Fair Tax

The National Federation of Republican Assemblies endorsed a flat tax rate plan put forth by Fair Tax at their bi-annual convention in Nashville last September.

Now State Representative Barry Doss (R- District 70- Lawrenceburg, Pulaski, Leoma) has filed a resolution in the Tennessee General Assembly in support of the flat tax rate plan by the Fair Tax, which was endorsed by the  NFRA convention in August and is endorsed by presidential candidate Donald Trump.

“A resolution, which does not have the power of law, was introduced to ask congress to consider a fair tax,” said Representative Glen Casada (R- District 63- Franklin).

Usually called a “Fair Tax” by supporters but also called a flat tax or general sales tax by economists, its general gist replaces the IRS and parts of the tax code with a flat tax rate on consumption. Here is an explanation of Fair Tax.fairtax

You already pay a flat tax: sales tax. In Tennessee it is about 9.45 percent (7 percent with an average added 2.45 percent local sales tax), making it among the highest sales tax rates in the country. Most states with a sales tax- and Fair Tax’s plan-, but not Tennessee, exclude necessary (or, for all intents and purposes, inelastic) commodities such as food and clothing from the tax to make it a less regressive levy.

Which cuts to the heart of the argument over implementing a general flat tax system.

A flat tax rate comes under fire for being inherently regressive- regressive not a pejorative term but an economic one referring to the percentage of income that is taxed as income increases. If one household (or business) makes $75,000, spending all of it on necessary consumption, and another makes $150,000, spending half on necessary consumption and saving the other half (or paying it out as bonuses and increased wages), under a flat tax rate both would pay the same . However at some point the saved $75,000 will theoretically be spent and, therefore, taxed.

Fair Tax implements rebates, among other things, to try to counteract this and to make the tax more proportional or progressive.

The FairTax proposes a 23 percent rate on goods and services, replacing personal and corporate income taxes, payroll taxes like Social Security and Medicare, estate, gift, capital gains, alternative minimum, and self-employment taxes. It would drastically simplify the tax code, and makes allowances and rebates that supporters say will make the tax rate more proportional or progressive instead of regressive. This is true, depending on which analysis (there are many by many institutions from all over the political spectrum) is considered. In practice, implementing it may be the only way to determine with certainty whether it is more or less regressive than the current code. For example, it eliminates a highly regressive tax in the payroll tax, levied on only the first $117,000 of income. But of course if you spend $117,000 in a year under the flat tax and make more than that it is effectively the same cutoff.

Basically, the Fair Tax is a tax on spending rather than income.  It would make tax evasion de facto an impossibility and also collect tax revenue from the black market.