I have a few questions that maybe someone advocating FairTax can answer...
1) Wouldn't this seriously harm tourism dollars flowing into the United States? I mean since the tax burden would be shifted from income, corporate, etc, into a consumption tax wouldn't tourists be spending a lot more? Florida for example makes over $55 billion a year from tourism, what incentive would there for people to go there if they could go to the Dominican Republic and other destinations for far far cheaper?
2) Wouldn't it seriously harm donations to charity? I realize many people are kind of heart and give simply for that reason but there are a lot of donations given as simply tax writeoffs. Is the Government going to make up for the large shortfalls?
3) Wouldn't underground economies be even harder on the system since the Government would be seeing no tax revenue at all here at least they had some income tax from many people who participate in such systems?
4) Wouldn't this kind of tax remove a large tax burden from corporations that would have to be filled by private citizens?
5) Some people who propose this tax argue that the price of goods would come down a bit to compensate for the higher prices but wouldn't that only be for goods made in the United States? Since a massive amount of goods are actually manufactured outside the United States wouldn't they actually become more expensive because of this tax? Basically they're imported at the same cost as before but with a higher tax placed on them.
1) Very Good question, however, it's only a question because you are thinking in income tax terms. The Fair Tax replaces income tax and cooperate tax. Here's a functional example
Income tax: American Vactioner to Florida spends $1000 dollars for that vaction. Before he ever arrives in Florida he is taxed on that $1000 of that income between 20-30% or between 200 and 300 dollars.
Fairt Tax: American Vactionaer to Florida spends $1000 dollars for that vacation. After he arrives he is taxed 23% for everything he buys. His tax burden is $230 dollars.
since the Fair Tax is designed to be price neutral the vactioner's buying power remains the same. Also there's a cherry on top. Non-American vactioners, including illegal immigrants, cannot escape paying the tax, yet they will not mind or even know that they are paying the tax since the sticker price will be about the same as before.
2) Charities will not be harmed, but they will have to change tactics. Right now they do appeal to people getting tax benefits for large donations. They may have to appeal to people who actually care about others.
3)Underground economy will still exist, a tax code cannot get rid of it. But they will be taxed when they spend that money. Whenever they buy an item. they are paying tax. Here's a functional example:
Income Tax: A prostitute makes $1000 a night. Her income tax burden is between 20%-30% or $200-$300. However she does not claim her income so she cheats the federal government the income tax she owns.
Fair Tax: A prostitute makes $1000 a night. When she pends that money she makes she will pay the federal tax of 23%. She cannot avoid it. She is paying for social security, welfare, and medicare.
Now, I realize many feel that she can avoid it if she saves it or invests it. But I ask these people what happens to that money that is saved and invested? Yes, it is eventually spent and taxed.
4)This is a false premise. By this question you show that you sincerely believe that corporations pay taxes. You are wrong. Corps get money by private citizens. Any taxes they are able to pay is made possible by funds they gathered from us thru pricing structure. Here's an example.
Income tax: American earns $1000 dollars. He takes home $800 dollars after taxes. With that money he buys a PS3 and some games and spends $500 leaving $300. Sony takes that $500 and divides it amoung payroll, CORPORTATE TAXES, R&D, bills, shareholders, and profit.
Fair Tax: American earns $1000 dollars. He takes home $1000 dollars after the abololition income of taxes. With that money he buys a PS3 and some games and spends $500 leaving $500. Sony takes that $500 and divides it amoung payroll, THE FAIR TAX(23% or $115), R&D, bills, shareholders, and profit.
5) There are many theories as to what will happen with prices. But again you are operating from a false premise. The prices of good will not go up. Some companies MAY try to take advantage and increase prices by 23%-30%. However, the nature of capitalism and competition would make doing so very difficult at least and a stupid mistake in most cases. The Fair Tax removes all tax burden on corps which will collapse prices by 10%-40% resulting in price that will offset the Fair Tax. Here's and Example.
Income Tax: Product costs $500 - from that $500 the company needs to pay corp taxes and compliance costs.
Fair Tax: Same product costs $500 - from that money the comanpany sends 23% to the federal government and there is no compliance cost since a lawyer and accountant will not be needed on payroll.
Imported goods may see slightly higher prices, but more than likely it would be neutral again. The theory behind this is that companies that import will no longer have to pay tariffs or taxes or coperate taxes, which would amount to 20%-30%, easily offsetting the Fair Tax.