What is the FairTax?	The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment. The FairTax Act (HR 25, S 1025) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities. The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system. See FairTax.org for more information or email me with questions.
What is the FairTax rate? Is it 23% or 30%?	Many people, including some FairTax supporters are confused about the rate. Detractors use this confusion to imply deceit or ignorance of supporters. If you're going to discuss the rate, you need to understand it: The IRS Says A Consumer Says When you have to earn $130 to take home $100, you are paying 23% in taxes. When I can only purchase $100 with my $130 in earnings, I paid 30% in taxes. Note that the 23 vs. 30% argument is often used as a red herring. It's really just a matter of semantics in how the rate is calculated. Here is research about Taxes & Tax Reform, which includes Taxing Sales Under the FairTax - What Rate Works? Where the Tax Reform Panel and others get higher 'FairTax' rates is when they start changing the FairTax into something different. Here is the list of recent rebuttals to these obfuscations of the FairTax. You can also search the rebuttals. Here is an Excerpt from Rebuttal to President's Tax Panel Report
Can you give me an example of how this would impact me?	Start by checking out the FairTax Calculator. How does the FairTax impact your family? Let's look at todays Income Tax & FICA rates and compare this with the FairTax from a consumer's perspective, say a couple with no children or deductions earning $80,000 per year: FICA SS rate (6.2%) [up to ~$90k/yr] plus FICA Medicare rate (1.45%) = 7.65%. So your employer will deduct $6120 from your check. (Note that the employer also pays $6120 for your SS/Medicare benefits from his pocket which is an added cost to employ you. This employer cost will be removed by the FairTax.) Income Tax[Using 2006 tax rates]: After standard deduction ($10,300) and personal exemptions ($6600), the taxable income is $63,100. This puts our couple in a marginal rate of 25% and yields a tax of $8890 (14% of taxable income and 11% of gross income). After taxes we have $80,000 - $6120 - $8890 = $64990 take home. The tax paid ($6120+$8890 = $15,010) is 18.7% of gross or 23.1% of our take home pay. If we include the amount the employer paid, which is also being replaced by the FairTax, the total tax paid for us would be $21,130, which is 26.4% of gross or 32.5% or take home. As you can see, we're in the ball park with the FairTax rates. When we switch to the FairTax, the employer saves payroll costs of $6120 + overhead costs to manage withholding and income reporting. The employer also gets rid of the corporate income tax and it's associated costs, including business inefficiencies introduced to reduce the tax burden. Where are these savings going to go? The market will dictate this as it dictates retail prices and margins today. These overhead cost savings will be balanced between increased wages & benefits, retained capital (stock value, investment in business expansion), and lower prices. The FairTax inventory tax credit provides an offset for the FairTax of the income tax paid on inventory in stock when the FairTax is enacted. This means retail prices for produced goods will be reduced by an amount equal to the FairTax to be charged so the retail cost with FairTax will be the same as the retail cost before the FairTax. This will allow prices to adjust in an orderly fashion as the costs of the income tax system are removed from producer overhead. Under the FairTax, this couple now takes home their entire $80,000 earned + FairTax rebate $4697 for a total of $84,697. How does this work out for our consumer? Let's assume they spent their entire take home before the FairTax of $64,990 and that consumer prices are not reduced under the FairTax. In this case, the new cost of the $64,990 in new retail purchases would add $19,497 in FairTax for a net cost of $84,487. We are $210/yr ahead before retailers reduce prices!! And this is at over 3x the poverty level consumption. With lower consumption levels, savings and investments, and lower retail prices, the savings would be higher.
Wow, does it really need to be that high?	The FairTax is revenue neutral. The rate of the FairTax is determined by the amount of revenue generated by the taxes it is replacing. The tax is already being paid by you in the form of payroll taxes, income taxes, and embedded taxes in the things you buy. For a detailed analysis of the FairTax rate, look at this document (20 page PDF, 600 kB).
How will the FairTax impact our economy?	Here are some research papers describing the impact of the FairTax on our economy: A Macroeconomic Analysis of the FairTax Proposal The impact of the FairTax on American manufacturing, agriculture, trade, and international competitiveness How the FairTax affects wages The FairTax and the global economy The FairTax and economic growth Here is An Open Letter to the President, the Congress and the American People by 75 leading economists from major universities and think tanks who endorse the FairTax.
Won't people cheat?	With Income Tax compliance of only 84% of taxpayers and 70% of taxes due, it's hard to imagine FairTax compliance being worse. Note that the number of taxpayers to audit would decrease by 90% and 20% of these are responsible for 80% of revenue. This allows enforcement efforts efficiently focus where their effors will be productive. Most enforcement would be through existing state Sales Tax enforcement organizations, so a large IRS-like federal enforcement organization will not be needed. See FairTax Reduces Complexity, Compliance Costs, and Noncompliance for details.
Does the FairTax hurt the poor?	See the Demographic Research, including A Distributional Analysis of Adopting the FairTax, which concludes: On this basis, we show that the FairTax benefits households and individuals in the lower expenditure categories, while imposing a higher burden on those in the higher expenditure brackets. When the dynamic effects of the FairTax are included, only those households in the top per-capita-expenditure decile would be worse off after the 25th year of the implementation of the tax, and then by a relatively small amount. Thus, we conclude that replacing income and payroll taxes with the FairTax would make the United States federal tax system more progressive than it is now and would benefit the average individual in almost all expenditures deciles.