What is taxed and what is the tax rate?
The South Carolina Fair Tax taxes only new goods and services with a base tax rate of 6% collected at the point of retail sale. Businesses selling goods to other businesses for the production of goods or services are not taxed (so they won’t pass those taxes on to consumers). Used goods are not taxed.
What taxes does the South Carolina Fair Tax replace?
The South Carolina Fair Tax repeals eight (8) Chapters under Title 12 of the South Carolina Code of Laws. They include the South Carolina Income Tax Act, Income Tax Withholding, Income Tax on Banks, Income Tax on Building and Loan Associations, Estate Tax, The South Carolina Sales and Use Tax Act, South Carolina Taxpayers Bill of Rights, and the South Carolina Motion Picture Incentive Act. The South Carolina Fair Tax will end the taxation of business profits and the earnings and income of South Carolina workers – allowing most South Carolinians to keep thousands more of the dollars they earn annually.
What is the prebate and why not just exempt food, clothing, etc.?
The FairTax Plan does not exempt any product or service sold at the retail level. Developers of the Plan recognized the unfairness of collecting taxes on necessity items, e.g., food, clothing, medicine, etc. Therefore, the Plan provides for a monthly prebate. The prebate is paid to valid Social Security cardholders who are legal South Carolina residents in an amount equivalent to the taxes that would be paid on the purchases of necessity items up to the poverty level spending amount for such items. Qualified individuals and families must register annually to receive the prebate. It is not income dependent. The amount is calculated using well-accepted, long used poverty level guidelines. (See S.C. Prebate Table)
Exempting necessity items from the Fair Tax would benefit those residing in South Carolina illegally along with legal residents. Categorical exemptions is what exists under the current sales tax laws and is neither fair nor simple and encourages law makers to use tax law to pick “winners and losers” to the benefit of special interest groups.
Is the prebate not just welfare, making people dependent on another “check” from the government?
Participation is voluntary and available to any qualified individual or family in South Carolina – independent of income. The prebate, as a rule and as calculated and provided, will simply reimburse properly registered individuals or families for money paid in taxes for necessity item spending during the month for which it is received.
Will a consumption tax alone adequately fund state government and won’t the tax rate need to be higher to be revenue neutral?
Two experts in economics calculated a “revenue neutral” sales tax rate for South Carolina ranging from 5.8% to 6.1%. The Fair Tax would repeal the law that allows for more than 300 sales tax exemptions currently, include a sales tax on services, and in so doing broaden the tax base.
Is consumption a reliable source of revenue?
Data suggests that it is a more stable source of revenue than income. In the recent economic downturn, both state income and sales tax revenues had declined, but sales tax revenue to a lesser degree. Nationally, Personal Consumption Expenditures remained more stable than Adjusted Growth Income in the years 1974 through 2004. (See PCE-AGI graph.)
Should state government collect taxes on services?
Service providers are not exempt from taxation of their income; neither should they be exempt from the South Carolina Fair Tax. Besides, removing the tax burden from their profits will allow the free market forces of competitive pricing, not government, determine how much service providers will charge for their services, affecting the amount of taxes needed to be collected.
Will the S.C. FairTax Plan require youth enterprises such as lemonade stands, lawn-mowing and baby-sitting to collect and remit a sales tax?
Persons generating less than $1,400 per year in sales/earnings are not required to collect sales tax.
How will the South Carolina Fair Tax affect tax records and income tax preparation?
Of course, until the Fair Tax Act of 2011 (H.R. 25, S. 13) in Congress is also enacted into law, we will need to keep tax records and file income tax returns in accordance with the Internal Revenue Code of 1986. Filing a state income tax return, however, will become a thing of the past. Businesses will no longer have the bookkeeping and personnel costs associated with maintaining records for complying with the state’s income tax laws. The S.C. Department of Revenue would be able to re-organize staff positions from monitoring and maintaining the massive state income tax system to sales tax collections and accounting.
What will keep the General Assembly from just raising the sales tax rate?
The General Assembly may lower the tax rate at any time after the bill becomes law by a simple majority (50% + 1) vote of both the House and Senate and signed by the Governor. We may discover that tax revenues on consumption will exceed those previously collected from business profits and income – allowing this to be considered. To increase the tax rate during the first three years, however, requires a super majority (2/3) affirmative vote and approval by the Governor. After the third year, the tax rate can only be changed by a majority affirmative vote by all voters in a statewide referendum.
Are there not other states that currently have no state income tax?
There are nine other states with no individual income taxes, two of which limit taxes to income derived through dividends and interest. Two of the largest state economies, Texas and Florida, also experienced significant population growth in the last decade according to recently released census data. Most of these states either have a corporate income tax or modified system for collecting taxes from income generating activity. South Carolina would be the only state incorporating a consumption-based tax system offering the monthly prebate and modeled after the national Fair Tax Plan into which $22 million of research (privately funded) was devoted.
I’m retired and have structured my retirement income to pay little or no state income taxes now. How will this benefit me?
There are population segments that won’t directly benefit as much from the South Carolina Fair Tax as others, but any income taxes paid now will be eliminated, qualified individuals will receive the monthly prebate, and the overall improvement in the state’s economy will bode well for the retiree’s estate, investment earnings and for the security of their investments. Of great importance is also the benefit afforded to future generations.
How is this different from a Value Added Tax (V.A.T.)?
A V.A.T. is a consumption tax collected in many European countries and Canada when a consumer purchases a final product in a retail store. That tax is actually a compilation of all the taxes that are imposed upon the businesses involved in each intermediate production step needed to get the product to market. The South Carolina Fair Tax will not tax intermediate business transactions and these “costs of doing business” will not exist – to be passed on to the consumer. The V.A.T. is collected in addition to some form of income and other taxation – the worst of “both worlds!”
What is a “Flat Tax” and would that not work just as well?
What is typically called a “Flat Tax” usually refers to a Flat Income Tax Plan. Legislation had been introduced on a federal level to amend the current Internal Revenue Code to allow for a single rate, or flat tax rate, as prescribed by the bill. There are no bills currently introduced in South Carolina that are comparable to a Flat Income Tax Plan. The Flat Tax would not end the taxation of business profits or wage earners’ paychecks, but (presumably) reduce them. Businesses and workers would still have to keep tax records, pay a tax preparer and file an income tax return. Besides, there is massive amount of research to suggest that taxing income at both the state and national level is a bad idea.
Consider who wrote, “A heavy progressive or graduated income tax.” (Emphasis added.) It was Karl Marx and Frederick Engels describing a “measure” (Number Two on the list) to distinguish an advanced Communist country in their Manifesto of the Communist Party, 1848.
The Constitution established by “the Founders” and ratified under Article 13 of the Articles of Confederation in March 4, 1789, empowered Congress to “lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; . . . .” President Woodrow Wilson, however, pursued ratification (on 2/3/1913) of the 16th Amendment granting Congress power to “lay and collect taxes on incomes . . . .” Many states followed suit.
We have this opportunity in the sovereign State of South Carolina, to END the taxation of our businesses’ and citizens’ income!
CONTACT YOUR SENATOR AND REPRESENTATIVE AND ASK THEM TO SUPPORT PASSAGE OF THE SOUTH CAROLINA FAIR TAX ACT!!!
(Find your Legislator: http://www.scstatehouse.gov/cgi-bin/zipcodesearch.exe)
Let’s enjoy an Income Tax Holiday . . . Every day for Everyone!