Is the Fair Tax Fair?

1. A national sales tax discourages consumption, leading to a conservation of resources.
2. The removal of an income tax encourages saving and investing, which is the key to job growth.
3. Individuals would have an extra incentive to work hard and earn income, leading to a far more productive nation.
4. A sales tax would be a much simpler system, eliminating the need for individuals to comply with complex tax reporting requirements and freeing up all the money & time lost on the income tax process.
5. Tax rates can be targeted to encourage or discourage the consumption of certain items.
6. Consumer prices of certain items would fall since labor and tax compliance costs would be cheaper to businesses.
7. It would allow a greater collection of tax money from those carrying out illegal transactions, since their income is hid from the income tax system but will be taxed when they spend it in a sales tax.
8. It's a tax system consistent with a free society; i.e. Americans have a choice regarding their taxes, unlike our current confiscation system.

1. A sales tax would be a regressive tax; i.e. low-income individuals would pay a much higher share of their incomes than wealthy individuals.
2. A national sales tax is a risky system that may not raise near enough money to support all our needs in defense, education, health care, etc.
3. Consumer spending, which drives a thriving economy, would likely drop as people save and invest more rather than spend.
4. Many incentives built into our tax system (such as education, home ownership, charity, etc.) would be eliminated.
5. Hundreds of thousands of attorneys, accountants, and human resource workers would likely lose their jobs due to the simpler tax system.
6. Real estate values would likely plummet since the tax advantages to ownership would vanish.
7. Mortgage and other consumer debt would likely explode since consumers would be forced to finance the taxes also.
8. We would have to come up with another way to raise or set aside funds for social security.
9. The transition costs of such a change would be extremely expensive.
10. Tax evasion and instances of black market purchasing would likely skyrocket.
11. Consumer prices of many items would go up by a much greater rate than the sales tax rate since raw materials would also be taxed.
12. Retirees and others who have earned the majority of their life income have already had their money hit with income tax; thus, they will pay extra sales tax with money already subjected to income tax.
13. A sales tax is more insidious; i.e. it's easier for the government to raise taxes without the people knowing it, as opposed to an income tax which shows up on the W2's and 1040's every year.

This is THE classic work on the theory of the fair tax. Yes, it's a book on economics and taxes, but Mr. Boortz makes it entertaining and easily understood. He explains the theory of the fair tax in full and is a great research into the fair tax.

The Cure for a Disease Known as Income Taxes, In this book, Boortz and Linder discuss the abolishment of the income tax. Under this system, wages would not be taxed at all. As an alternative to raise revenue for the government, they propose a national sales tax. The goal is revenue neutral so that same amount of revenue would be collected to run the government.

This would allow the individual to choose when they paid tax. So those who save and invest money rather than spending all of it, would come out much better.

The proposed sales tax rate would be around 23%. While this may sound high, one should keep in mind that no tax would have been withheld from his or her paycheck. For example, say that the average household income for America which is approximately $40,000 a year were not taxed. This would mean the Joneses get to take home all $40,000 of that hard earned income. As it stands today, they are probably only taking home around $32,000 assuming a 20% income tax rate and not considering state, Social Security, or Medicare taxes.

As a component of the national sales tax, they propose that a certain poverty level determination of say $10,000 which would be considered the bare minimum for a person to survive on and each person would receive a "prebate" of $2,300 per year paid in monthly installments. This would significantly help those on the low end of the income spectrum and actually result in additional money to spend on essentials such as food, clothing, and housing. It would also avoid the potential disparities which could occur with a food exemption if the wealthy purchased steak and lobster or other such expensive food items.

Additionally, it would take many of the inefficiencies out of the current system in that each time there is a touch on producing a good or service, income tax is charged. For example, when you buy a loaf of bread, the business who produced the seeds, the farmer who grew the wheat, the mill, the bakery, the trucking company, and the grocery store all pay income tax on their portion of the bread production. By taking the income tax away, the loaf of bread would subsequently be much cheaper (estimated around 25%) from the reduction of built in income tax for a product. (This assumes that businesses will not pay income tax. There would be many rules set up to prevent people setting up "businesses" to evade taxes.)

The Fair Tax also has the benefit of helping prevent tax evasion. Under the current system, there are millions upon millions of dollars of unreported income every year which are not taxed. This could occur in anything from illegal trades such as selling drugs on the street to the legal trades of wait staff or any industry in which cash is used to pay for goods or services but not reported. Every time these dollars were spent by the individuals, however, they would be taxed so this revenue which is currently lost would be collected.

It would additionally get rid of the estimated $265 billion spent annually to comply with the tax code. This is not to mention the 100s of thousands of hours that would be freed up to engage in more productive and enjoyable pursuits.

Economists estimate that in the first year of its implementation the economy would grow by 10.5%. Foreign companies would also have incentive to build factories in the U.S. to take advantage of the eliminated inherent cost included as mentioned in the bread example.

I think that this is a really great idea and hope that it is implemented one day. To learn more about it and see if your congressperson supports it or not, go to FairTax.org. Review by Andrew R. Allen (Kansas City, MO)