HOSTILE ARGUMENT: THE FAIRTAX WILL ADD TO STATE SALES TAXES
Today’s Grassroots Corner continues a series on how to respond to attacks and criticisms of the FAIRtax. Many complain that the FAIRtax will be a 23% (or 30%) sales tax added on top of existing state sales taxes, making retail goods or services unaffordable.
We know already that there are significant offsets to the 23% federal FAIRtax. The FAIRtax replaces income taxes and, perhaps more significantly, payroll taxes. The FAIRtax promises to reduce the pre-tax price of goods and services by removing the corporate income tax, the personal income tax for business owners who file a “Schedule C,” and the employer portion of the federal payroll tax. The FAIRtax also provides a family consumption allowance to effectively eliminate the tax on essentials.
The criticism now is that the federal FAIRtax will come on top of existing and future state and local sales taxes. Of course, each state is free to decide whether or not to impose a state-wide sales tax. Five states, Alaska, Delaware, Montana, New Hampshire, and Oregon, have no statewide sales tax. Of those five, only Alaska allows localities to impose local level sales taxes. The argument that the FAIRtax would exacerbate state sales taxes would hardly apply here.
The remaining forty-five states and the District of Columbia collect a statewide sales tax. Thirty-seven of those states also have local sales taxes.[i] The five states with the highest average combined state and local sales tax rates are Louisiana (9.56 percent), Tennessee (9.55 percent), Arkansas (9.45 percent), Washington (9.38 percent), and Alabama (9.29 percent). Adding the FAIRtax to these state taxes might seem significant. The five states with the lowest average combined rates are Alaska (1.82 percent), Hawaii (4.50 percent), Wyoming (5.44 percent), Maine (5.50 percent), and Wisconsin (5.70 percent).[ii] The FAIRtax would have less of an impact on those states.
Current sales tax bases vary significantly, i.e., defining what is taxed and what is not taxed. For instance, most states exempt groceries from the sales tax, others tax groceries at a limited rate, and still others tax groceries at the same rate as all other products. Some states exempt clothing or tax it at a reduced rate.[iii] The FAIRtax would not be an add-on tax for groceries and clothing in many states.
Broadening the sales tax base can significantly lower a state’s sales tax rate, according to economists Tuerck, Bachman, and Jacob.[iv] Most states base their tax systems on the federal system. If the federal government drops income and payroll taxes, the states will likely follow suit and enact state-level FAIRtax systems. Adopting true state-level FAIRtaxes would reduce the perceived impact of combining state and federal sales taxes.
Of course, the real point of this discussion is that it’s an irrelevant discussion! No matter what system of taxation the federal government uses, most states are going to add their own level of taxation to it. That’s the way it is now. That’s the way it will be with the FAIRtax.
The FAIRtax is designed to raise the same amount of revenue as the income tax. The FAIRtax will also make taxpayers out of those people who are currently evading the income tax to the tune of $1 trillion a year. With a wider tax base producing the same amount of revenue as the income tax, it’s reasonable to believe that most people will see their federal tax burden go down with the FAIRtax. A lower federal tax burden means a lower overall tax burden. State taxes are really a non-factor in this discussion.
I would love to hear the reaction you get if someone asks you this question, and you respond to it this way.
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🇺🇸 Call For Pictures & WriteUps - We need more of you to send in pictures and news. If you have something to share, please send your material to me, Jim.Bennett@FAIRtax.org, (908) 578-4975, or fax (908) 598-2888. When others see your activity, they are inspired, and the process snowballs. When the process snowballs, Congress Members, Senators, and even the President start to listen.