Could the U.S. Ever Adopt a National Sales Tax?

3,951,104 The U.S. Tax code is a whopping

3,951,104 words long!

That adds up to 73,954 pages!

In total, individuals and businesses in the U.S. spend approximately $170 billion and 6.1 billion hours per year on tax filing.

These numbers raise an important question: Will the tax code every be simplified? If so, how?

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.

What exactly does the Fair Tax Act propose?

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

Let’s see what supporters and critics of the Fair Tax have to say.

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

National consumption of goods should go down due to increased prices.

Encourages saving

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

Let’s see how this might affect our country’s different families

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

What’s the takeaway? What’s the takeaway?

The national sales tax has been debated for more than a decade and still hasn’t been implemented.

The changes from a national sales tax would be hard to transition into.

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 info@garzaharris.com