The Indiana FairTax Proposal -- by Sean Shepard

Sean Shepard is one of the Indiana State FairTax Directors and he writes:

The recent property tax disaster has opened the door for an idea thats time has come. Replacing the multi-tiered (income, property, sales) tax system in Indiana with a single-rate sales/consumption tax on NEW goods and services.

There is a Federal proposal in Washington D.C. that currently has 60 co-sponsors in Congress, and Michigan and Georgia have also been looking at a similar plan for their states; but, there is now a tremendous opportunity for Indiana to lead the nation in tax reform and make itself an economic powerhouse at the same time.

Before getting into the details we have to get a few basic truths and principals out of the way.

1. Only people pay taxes. Corporations only pay taxes to the extent that they have collected them from the people who buy their products.
2. Property taxes are woefully regressive and create an environment where a person can never truly own their property because they have to "rent" it from their government each year. As in item 1 above, a landlord paying more in property taxes must pass that cost onto his tenants so even renters end up paying property taxes indirectly.
3. That encouraging people to save money and not spend it all is a good idea.
4. That all people, regardless of immigration status or "legality of vocation" (ie: whether or not what you do for a living is legal) should pay their share.
5. That something needs to change and "tinkering around the edges" isn't enough.

If we can agree on those items, or at least three out of five than there is no reason not to support the Indiana State FairTax proposal (or even the national version). If we can't agree on these things, please read "Economics in one Lesson by Hazlitt" and "Federalist #21 by Alexander Hamilton" and then see if you've been persuaded.

So we start by eliminating property taxes, this alone would save 1-3% of most family's entire income that is current paid in taxes. Then we get rid of the 3.4% State Income and 1.0% (Marion County) Local Income Taxes. So, right off the top we've eliminated 6.4% of what people EARN. And don't forget, Mayor Peterson is asking for 1.65% in Marion County, a 65% tax increase!

We then increase the State Sales Tax to what would most likely be something in the 11% range (let's say 11.5%) instead of the current 6% on what people SPEND for NEW goods and services and we institute a "PREBATE" to all residents based solely on family size. For a typical family of four this pre-bate would probably be something close to $200 or maybe $250 a month.

The intent of the "prebate" is to zero-out the taxes that would be paid by poverty level people for the necessities (food, shelter, medicine) of life. EVERYBODY gets the prebate regardless of income since, remember, we're no longer telling the state how much we made just how many people are in our household. As someone spends above the poverty level, the percentage they effectively pay in taxes increases. This is the simplist way to implement this so that the politicians have fewer things to tinker with and fewer favors to offer "friends".

The effects of this would be as follows:

• One tax system, easy to understand and easily visible on every receipt.
• Taxed only once on NEW products and services (used goods not taxed).
• Money is no longer "withheld" before you ever see it.
• Prebate provides equal tax relief to all families and zero-tax liability for the poor.
• Only people at the higher end of the spending/consumption curve pay the full rate.
• Education would be tax-free.
• Broadens the tax base to ensure illegal immigrants and "underground economy" pay.
• No need to file a tax return. It is no longer the states business how much you made.
• Tax is now optional. You choose to pay taxes when you buy something.
• Savings can be done with pre-tax dollars. Save money faster.
• Interest and dividends would no longer be taxed. Save for retirement faster!
• Decreases the tax burden on real property, increasing values.
• Eliminates uncertaintly in planning for a persons tax burden.
• Makes Indiana an IDEAL place for savings, investment and job creation.
• Businesses would have an incentive to move operations here and create jobs.
• No more "special tax deals" needed to lure those businesses here.
• Reduces cost of compliance for individuals and employers.
• Reduce size of State government by leveraging existing Sales Tax enforcement.

Now, of course, there will be people who dislike this idea because they don't like some aspect of it. What about all of the aspects of the current system we all dislike? We should never let perfect get in the way of better.

For more information go to: http://hoosiersforfairtaxation.blogspot.com/

For informtion on the national version visit: http://www.fairtax.org/ or http://www.fairtaxindiana.net/