Could the U.S. Ever Adopt a National Sales Tax?

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• Could the U.S. Ever Adopt a National Sales Tax?

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The U.S. Tax code is a whopping
3,951,104
3,951,104
words long!
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That adds up to 73,954 pages!
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In total, individuals and businesses in the U.S.
spend approximately 170 billion and 6.1 billion
hours per year on tax filing.
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These numbers raise an important question Will
the tax code every be simplified? If so, how?
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Several solutions for simplifying the tax code
have been introduced over the years. One of the
most dramatic solutions is the Fair Tax Act which
includes a national sales tax.
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The first Fair Tax proposal was introduced by
John Linder (R-GA) in 1999. Since then, a
variation of the Fair Tax Act has been introduced
in every session of Congress.
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Senator Ted Cruz, whose current presidential
campaign has been built on overhauling the tax
code, co-sponsored the Fair Tax Act in 2013 and
again in 2015.
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• What exactly does the Fair Tax Act propose?

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ATTRIBUTES OF THE FAIR TAX
No gift tax
No federal income tax
No payroll tax
No estate tax
Elimination of the IRS
An advance refund to households
A 23 national sales tax
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Lets see what supporters and critics of the Fair
Tax have to say.
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POSITIVES
Instead of imposing the highest amounts of taxes
on taxpayers earnings, the national sales tax
would focus more on what consumers spend Joe
Garza
Encourages saving
Mandatory taxation for all
Frees up time and money
Creates jobs
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Encourages saving
National consumption of goods should go down due
to increased prices.
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Creates jobs
Elimination of the income and payroll taxes would
lower employment costs for businesses.
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Mandatory taxation for all
Paying taxes would become unavoidable in this
consumer based nation.
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Frees up time and money
Time and money spent figuring out your taxes can
be spent elsewhere.
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Income tax punishes the productive by taxing
them the highest amounts, reduces jobs by
increasing the cost of employees and reveals our
personal finances and thus invades our privacy.
-David John Marotta
Forbes Contributor
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NEGATIVES
 If there is an easy way to evade taxes, it is
likely that a large number of people will
participate in it Mike Moffatt
It would add onto state taxes
Tax evasion would rise
Overseas spending would Increase
May not cover all U.S Expenses
States would try to avoid it
Invades your Privacy
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It would add onto state taxes
A national sales tax would not eliminate the
state sales tax, they would both be factored into
each purchase.
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Overseas spending would increase
Some will turn to buying their products overseas
to avoid higher prices.
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Tax evasion would rise
The tax compliance burden would shift onto
businesses making it easy for businesses to
report less revenue and pocket more of the money.
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States would try to avoid it
States and local governments would likely lobby
for laws to make themselves exempt from paying
the sales tax.
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Invades privacy
Since every purchase would be subject to the
sales tax, the government could easily keep an
eye on your spending.
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May not cover all U.S expenses
People may not spend enough money to cover
government expenses like hospitals, schools, and
law enforcement.
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Lets see how this might affect our countrys
different families
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RACHEL Small Business Owner
JILL GREG Server Hostess
THOMAS JOYCE Mechanic Senior Business Analyst
DONALD CLAIRE Lawyer Mother
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MELISSA TRAVIS Server Hostess

• Back Story
• Melissa and Travis are two young parents from
  Farmersville, Texas. They currently live paycheck
  to paycheck. They own one vehicle, and carpool to
  work. Melissas mom is able to watch their son,
  Malcolm while they work long hours.

Age 23 24 Income 20,000 Assets Parents,
Flexible Schedules Liabilities Bad Credit, Low
Education, Child

• Income Tax
• The family has enough to get by with potentially
  a little left over every month for entertainment
  or savings
• Can get tax breaks based on income and family
  size

Fair Tax

• Necessities would cost more, which would lead to
  the family only being able to spend money on
  necessities
• The family would be spending more on their son,
  due to the lack of tax breaks for children

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THOMAS JOYCE Mechanic Senior Business Analyst

• Back Story
• They have a wonderful son named Thomas Jr. The
  family just paid off their home. Thomas is a auto
  mechanic while his wife is a Senior Business
  Analyst for a large conglomerate.

Age 30 28 Income 100,000 Assets Parents,
Homeowners, Dual Income Liabilities Children,
Property Taxes

• Income Tax
• Thomas and Joyce receive tax breaks because of
  their son as well as owning their home
• Their actual net income is about 80,000 instead
  of the 100,000 they signed for

Fair Tax

• Thomas and Joyce will receive no tax breaks for
  Thomas Jr. or their house
• Their cost of living will increase, especially
  because of increased spending required for Thomas
  Jr.
• The value of their home will decrease

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DONALD CLAIRE Lawyer Mother

• Back Story
• Donald and Claire have been married for 8 years.
  They have two children, Louise and Dennis. Donald
  works for a large and well-known law firm while
  his wife stays at home with the kids. The family
  currently has many investments and can afford a
  very luxurious lifestyle.

Age 50 44 Income 2,000,000 Assets
Homeowners, Law Degree, Investments Liabilities
Children, Higher Tax Bracket, High Spending

• Income Tax
• Donald receives less than what he signed for
• They receive tax breaks for their children and
  home
• They pay a higher percentage of taxes because of
  their income

Fair Tax

• Donald and his family will receive all 2,000,000
  each year
• The value of Donalds home will decrease
• The cost to maintain their lifestyle will
  increase
• The return on Donalds investments will increase

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RACHEL Small Business Owner

• Back Story
• Rachel created a healthcare consulting firm. She
  has, thus far, been successful bringing in a
  large variety of clients. As the owner of the
  business, she is solely responsible for filing
  all taxes on her companys annual revenue, which
  varies based on the companys performance.

Age 35 Income 500,000-800,000 Assets
Business Owner, Variable Income Liabilities Non
Employee, High Tax Rate

• Income Tax
• Rachel is not able to hire as many consultants to
  her firm due to higher business expenses
• Rachel pays a higher tax rate, but gets many tax
  breaks and write-offs as a business owner

Fair Tax

• Rachel can hire more consultants because of
  increased payroll
• Rachel loses her business tax breaks, but no
  longer pays payroll taxes or taxes on capital
• Rachel will have to keep up with the consumption
  tax people are paying for her services to pay it
  to the government

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Whats the takeaway?
Whats the takeaway?
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The national sales tax has been debated for more
than a decade and still hasnt been implemented.
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The changes from a national sales tax would be
hard to transition into.
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Its hard to say if the national sales tax will
ever be passed, but with the coming election and
the support of some GOP candidates, its
likelihood is increasing.
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