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In total, individuals and businesses in the U.S. spend approximately $170 billion and 6.1 billion hours per year on tax filing.
Several solutions for simplifying the tax code have been introduced over the years. One of the most dramatic solutions is the Fair Tax Act which includes a national sales tax.
The first Fair Tax proposal was introduced by John Linder (R-GA) in 1999. Since then, a variation of the Fair Tax Act has been introduced in every session of Congress.
Senator Ted Cruz, whose current presidential campaign has been built on overhauling the tax code, co-sponsored the Fair Tax Act in 2013 and again in 2015.
No gift tax No federal income tax No payroll tax
Elimination of the IRS
No estate tax
An advance refund to
households
A 23% national sales
tax
ATTRIBUTES OF THE FAIR TAX
POSITIVES “Instead of imposing the highest amounts of taxes on taxpayers’ earnings, the national sales tax would focus more on what consumers spend” –Joe Garza
Encourages saving
Creates jobs
Mandatory taxation
for all
Frees up time and money
POSITIVES
Elimination of the income and payroll taxes would lower employment costs for businesses.
Creates jobs
POSITIVES
Paying taxes would become unavoidable in this consumer based nation.
Mandatory taxation for all
POSITIVES
Time and money spent figuring out your taxes can be spent elsewhere.
Frees up time and money
“[Income tax] punishes the productive by taxing them the highest amounts, reduces jobs by increasing the cost of employees and reveals our personal finances and thus invades our privacy.”
-David John Marotta Forbes Contributor
”If there is an easy way to evade taxes, it is likely that a large number of people will participate in it” –Mike Moffatt NEGATIVES
It would add onto state taxes
States would try to avoid it
Tax evasion would rise
Overseas spending would Increase
May not cover all U.S Expenses
Invades your Privacy
NEGATIVES
A national sales tax would not eliminate the state sales tax, they would both be factored into each purchase.
It would add onto state taxes
NEGATIVES
Some will turn to buying their products overseas to avoid higher prices.
Overseas spending would increase
NEGATIVES
The tax compliance burden would shift onto businesses making it easy for businesses to report less revenue and pocket more of the money.
Tax evasion would rise
NEGATIVES
States and local governments would likely lobby for laws to make themselves exempt from paying the sales tax.
States would try to avoid it
NEGATIVES
Since every purchase would be subject to the sales tax, the government could easily keep an eye on your spending.
Invades privacy
NEGATIVES
People may not spend enough money to cover government expenses like hospitals, schools, and law enforcement.
May not cover all U.S expenses
JILL & GREG Server & Hostess
THOMAS & JOYCE Mechanic & Senior Business Analyst
DONALD & CLAIRE Lawyer & Mother
RACHEL Small Business Owner
Fair Tax
Age: 23 & 24 Income: $20,000 Assets: Parents, Flexible Schedules Liabilities: Bad Credit, Low Education, Child
Income Tax o The family has enough to get by with
potentially a little left over every month for entertainment or savings
o Can get tax breaks based on income and family size
o Necessities would cost more, which
would lead to the family only being able to spend money on necessities
o The family would be spending more on their son, due to the lack of tax breaks for children
Back Story Melissa and Travis are two young parents from Farmersville, Texas. They currently live paycheck to paycheck. They own one vehicle, and carpool to work. Melissa’s mom is able to watch their son, Malcolm while they work long hours.
MELISSA & TRAVIS Server & Hostess
Fair Tax
Age: 30 & 28 Income: $100,000 Assets: Parents, Homeowners, Dual Income Liabilities: Children, Property Taxes
Income Tax o Thomas and Joyce receive tax breaks
because of their son as well as owning their home
o Their actual net income is about $80,000 instead of the $100,000 they signed for
o Thomas and Joyce will receive no tax
breaks for Thomas Jr. or their house o Their cost of living will increase,
especially because of increased spending required for Thomas Jr.
o The value of their home will decrease
Back Story They have a wonderful son named Thomas Jr. The family just paid off their home. Thomas is a auto mechanic while his wife is a Senior Business Analyst for a large conglomerate.
THOMAS & JOYCE Mechanic & Senior Business Analyst
Age: 50 & 44 Income: $2,000,000 Assets: Homeowners, Law Degree, Investments Liabilities: Children, Higher Tax Bracket, High Spending
Income Tax o Donald receives less than what he
signed for o They receive tax breaks for their
children and home o They pay a higher percentage of
taxes because of their income
o Donald and his family will receive all $2,000,000 each year
o The value of Donald’s home will decrease
o The cost to maintain their lifestyle will increase
o The return on Donald’s investments will increase
Back Story Donald and Claire have been married for 8 years. They have two children, Louise and Dennis. Donald works for a large and well-known law firm while his wife stays at home with the kids. The family currently has many investments and can afford a very luxurious lifestyle.
Fair Tax
DONALD & CLAIRE Lawyer & Mother
Age: 35 Income: $500,000-$800,000 Assets: Business Owner, Variable Income Liabilities: Non Employee, High Tax Rate
Income Tax o Rachel is not able to hire as many
consultants to her firm due to higher business expenses
o Rachel pays a higher tax rate, but gets many tax breaks and write-offs as a business owner
RACHEL Small Business Owner
Back Story Rachel created a healthcare consulting firm. She has, thus far, been successful bringing in a large variety of clients. As the owner of the business, she is solely responsible for filing all taxes on her company’s annual revenue, which varies based on the company’s performance.
o Rachel can hire more consultants
because of increased payroll o Rachel loses her business tax breaks,
but no longer pays payroll taxes or taxes on capital
o Rachel will have to keep up with the consumption tax people are paying for her services to pay it to the government
Fair Tax
It’s hard to say if the national sales tax will ever be passed, but with the coming election and the support of some GOP candidates, its likelihood is increasing.
Questions l Thoughts l Comments [email protected]