Catoosa Vision

FairTax vs FlatTax

There's been much discussion in recent years about the relative merits (if any) of our current tax system.

Some legislators have been proposing alternatives to our current graduated income tax (with a few loopholes :).

The two most popular alternatives are the FairTax and the FlatTax.

US Sen. Saxby Chambliss and US Rep. John Linder have each proposed FairTax proposals, which would repeal corporate and personal income taxes, as well as various estate, gift, Social Security payroll deductions and Federal self-employment taxes. These taxes would be replaced by a national sales tax somewhere in the range of 23 percent, which is about 10 percent less (on average) than what we pay in the current system. What this means is that on each dollar, we currently pay, on average, about 33 percent in taxes. With FairTax, we'd pay only 23 percent, with exceptions for certain "essential" purchases, such as food.

FlatTax, on the other hand, sticks with the income tax model, but sets a flat tax at a uniform rate -- one tax rate for all. The basic premise here is that everyone should pay the same rate, and many (if not all?) of the loopholes and exemptions seemingly unavailble to those in lower tax brackets would be eliminated as well.

I've been following this debate for quite some time, and continue to gather as much information as possible. But, for now, I'm leaning towards the FairTax proposals. I like that this consumption-based system (as opposed to income) would reward savings (by not penalizing dollars as they're earned), and would only be imposed on citizens as we take something back from the economy -- i.e. we make a purchase and "consume" goods and services. There are some who have argued that the FairTax proposals would amount to an "additional 23% of taxes," which is completely false. The national sales tax would only go into effect after the current income-based system is scrapped.

To me, the FlatTax would be preferable to the current system. But, I'm skeptical that the loopholes would be properly eliminated to make the system truly "flat."

FairTax encourages people to earn as much as possible (thus driving inovation and investment), and even subtly encourages savings (as said earlier). We'd only pay "our fair share" when we decide to spend money (i.e. consume). Then, we'd all be paying the same amount.

There's my $0.02 worth...

CB

posted by Chris Casey @ 5:46 PM