In order to premise this article, it is first necessary to explain what a flat tax is. A flat tax is one in which the tax rate is constant regardless of the circumstances. This could apply to the gasoline tax, the income tax or various other forms of taxation. Under such an idea, the rich would not pay more, nor would the poor pay less. There would be no loopholes or deductions. Everybody would pay the same.
The FairTax is a type of flat tax that would replace our entire tax system with a newly defined 23 percent national retail sales tax. In essence, you would only be required to give $23 for every $100 you spend to the government. I know this sounds radical — and it is to a certain degree — but not all radical ideas are bad.
As most people who have been following politics know, our country has a debt problem. Our federal government is on track to spend $3.8 trillion this year while raising just $2.17 trillion in taxes. Though there is no overnight solution to this issue, the implementation of the FairTax would go a long way towards resolving it. Our annual revenue would increase by hundreds of billions of dollars; in 2007, when figures were last available, the FairTax would have generated $2.586 billion in revenue. Unfortunately, because we have seen a dramatic increase in spending since the recession began, this alone would not be enough. Both revenue increases and spending decreases are necessary if we are to strive for a balanced budget. In this sense, both Democrats and Republicans are wrong.
We cannot decrease our debt simply by raising more money, as the Democrats suggest. At the same time, relying purely on spending cuts, as the Republicans have proposed, is also unrealistic. America needs to meet in the middle, and the FairTax is the first step toward a compromise on this issue.
Amazingly, though revenue would increase under the FairTax, the vast majority of Americans would actually pay less to the government. This may sound contradictory, but it can be explained easily. Our current tax system is full of loopholes, mainly for the rich. Just a few years ago, billionaire Warren Buffet famously quipped that he paid a "lower part of our income in taxes than our receptionists do, or our cleaning ladies, for that matter." Though this may seem insane, it is entirely plausible if you take a look at our messy tax code, which is currently thousands of pages long. Throughout history the richest of the rich have financed the campaigns of politicians, who in turn create these loopholes as a favor. The FairTax would rid our country of all of this. Warren Buffet would be required to pay 23 percent of his personal consumption expenditures to the government, just like his maid.
However, unlike the political establishment, I am not going to pretend that just one income bracket is benefitting from our tax code. Both illegal immigrants and the poor actually pay less than their fair share in terms of taxation. For years, more than 40 percent of Americans have paid absolutely no federal income tax. Similarly, because they lack social security cards, illegal immigrants often do not pay any federal taxes. Because of this, tens of billions of dollars in revenue are being lost. It is an unfortunate fact that, though the rich must account for a majority of the revenue increase, the lower tax brackets must bear some responsibility as well.
Rightfully so, after explaining most of the FairTax, many people have one simple question: Wouldn't this discriminate against the poor? My answer is always "No." FairTax supporters realize that many people in poverty cannot afford a 23 percent sales tax. Thus, according to Fair Tax legislation, "all valid Social Security cardholders who are U.S. residents receive a monthly rebate equivalent to the FairTax paid on essential goods and services, also known as the poverty level expenditure." In what would essentially be welfare under a separate name, this would make up for the fact that the lower class would see higher taxes. It provides compensation for the struggling families and individuals who are willing to pay more to the government.
If you want to learn more, buy "The FairTax Book" by Neal Boortz and John Linder. They explain it much better than I can. This book convinced me that America needs the FairTax, and will hopefully change your opinion of our tax code as well.
Brian Kaneb is a sophomore. He can be reached at bkaneb1@nd.edu
The views expressed in this column are those of the author and not necessarily that of The Observer.
