Once upon a time, Americans did not pay income tax. Legislation
currently before the U.S. Congress would do away with the federal
income tax once again, replacing it with a federal sales tax.
The group Americans for Fair Taxation, based in Houston, has
proposed legislation that would eliminate personal capital gains
taxes, payroll taxes, corporate income taxes, the self-employment
tax and estate and gift taxes. The proposal is touted as revenue
neutral, since the income tax would be replaced by a consumption-
based tax, which is estimated to provide as just as much funding for
the federal government.
The proposal has been introduced in both houses of Congress as
the Fair Tax Act of 2003. House Resolution 25 was referred to the
U.S. House Committee on Ways and Means in January of 2003. Senate
Bill 1493 was read twice and referred to the Committee on Finance in
Thomas A. Wright, executive director of Americans for Fair
Taxation (AFFT), has been touring the country, speaking before
various groups and drumming up support for the measures. This
organization has been around for seven years, and I personally have
been working on this project for 14 years, said Wright. A year ago,
Stillwater businessman John Green began heading the effort in
Oklahoma. AFFT membership nationwide totals about 480.
Pat Wolf, tax specialist for the American Farm Bureau, confirmed
that the organization's board is considering the proposal, and has
written a letter to the sponsor of the legislation in support of the
Fair Tax Act. The FairTax proposal would address a number of Farm
Bureau's tax reform initiatives, Wright noted.
Under the proposal, a 23 percent sales tax would be imposed on
all goods and services. Each month, the government would provide a
rebate to families for taxes paid on food, clothing and medical
services up to a certain level. The family consumption allowance is
based on the federal poverty level and the size of the family. The
consumption allowance schedule is constructed in such a way that
families with income at or below the poverty level would be tax-
Taxes on expenditures exceeding the designated family consumption
allowance would not be rebated. The more you spend, the more taxes
you pay, said Wright. Used items and business-to-business purchases
would not be taxed.
A consumption tax would prove to be a more reliable funding
source for the government than the income tax, said Wright. While
income and employment levels fluctuate with the economy, spending
levels are more stable and predictable, he noted. Therefore, the
government would collect the same amount of money, and would be able
to fund Social Security, Medicare and other programs just as they
are funded today, said Wright.
Even drug dealers and black market traders, who currently pay no
taxes on their income, would pay into the federal system if a
consumption tax were imposed. States and retailers would be paid a
fee for collecting the tax. The cost of implementing the system
would be minimal since the infrastructure is already in place in the
45 states that charge a sales tax, he said.
Corporate taxes are a sham that is adversely affecting the U.S.
economy, said Wright. The price of every good or service we buy
today is inflated by the cost of income and payroll taxes paid by
workers and businesses, he said. Harvard economist Dale Jorgensen
has estimated that hidden tax-and-compliance premiums account for up
to 30 percent of the price of every American product or service, he
said. Think about that as we try to sell American-made goods
overseas, said Wright. The consumption tax system would free up
money businesses currently spend on taxes and compliance, allowing
more dollars to be spent on wages and expansion efforts, said
Wright's argument in favor of the FairTax plan appeared as an
editorial in The Illinois Leader on Jan. …