Pros And Cons Of The Fair Tax Act

The Fair Tax Act is an alternative tax system that has been proposed to Congress to replace the current tax system in the United States. While first submitted in 1999, the latest resubmission was in January 2017 and has yet to be considered. Here, we consider how it would work, the impact it would have on the economy, and some of the more notable advantages and disadvantages of the Act.
The Fair Tax Act proposes eliminating taxes on personal income, social security, Medicare, capital gains, self-employment, estate and the alternative minimum tax. In lieu of those taxes, this Act recommends implementing a national sales tax of 23%, which would be collected at the point of sale. Much like gasoline, tobacco and alcohol, the tax would be built

Those looking to save on taxation will purchase less and in turn hurt the economy. But a similar threat exists in the current tax system – identifying loopholes to reduce taxable income. Another possible disadvantage to the flat tax is that it could potentially push people to make purchases overseas as opposed to domestically, further hurting our economy. Many will argue that the flat tax will create too much dependency on spending. If the system does discourage spending to a degree, perhaps it will promote more investing. This would be an extremely beneficial to the economy in a different sense.
By eliminating the income tax and in turn not having tax deductions and credits, tax payers will not feel a benefit of certain activities including education credits and deductions, the home mortgage interest deduction, the child and dependent care credit, the earned income tax credit, medical bills and expenses, and student loan interest. A currently utilized is the cost of home ownership. By eliminating this, buying a home may not be as attractive and many may opt for renting instead. This could hurt the real estate

Aside from the simple fact that the need for filing taxes would disappear, an advantageous point about this plan is that it will favor high income earners. If a person earns an annual salary of $300,000 and spends only $150,000 of that, only about 11.5% of their income winds up getting taxed. If their income was taxed, the entire amount would be subjected to an approximate 35%. Another benefit is that it would promote more disciplined spending among Americans, being that many would be more cautious about their purchases and less likely to fall into credit card debt.
The Fair Tax Act will help investments because the capital gains tax would be eliminated. Those who can afford to invest will enjoy tax-free compound growth. Additionally, it will make tax revenues easier to predict. Being that consumption rates are more stable than incomes, estimating tax revenues will be more accurate. Business will benefit from the Fair Tax Act in that along with eliminating double-taxation, it would also eliminate payroll