America has a progressive income tax system in which those with higher incomes are taxed more than those whose incomes are lower. This system uses margins, or tax brackets, to determine the percentage of income a person or company must pay. Some claim it is the fairest system because it taxes people on their ability to pay, while others wish to replace our progressive tax system with a flat or fair tax. A Flat Tax system taxes all incomes at the same percentage rate, while a Fair Tax system replaces the income tax with a national sales tax. Opponents warn that tax rates for both of these tax systems could be raised very easily.
A Fair Tax system eliminates all individual and corporate federal income taxes and abolishes the IRS. It creates a national sales tax which would generate enough revenue to fund the federal government. It has been suggested the sales tax rate of a Fair Tax would be about 23% and would be charged on all consumer products - with some protection provided for the poor. Opponents of a Fair Tax system say that a 23% tax on everything purchased would create a huge black market for untaxed products and encourage widespread bartering. Such tax evasion would likely force an increase in the sales tax rate.
Pending Legislation:
H.R.25
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