What is The FairTax Plan?
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 replacement, and, through
companion legislation, the repeal of the 16th Amendment.
This nonpartisan legislation (HR 25 / S 296) 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 IRS is disbanded and defunded.
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.
Quoted from FairTax.org: FairTax Tagline
How does the FairTax work?
- Americans take home their whole paycheck.
No Federal Income Tax withholding, no Social Security Tax contributions, no
Medicare Tax deductions — What you earn is what you take home (excluding state
taxes). This also goes for Social Security checks, inheritances, and profits
- The FairTax is only charged on new retail goods and services, not on used
With the FairTax you are only taxed once on any good or service. If you choose
to buy used goods, you do not pay the FairTax. Business purchases (not for
personal consumption) also pay no consumption tax.
- The prebate makes the FairTax progressive.
To ensure no American pays tax on necessities, the FairTax Plan provides a
prepaid, monthly rebate (prebate) for every registered household to cover the
consumption tax spent on necessities up to the federal poverty level. The
prebate is estimated to be about $220/adult and about $78/child.
- The amount you pay to fund the government is totally visible.
When you decide what to buy and how much to spend, you see exactly how much you
are contributing to the government with each purchase. The current proposed
FairTax rate is 23% inclusive (like an income tax) = 30% exclusive (like a sales
- Retail prices no longer hide corporate taxes or compliance costs.
Did you know that income taxes and the cost of complying with them currently
make up 20% or more of all retail prices? Itís true. According to Dr.
Dale Jorgenson of Harvard University, hidden income taxes are passed on to the
consumer in the form of higher prices for everything you buy.
- The current income tax system exports our jobs, rather than our products.
The FairTax brings jobs home.
The FairTax removes the cost of corporate taxes and compliance costs from the
cost of our exports, putting them on a level playing field with foreign
competitors. Lower prices will sharply increase demand for our exports,
thereby increasing U.S. jobs. The FairTax gives our products a definite
advantage that foriegn products cannot match.
- The FairTax strategy is revenue neutral: It neither raises nor lowers taxes
so consumer costs remain stable.
The FairTax pays for all current government operations, including Social
Security and Medicare. Government revenues are more stable and predictable than
with the federal income tax because consumption is a more constant revenue base
than is income.
- Criminals, tax cheats, and illegal aliens pay The FairTax.
Today, the IRS will admit to 16% noncompliance with the code (tax cheats). Add
on to that the criminal/drug/porn economy, which is about one trillion dollars
of untaxed activity. Then consider the illegal aliens who are paid cash and
don't pay taxes. The FairTax spreads out the cost of government over a much
larger base by taxing everything these people buy.
- The FairTax is easier to enforce and doesn't target confused taxpayers.
In 2003, the IRS received about 156 million returns but only about 25 million
retailers would have to submit FairTax returns. Having almost 85% fewer returns
to check, the FairTax allows enforcement to concentrate on finding criminal
activity, rather than making potential criminals out of every taxpayer struggling
to decipher the current code. (Learn more about
FairTax.org: Thumbnail Sketch of the FairTax (2-pg PDF)
What are the benefits of the FairTax? Are there drawbacks to the FairTax?
Read the brochure Who Benefits from the FairTax? (2-pg PDF)
How does the FairTax compare to the Flat Tax?
Tax Plan Comparison Table (1-pg JPG) for a brief summary or
Flat Tax: More of the Same (9-pg PDF) for more in-depth information.
Where can I learn more?