Fair Tax Myth: It's a Regressive Tax and Disproportionately Hurts the Poor and Middle Classes
This myth could not be further from the truth. First though it is important to understand what a regressive tax is. By definition a regressive tax is a tax that decreases as the ability to pay increases. In laymen terms this means that the more you pay the less you are taxed and the less you make the more you pay. Doesn't really sound fair does it? Well the Fair Tax takes this into account as the Fair Tax is progressive. Let's prove it.
Examining our current system of taxation reveals a regressive nature. The income tax is graduated or progressive; however, the FICA payroll tax is highly regressive and for middle and low income families can represent over half the tax burden each year. For instance the Social Security Tax, one of the FICA taxes, (around 7.65%) has an income taxation cap around $95,000 where income after that level is no longer taxed. This means that the more you earn the less you pay as a percentage of your total income into the Social Security tax, while low wage earners pay a higher percentage of taxes relative to their total income. Under the Fair Tax this highly regressive tax is abolished and included in the 23% Fair Tax rate.
Put into perspective under the Fair Tax system. A family whose spending equals the poverty level will have a 0% tax rate. A family whose spending is at twice the poverty level will incur an 11.5% tax rate and this rate continues to increase as spending increases. This means that the richest people in America who spend the most money will incur a tax rate approaching 23% while the poorest family whose spending does not exceed the poverty level will incur no or low taxes.
How does spending up to the poverty level not get taxed?
Go back and read my previous post about the Fair Tax "prebate." I discussed this in great detail already.
In summation, this places the Fair Tax clearly in the category of a progressive tax. The tax rate is increases proportionately with the ability to pay.
The Fair Tax helps low and middle income classes in other ways as well. This will be the subject of my next post on the Fair Tax.
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Tax day is just around the corner. To help put a stop to thousands of wasted man hours and money just to prepare your income tax (not to mention the headaches of just trying to figure out how to compute them or getting the IRS to help you and give you a right answer) please sign the petition at ChangeDC.org by April 15th, 2008. Be part of the solution and take a stand for Fairness in our tax system!
