of enforcement required would be much less than what is currently needed to regulate tax collection from every citizen. Congressional committees have also found that since enforcing tax law I so complicated that there are many citizens who do not follow it, this puts an extra burden on those citizen who do comply with federal tax law.
I think that one of most important implications of a sales tax are none of these reasons mentioned above, but rather how the incentives people see will change. A tax on income changes the way people view making money. An income tax of say ten percent would mean that a person motivation to make a dollar is really only ninety cents. If the income tax is progressive such as ours is, then a persons incentive to make each additional dollar is diminished.
On the other hand if a sales tax is in place, and no income tax, then people will have more incentives to earn more money. Simultaneously they will also have more incentive to save. If the income tax of ten percent were changed to a sales tax of ten percent then people would only get ninety cents worth of a good for every dollar they spent. This would motivate people to save more.
If people would save more it would have positive long term economic affects for our country. One big problem in the United States today is that people are over spending and therefore not saving. One of the requirements for economic growth is capital accumulation, and if Americans aren’t saving then we cannot be accumulating capital. So if a sales tax increased savings it would also increase capital accumulation, which could significantly contribute to our long-term economic success.
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