I wrote a brief paragraph last week expressing my enthusiasm for the FairTax. As expected, some people seemed willing to support the plan, while others expressed concern for whether or not the FairTax is as wonderful as supporters claim it to be. Consequently, I thought I would write a brief post addressing some of your concerns and explaining the FairTax in more detail.

The FairTax begins by removing all federal taxes from the tax code. That includes the income tax, payroll tax, estate tax, corporate tax and capital gains tax. Presently, every good or service you purchase has these taxes embedded within the price, which adds up to close to 22% of the cost.

For example, when you purchase a Diet Coke, part of the cost of a Diet Coke is the corporate tax that Coca Cola pays, plus the payroll tax that it pays for all of its workers plus all other embedded taxes that you are unaware of. Removing all these embedded taxes will lower the price of all goods and services.

The FairTax simply replaces all federal taxes with one embedded 23% consumption tax on all goods and services. This will not increase the price of goods or services because, again, it simply replaces the embedded taxes already part of our tax code.

The best aspect of the FairTax is that there would be no individual federal filing of income again. Presently, $300 to $500 billion are spent each year figuring out what people owe the government. The FairTax would replace that time and money with more constructive uses.

In order to address the concern of those who claim the FairTax is regressive, all households would get a “prebate” check for the value of all goods and services up to the poverty level based on household size each month. Since we are part of the electronic age, most people would get the “prebate” electronically wired into their bank accounts, or would receive an electronic card that would be replenished each month. This would ensure that the poor would not pay any tax until they have acquired the basic necessities of life.

The FairTax has several benefits in addition to never filing an income tax again. First, it would flood revenue into the treasury because all illegal activity would pay taxes when they purchase legal goods or services. This includes all offshore accounts that are spent in the United States.

Second, without a corporate tax, payroll tax or capital gains tax, foreign businesses would set up shop in America hiring American workers. Most American companies would also come back to America instead of shifting jobs overseas.

Third, for those who are concerned with illegal immigration, illegal immigrants would have to pay the FairTax too, and would not receive the “prebate” because only American citizens receive the benefit, creating an incentive for illegal immigrants to get back in line.

Are you on board for the FairTax yet, because now I will address some of the concerns?

Is the FairTax 23% or 30%?

Since the FairTax is replacing the embedded taxes that cost close to 22%, when we say 23%, we mean 23%. Some people, however, have erroneously compared the FairTax to an ordinary sales tax, arguing that the tax would really be 30% instead of the promised 23%. I hate to disappoint the critics, but 23% will only be 23%.

The way critics reach the 30% number is by claiming that $23 of $100 is really equal to 30% of $77 because 23/77 = .30. Well, they are correct; except that would only be true if the FairTax was not replacing an embedded tax.

Under the logic of the critics, when someone claims they are part of the 15% income tax bracket, they are really part of the 18% tax bracket because 15/85 = .18. Likewise, these people would argue that when someone claims that he or she is part of the 25% income tax bracket, he or she is really part of the 33% tax bracket because 25/75 = .33.

Anyone who claims that the FairTax is really 30% is comparing apples to oranges. The FairTax is replacing embedded taxes, like the income tax, so it must be compared to the income tax, not a traditional sales tax.

Won’t this be difficult to enforce?

Actually, the FairTax will be easier to enforce than what we have right now. Presently, it only takes one person to cheat the tax code (the person declaring the income). The FairTax requires the buyer and the seller to both engage in fraud to cheat the FairTax.

Moreover, since over 150 million people are removed from the responsibility of declaring income under the FairTax, it would make it easier for the government to ensure compliance. This doesn’t even factor in the trillions of dollars in illegal activity that are presently not reported with our income tax system. Overall, the FairTax is just more efficient and simpler to enforce.

What about the mortgage interest deduction?

I will answer this question with a question: What good is a 20% discount on Milk if the grocery store was giving away milk for free? Analogously, what good is a deduction on income tax when the FairTax makes everyone’s income tax liability zero?

Above, I have only addressed a few concerns. These certainly are not all of your concerns, but believe it or not, I can answer all of your questions. Feel free to leave them below.

As an aside: I've had a problem with one idividual creating multiple aliases and having fake conversations with himself. Please don't or I'll simply block you from commenting. Thanks.

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