H.R. 25 - Fair Tax Act of 2009 - Repeal of the Income Tax, Abolish the IRS

This bill was introduced in the House of Representatives on January 6, 2009 and has currently 38 sponsors.

http://www.govtrack.us/congress/billtext.xpd?bill=h111-25

It is sponsored by Congressman John Linder, 7th district of Georgia. Here is the Fair Tax Website: http://linderfairtax.house.gov

Here is the FAQ web page on the Fair Tax: http://linderfairtax.house.gov/index.cfm?FuseAction=FAQs.Home

The bill proposes replacing the income tax with a national sales tax and abolishing the IRS (Internal Revenue Service). A national sales tax is not something I support as it replaces an income tax with a consumption tax. However, looking at this bill from a personal and bureaucratic cost savings, I believe it is a step in the right direction.

What is the savings?

1. Elimination of a federal department - The Internal Revenue Service and the complicated federal tax code.

2. Payroll withholding eliminated - Huge cost savings for payroll departments of private and public employers.

3. No annual filing of complicated income tax forms and the time and expense of preparing them.

3. Taxation of all consumption of goods, but only once. I interpret that to mean if I purchase a new automobile I pay the consumption tax. If I turn around and sell the car as used property, I do not pay federal sales tax.

4. The sales tax starts off at 23 percent a hefty sum, but there are purchases excluded from the tax. There is also a family consumption allowance, or monthly sales tax rebate that is the product of the sales tax times the monthly poverty level.

You should be able to easily figure if this is better for you and your family by dividing you federal tax paid by the tax rate of 23 percent. For example, in 2007 if your federal income tax due was $4,000, you would calculate a total of $17,391 in annual gross consumption (4,000 / .23). If you spent more than $17,391 in 2007 (minus the purchases excluded from the sales tax) this bill might be a disadvantage for you. But don’t forget, this bill eliminates the social security payroll tax that is deducted from your paycheck, currently at 7.65 percent. For the self-employed, it’s 15.3 percent. That is a savings!

What are the costs?

1. All included retailers will have to re-program their POS (Point of Sale) systems to add an additional calculation for the national sales tax.

2, There are reporting requirements.

3. The states will be required to administer the collection of the federal sales tax.

4. Banks will suffer a loss of corporate tax withholding deposits.

5. Tax accountants will suffer loss of income tax reporting business.

I have not yet read the anticipated income generated by the national sales tax in relation to the GDP (Gross Domestic Product) but supposedly it is revenue neutral. I also did not read anything about taxes on unearned income.

Now, I do see changes will be required to this legislation to account for low income families. For example, if a two-person family at the 2009 poverty level of $14,570 purchases a new car, their national sales tax will be the same as a middle income family thereby reducing their net income disproportionally. This is not fair and there needs to be a lower income threshold adjustment.

I do support this legislation as it rids the country of the insidious IRS and shrinks the size of the federal government, which is a good thing. Then we can work on convincing the government to abolish the Federal Reserve.

Of course, the best situation is not to have any national sales tax. The government would not need the sales tax income if it would stop issuing debt (bills, notes, bonds) and paying interest on it to banks and investors. Just print money from the Treasury and loan it to regional banks, credit unions, etc. at a reasonable interest.