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The fundamental idea behind the fair tax movement is to replace the federal income tax with the national sales tax. There are divergent views on the aspect of the fair tax, with each side presenting strong arguments in support of their cause. From a personal standpoint, the aspect of the fair tax is fairer than the existing tax system. This paper analyzes the pros and cons of the fair tax.
The first pro of the fair tax is that it is relatively easier to understand than the existing complex tax system. The existing tax system has an entire industry (tax accounts), which is established to understand paying taxes, that indicates the difficulties in understanding the current tax code comprising of 60,000 pages, whereas the Fair Tax Act comprises of only 132 pages. The second pro is that the fair tax will lead to high transparency in government (Boortz & Linder, 2006). The complex nature of the existing tax code presents numerous loopholes for tax evasion. Similarly, the current tax system is unfair for poor people who cannot afford an accountant and end up paying the base rate. The fair tax system requires every person to pay the same rate on the items bought. The third pro of the fair tax system is that a national sales tax will eliminate tax on investments, which would help fuel investments, increase capital influx and venture capitals. The fourth pro of the fair tax system is that it will increase productivity in the United States. Imposing a tax on consumption is more logical than taxing production. Another benefit of the fair tax system is that it will widen the tax base since every purchase is taxed (Boortz & Linder, 2006).
Apart from the pros, there are some cons associated with the implementation of the fair tax system. The first con is that the system will destroy the tax industry and lead to loss of jobs in the IRS. The second drawback of the tax system is that there will be the need to maintain a high sales tax for the revenue to stay neutral. The third disadvantage of the fair tax system is that it will discourage Americans from spending. The US economy relies significantly on consumers, meaning that a large sales tax would compel people to reduce their spending. However, in the long-term, this would be a significant advantage, because it would increase savings and pay off debt. Nevertheless, the short-term impact of the fair tax system is that it will reduce consumer spending. In addition, the fair tax system increases entitlements (Boortz & Linder, 2006).
Overall, it is evident that the pros of the fair tax system considerably outweigh the cons. From a personal standpoint, the idea of imposing a tax on consumption rather than production is logical. This implies that the fair tax system is fairer and more effective than the current tax system.