“Fair Tax” System is a Gift for the Wealthy

September 1, 2015

In August, Senator Jerry Moran and Representative Lynn Jenkins made presentations advocating for a fair tax plan, a 23% national sales tax designed to replace our income tax system. On the surface, this sounds appealing because it seems simple and easy. But, if this were implemented, it would be tremendously unfair to most Americans.

The primary problem with this approach is that no tax is paid on unspent income. This means that people at lower income levels would pay a much higher tax rate than those with larger incomes.

According to a 2012 article in The Atlantic, most individuals at the lowest income levels are required to spend almost all their income to make ends meet while those at higher income levels of $150,000+ have about 40% of their income remaining after paying for monthly needs.

For those who spend the vast majority of their income, a national fair tax would mean paying 23% in tax on virtually every dime they earn. On the other hand, those with high incomes could avoid paying taxes on huge portions of the their income by choosing to save rather than spend the money.

An individual making $30,000 a year who needed to spend everything would pay the full 23%. A couple making $60,000 who only needed to spend $50,000 to make ends meet would pay only 19% in taxes. A family with a higher income of $150,000 who only needed to spend $90,000 would pay a mere 13.8% tax rate.

Those who are extremely wealthy would see the biggest benefit. Imagine a very high income family making $3,000,000 yearly needed to spend only $600,000 to cover their costs. Such a family would pay only a 4.6% tax rate on their yearly income.

The bottom line is the higher an individual or family income and the greater proportion that is saved and not spent, the lower the overall tax rate.

This is a complete reversal of our current progressive income tax system that taxes all earned income and charges higher tax rates for those at higher income levels. Under a fair tax system, those at the bottom would pay the highest rates and those at the top could avoid substantial amounts of taxes and pay very low tax rates.

Not only would such a system hurt those with lower incomes by ensuring they pay the highest tax rates, but it could make costly items very difficult for some families to afford. Add 23% to a $500 appliance and the cost increases to $615. Add 23% to a $3,000 repair and the bill is $3,690. Moreover, the cost of a $25,000 new car would increase to $30,750 after adding federal sales taxes. And, don’t forget these cost examples don’t include the 8–10% we all pay in state and local sales taxes, which would be added on top of the 23% for the “fair tax”.

It is laughable that this plan is referred to as “fair”.

Those who favor these approaches surely realize that sharing the implications I have outlined would create outrage and opposition. This is precisely why those advocating for this terrible system use the strategic name “fair tax” and attempt to persuade people about how wonderfully easy such an approach would be.

Using crafty language to create a misleading positive impression for horrible proposals is rampant in today’s talking point, sound bite world. If something sounds too good to be true, you can be assured that there is something problematic under the surface.

Attempts are constantly underway to persuade us to support proposals that are not beneficial or in our best interests. Don’t be fooled by crafty, appealing names for terrible ideas.

Many politicians take advantage of the fact that people are very busy in their own lives and often don’t have time to delve into the details of proposed plans. They count on people accepting the spin and positive talking points offered up during the few minutes of news coverage that folks have time to listen to during the week.

Beware! When politicians are working hard to convince you that a plan is fantastic, that is your cue to dig a little deeper and examine who actually benefits. The vast majority of the time, it won’t be you!

Don’t be tricked by the ongoing avalanche of political BS!