The Truth About The FairTax

For someone who writes an article like this ‘The Flat Tax Is Not Flat and the FairTax Is Not Fair,’ it would help if its author, Laurence M. Vance, had his facts straight.

Coming from his premise that the FairTax ‘has the most vocal and intolerant proponents,’ I’m detecting a certain aire of superiority from him. Intolerant? Really?

The FairTax turns the current taxing system and taxing power on its head. It represents the largest shift in power from the federal government back to the people since the Declaration of Independence separated us from Mother England.

The FairTax is the result of $22 million worth of research by credible economists from around the country whose task was to come up with another way to fund the operations of the government. The task was qualified to the extent that the result would be ‘revenue neutral.’ That is to say the system must be able to generate as much money as the government is currently generating with the current system through federal withholding and payroll taxes, self-employment taxes, alternative minimum tax, estate and gift tax, and capital gains tax, all of which would be replaced by the Fair Tax. And from that point as the economy grows, so grows the treasury. It is a pro-growth, as opposed to punitive growth, taxing system.

The prebate is NOT an income redistribution scheme

First, the current system is not progressive by any stretch of the imagination. All the payroll-related taxes are taxed on a poor person’s first dollar. When that person gets another job to help make ends meet, he is taxed again. It is the prebate of the FairTax that eliminates this phenomenon. It totally un-taxes not only the poor but EVERYONE up to the poverty level (fair), actually helping them to rise up the socioeconomic ladder and realize the American dream. And when their spending exceeds that of the poverty level, they pay the same taxes as everyone else. What makes the FairTax a truly progressive tax is that the more one spends, like on yachts and private jets, the more ‘taxes’ will be paid.

The tax base expands to everybody in the United States

Also, and this consequence is often overlooked, EVERYONE who is in this country enjoying what there is to enjoy about it, WILL CONTRIBUTE to funding the government when they buy anything new or purchase a service.  This includes foreign tourists, the foreign diplomats in the UN and elsewhere, and all who are in the country illegally. Including those in the underground economy. The tax base is greatly expanded and is not limited to just legal citizens that legitimately work. (fair) Conversely, if you don’t want to pay any tax, simply don’t buy anything new. Under the FairTax, the people have control over what, how, and when they will pay their taxes, not the social engineers in Washington. Transparency in taxation will return. The amount you pay will be on your receipt instead of being stuffed into ‘deductions’ on your paycheck as it is now.

A taxing system that rewards, not punishes, achievement

The question of the ethics of making people pay taxes is a philosophical one, but in reality, and as corrupt as it is, it does take money to fund the government to do what is necessary to keep us safe and sound.  It is up to us to keep Washington in check on how they spend that money. The FairTax does not have any bearing on how the tax revenue is spent. It is strictly a plan to fund the federal government. And instead of punishing success, it actually rewards it. The FairTax is fundamentally, economically, stimulative. The term ‘take-home pay,’ coined by the creation of the current taxing system, becomes history. Under the FairTax, your gross pay is your take-home pay. YOU get what YOU make, and YOU spend it as YOU see fit. (fair)

Promotes economic development, investments, savings, and jobs

Other consequences of the FairTax which are also overlooked, is the effect it would have on the estimated $13 trillion in business, each year, that has fled this country to escape the tax code. That business would come back. That would not happen under a flat tax.  By the elimination of all the taxes on business and employment that you accurately list above, the US would become a tax haven to the world. And foreign business that don’t have a business unit in this country would have a powerful incentive to come. And 90% of those surveyed on that proposition say they would setup a business unit in the US if the FairTax was in place. The job creation and economic development that would result would go a long way toward bringing the country back towards economic solvency, all without any borrowing from China or anyone else.

No double taxation, no FairTax & income tax

Also, the ‘two-headed hydra’ that you mention will not happen under the FairTax. That’s because it calls for the repeal of the 16th Amendment so the political class will not be allowed to double dip. Were that to be the case, the FairTax would expire and we would return to the same abortion of a tax code that we have now.

There are no exemptions for government under the FairTax. They operate the same as everyone else and the same as every other business. There are no taxes on business-to-business transactions. That applies to government business the same as it applies to normal capitalistic businesses. (fair)

The FairTax is not on TOP of, it is INSTEAD of

Lastly, and this is no small point, the research that went into the FairTax came up with a 23% tax that would be revenue neutral, not 30%, and it is inclusive, not exclusive like in your example. Here’s where it gets confusing and, easily demagogued. To be factually accurate, you have to know the difference. Otherwise you’ll be comparing apples to oranges.

The inclusive vs exclusive debate becomes easier to understand when you realize that companies do not pay taxes. The final consumer is the one that pays the taxes. We currently pay all the taxes that producers must pay in terms of all the taxes that would be eliminated under the FairTax that you correctly listed above. The over $20 million of research that went into developing an alternative federal revenue generating system determined that, on average, all of those above-mentioned taxes amount to 22% of the price of the goods and services we buy. Those are  embedded taxes, inclusive. Under the FairTax, those taxes go away. If nothing else happens, the prices would drop by (on average) 22%. Under the FairTax, those are replaced by a 23% tax, which would be inclusive to the price of the item. Not added to it as though the 22% embedded tax was still there, ie. exclusive. Competition in a free market would make sure that this would be the end result.