Most people believe that the United States needs to reform its tax code. The current system is overly-complicated, burdensome and outdated. It unfairly hits many Americans harder than others and creates loopholes which exempt certain groups. Worst still, our tax system has proven to be a hindrance to economic growth and job creation in many instances.
Many proposals are pending in Congress to simplify our tax code and eliminate provisions which unfairly target hard-working Americans. For example, the Federal Estate and Gift Tax, more commonly referred to as the "Death Tax," is imposed on the transfer of all taxable estates and gifts of a deceased person passed onto a beneficiary. This tax is consistently ranked as the least fair and most unpopular tax in America and nearly 75 percent of Americans, including myself, believe it should be repealed.
The AMT is another tax which needs to be repealed to shield millions of middle-income Americans from a substantial tax increase in January. Current law protects approximately 15 million Americans from having to pay the AMT. However, this provision is set to expire in January which will subject 28 million Americans to the tax. Congress can fix this by repealing the AMT.
Many experts believe one way we could simplify our tax code is by replacing our current tax system with a simple, straightforward sales tax. The Fair Tax Act, which has been in five successive Congresses, is an example of a bill that could do that. The bill abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax. This would allow workers to keep their entire paychecks and retirees to keep their entire pensions. Kentuckians know far better than Uncle Sam how to spend their hard-earned dollars and a bill like the Fair Tax Act could help ensure taxpayers are able to decide where their dollars go.
The Fair Tax Act could also go a long way in helping to spur economic growth and create jobs. The bill completely eliminates federal taxes imposed on business expenses, which would give business owners additional capital to expand their ventures and bring new employees on board. Additionally, the Fair Tax Act would abolish capital gains as well as the Estate and Gift taxes. This would allow Kentucky's small business owners and farmers to pass on their life's work to their families.
While some people say the sales tax implemented under the Fair Tax Act would be too high, it's important to remember that one sales tax would replace all other taxes, so this would be the only federal tax citizens pay. Additionally, many economists say the prices for all goods and services would drop substantially under this plan. Currently, consumers of goods and services pay all of the taxes imposed during the various production and manufacturing stages, through higher costs for products. It is estimated that under the Fair Tax Act the prices of goods and services would decline by approximately 25%, not only balancing out any sales tax implemented under the Fair Tax, but in many cases reducing overall costs.
It is also important to remember that under most versions of the Fair Tax anyone whose income is at or below the poverty level would not be impacted by the tax. For example, a family of four making roughly $30,000 would receive a nearly $7,000 rebate every year to offset the cost of the tax.
As of this date, there has never been a hearing held in the Ways and Means Committee on the Fair Tax, and so we do not anticipate it would be adopted anytime soon. The reason for this is that even though the existing system is extremely complicated, there would have to be a national debate about the benefits and consequences of the Fair Tax Act before it can ever be implemented. I do believe we should continue to elevate this issue and have a national discussion about it.
Simplifying our tax code will go a long way in easing the tax burden on individuals and businesses and, in turn, help turn our economy around and put Kentuckians to work.