SensibleTaxReform Blog

9. What Expenditures Will Not Be Taxed?

The federal consumption tax (FCT) under Sensible Tax Reform—Simple, Just and Effective will only apply to retail purchases for use or consumption. Neither businesses nor governments agencies will pay it.

Most expenditures by individuals and families will be subject to the tax. However, household expenditures that are not for use or consumption will not be taxed. The principal non-taxable household expenditures will be:

• The payment of taxes,
• Debt repayments,
• Investments,
• Charitable donations and
• Insurance premiums.

Payment of taxes: Other taxes that households pay will not be subject to the federal consumption tax. For example, property taxes, state and local sales taxes, state and local income taxes, as well as excise taxes will be exempt from FCT taxation. A tax on a tax will not occur. Even today, the federal government allows deductions from federal income taxes for state and local income and property taxes. The same principle will apply with the FCT.

Debt repayments: Debt is accumulated from previous purchases. Most of those purchases will have been subject to the FCT. Therefore, the reduction of debt principal will not also be subject to the FCT. That would be double jeopardy. [In fact, from an economic point of view, the payoff of debt is an alternative form of saving.]

Investments: A very major benefit from Sensible Tax Reform will be the great potential that it will offer for increasing personal savings, since no taxes will have been paid on funds that are not spent. The middle classes especially will enjoy a great financial advantage in this area. Of course, there are many ways that investable funds can be employed—for retirement, for children’s education, to buy a home, or maybe to start a business. STR will greatly increase national savings.

Charitable donations: Just as with the increase in savings, STR will allow most households to be much more generous in donating to charities. Financial gifts will not be taxed, since they will be for the benefit of the charity and not of the individual.

Insurance premiums: Insurance can be viewed as a form of investment—the prudent protection of health, assets and investments. Insurance premiums will therefore not be taxed. However, the proceeds from insurance may be subject to taxes: medical expenses covered by health insurance, casualty insurance for an automobile accident or for a house damaged by a storm, and life-insurance proceeds.

Under Sensible Tax Reform non-consumption expenditures will be tax-free.

Tags: #tax reform

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