Pros And Cons of Fair Tax Act


Do you hear people debating about the Fair Tax Act, but you are not yet quite familiar with it? Well, it should have put you in a situation where you are wondering which side is right. To get a good idea yourself, you must first understand what the law is all about. Basically, the act is designed to abolish most federal taxes and replace them with sales tax. If it is approved, it will allow the federal government to earn taxes from retail goods and will exempt second-hand items, imported goods and materials businesses use to manufacture their products. To know where you stand on this subject matter, it is important to understand its pros and cons.

List of Pros of Fair Tax Act

1. It will make it easy to dealing with taxes.
Filing and preparing personal taxes is a difficult task, considering the complexity of the American tax system today. Now, when taxation will be handled by businesses at the point of sale, such a hassle would be eliminated, as businesses can more easily predict tax revenues and any estimates will be more accurate.

2. It provides better investment returns.
As the Fair Tax Act takes out the capital gains tax, investors will be able to enjoy tax-free compound growth, giving them more opportunities to invest, especially those who are hesitant to engage in this venture because of all the tax implications that come with it. Under this policy, a person can invest as much he wants and withdraw funds without having to pay for penalties or taxes.

3. It offers benefits to high-income earners.
With the current taxation system, you will have to pay higher taxes if you are earning more money. But under this act, only the amount you will spend will get taxed. If you work hard to spend on nothing, you do not have to pay any tax at all.

List of Cons of Fair Tax Act

1. It will increase the burden on state income.
This taxation policy only ensures to eliminate federal income, with state income tax remain but no longer deducted against federal taxes. This will create a huge money pit for people who live in high-income-tax states.

2. It has high potential for tax evasion.
If tax evasion is commonplace with a tax system that is complex, this new system would make it easier for tax evaders to do what they like by simply purchasing and trading products in foreign countries. This can decrease overall domestic spending and can have a negative effect on the country’s economy.

3. It penalizes the lower and middle classes.
Under the Fair Tax plan, wealthy people would not live from one pay check to another and would instead opt for investing than spending their money. This means that people just above the poverty level would take the blow of the tax burden.

The Fair Tax Act is really becoming popular, as a lot of people feel that the current taxation system in the US is unfair. However, many people also say that it will be nothing different. Based on the pros and cons listed above, do you think the act will effectively address the problems of the country’s current taxation system?