The Fair Tax

You can count me as a supporter of the Fair Tax. It would eliminate the current income tax system and instead charge a national sales tax. Unlike most sales taxes however, this is a progressive tax system. Every month everyone would get a rebate (or prebate) from the government that would cover what they are expected to pay in taxes on the necessities. Thus someone who makes only enough to pay for the necessities will pay no taxes at all. Those who make less will have a negative effective tax rate. As a person makes more they’ll have a higher effective tax rate until the wealthiest are essentially paying the full 23% rate. A family of four making $25,000 would pay 0%. It would be 12% at $50,000, 17% at $100,000 and -23% at $12,500.
This system is revenue neutral, will encourage saving, will tax the black market and virtually eliminate tax cheats, will help our businesses be more competitive on the world stage and vastly simplify a confusing tax system bloated with loopholes and exceptions.

6 comments

  1. Kirk says:

    There are several problems with this proposal.
    First, the rate isn’t 23%, but 30%. It’s a 23% rate IF YOU INCLUDE THE TAX IN THE SELLING PRICE. If you think about it in terms of a traditional sales tax, you’ll be paying 30% of the price of a good in tax.
    Second, the revenue that comes from this proposal is well short of what is necessary to run the government as it currently is. A sales tax rate north of 70% would be needed to replace the income that is generated from the current tax system.
    Third, the accounting for this rebate (prebate?) proposal is monstrous and would require *more* people than currently work at the IRS. This would be an *expansion* of government workers at the same time that revenues are cut more than half due to the rate issue in #2.
    This proposal is going nowhere and really isn’t workable. It’s nice sounding rhetoric but can’t possibly work in the real world.

  2. The “Fair Tax”?

    Rob Bernard has a post on the so-called”fair tax” proposal that is all the rage in Conservative circles. I left this in the comments, but want to put it here as well: There are several problems with this proposal. First,…

  3. Rob Bernard says:

    I figured you’d chime in. 🙂
    I’ll grant you your first point. The terminology can get a bit muddled when comparing the income & sales taxes. One gets quoted tax-inclusively and the other exclusively.
    On your second and third points I’d really like to see some data or studies to back up your assertions. Though I’ll say that no matter whether it’s 10%, 30% or 90% that’s needed to be revenue neutral that’s still the same amount that would be collected under an income tax. The purpose of the Fair Tax is not to cut government revenue, the tax rate would be set at whatever level was required for it to be revenue neutral.

  4. Rob Bernard says:

    As evidence that the 23%/30% number is the correct percentage to be revenue neutral I offer this FairTax.org rebuttal to the Institute on Taxation and Economic Policy.

  5. Kirk says:

    Am I really that easy?
    I looked at their report. One of the big problems facing their analysis is that they assume no deductions when comparing their sales tax proposal to the current income tax. They say “well, you’ll only pay 25% when current income taxes are 35%”. That is true if you ignore deductions.
    My tax rate this year was 7.11%. That’s hardly being overtaxed. I would pay more under their proposal even after their “prebate”. And if I’m paying more somebody’s paying less. And I can bet who it is….
    Oh, and I like the opening paragraphs. “Don’t trust any politican or 501(c)….except us”

  6. brjohnson says:

    >> My tax rate this year was 7.11%
    Nice — add in social security and meidcare taxes — including the part your employer pays — and you are paying about 23%. Sounds like you would break even with the FairTax. (I’m sure you would benefit along with everyone else from the improved economy.)
    -Benjamin

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