Ethics

By nature, tax principles involve both ethical and political queries, hence automatically a component of a political economy (Basu, 2007). Paying tax is essential since it assists in the redistribution of capital and income, though the key purpose of taxation is to create revenue for the government. It is apparent that changes in taxation are bound to affect the economy but control is applied by regulating the supply of money as well as that of credit. Basu (2007) explains that a government has to implement taxation, which regulates and stabilizes an economy, if it is to survive. The goal of the government in any given economy is to provide goods and services to the public if and when demanded for, and come up with means of implementing changes in income distribution. Again, it is only through taxation that the government can finance this. Design of the tax system must therefore be clearly thought-out. It must be designed in the most equitable and efficient way to qualify as a fair tax system, which Basu (2007) defines as a system that warrants a socially desirable distribution of the tax load.

McCaffery (2002) supports the fair tax plan and lists a number of factors he believes make it fair. These include
Fair tax is fair as it allocates a lower rate of tax to spending on the necessities of life which include food, medical care, education, shelter, and clothing, than to spending on lifes pleasures. Lifes luxuries are assigned the highest tax rate.

It does not increase tax rates on the middle class to compensate for tax reductions for the wealthy.
It does not oblige most Americans to sign complex and intimidating forms each year.
It demonstrates the best practical expression of contemporary American attitudes towards tax and wealth.
It rests on an easy and consistent principle. You are simply taxed on what you spend, not what you earn or spend.

Nevertheless, there are a number of shortcomings related to Fair Tax. For instance, states would face a major cost increase as the Fair Tax would require both the state and municipal governments to pay the Fair Tax on state income and purchases. If enacted, the Fair Tax would require them to pay a larger budget by 30 over the hundreds of billions of dollars they make in payment of salaries as well as government purchases. To raise this amount of money, the government would resort to borrowing or levying new taxes on their home state populations. Fair Tax would also eliminate the opportunity for non-taxable borrowing for both the local and state government. What this means is that it would expose these bodies to additional annual interest costs of even extra billions, wrecking the finance systems and local and state governments.

If implemented however, Fair Tax would be of great benefit especially to the American businesses. Under Fair Tax, one rule applies the harder you work the more money you make and the better you and the economy become. One only gets to pay taxes when he or she gets to buy something. This means one can control what he or she is taxed for and is never penalized for working hard. Fair Tax is an absolutely transparent system, meaning it does not raise taxes and is at the same time revenue neutral.

The current tax laws make it almost impossible for American based businesses to compete and Fair Tax is capable of bringing back fair business to the United States. Trillion of dollars have been stashed in offshore accounts and with Fair Tax, the individuals involved can bring their money back and invest in America, which would be a great boost to the economy of the nation.