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Instead, citizens and legal resident aliens would have to pay monthly a tax on purchases based on the size of the family.
Proponents of the Fair Tax Act believe that the entire nation would benefit from this consumption tax as people would be able to save and invest more. In addition, America would see an increased economic growth since there would be incentive for international businesses to relocate. Even US trade would flourish because of competitiveness.
Fair tax is expected to increase transparency where federal government spending is concerned. In addition, it will have a positive impact on civil liberties and environment. The government will also be able to tax illegal activities and illegal immigrants. However, opponents of this tax system believe that people will have no social incentive as income and other deductions would become completely redundant. In addition, the opponents of the Fair Tax system are also worried about the Sixteenth Amendment, which will be repealed if the Fair Tax system is adopted. Plus, there will be worries about loss of tax advantage to state bonds and local bonds and the repercussions on the income tax sector.
In the US, the present tax system has effects on prices of goods and services which are not visible. If the Fair Tax system is adopted, production costs will decrease as business taxes and compliance taxes will no longer have to be paid.
Also, Fair Tax system will be watched by many countries and if the system is successful in the US, it might have an impact on international taxes as many countries would want to adopt it.
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