The FairTax is a plan devised by economists (including Nobel laureates) in the 1990s and supported by politicians across the political spectrum that would replace the current Federal income tax (both corporate and personal), Social Security tax (both employee and employer), Medicare tax (both employee and employer), estate tax, capital gains tax, alternative minimum tax with a 23% inclusive national retail sales tax. The plan has been brought up in Congress each year with continued traction gained. In the 2008 Presidential election, both Mike Huckabee (R) and Mike Gravel (D) supported it. In the current 2012 election cycle, Herman Cain (R) supports it. Numerous congressional candidates continue to support it.

Compliance for individuals and corporations under the current tax system is burdensome and expensive. It has led to numerous companies outsourcing work to nations with lower taxes to save on their tax burden (The US has the 2nd highest corporate income tax rate in the world, behind Japan.), increasing unemployment in the US. Millions of families each year have to fight audits in court because no one (even accountants) understand the 70,000 pages of tax codes.

The FairTax solves these problems by removing all the embedded taxes along the chain of production and placing them at the single point of first-time retail sale (used goods are exempt). Thus, the theory is that the effective cost is lowered for the good or service, and the added FairTax brings it right back to the original price when supply-and-demand kick in place.

The FairTax is inherently a flat tax, which progressives dislike and conservatives like on the surface, but at a deeper look, it appeals to the whole spectrum:

The Prebate: The FairTax provides for the Federal government to mail a check (or e-check) to each household of US citizens or resident aliens at the beginning of the month for the amount that would be spent with the FairTax up to the poverty line. (This amounts to $559 for a family with 2 kids in 2009.) If the household's spending was not at the retail level but in garage sales, thrift stores, and investments, they would effectively pay negative taxes.

No Caps on Social Security or Medicare: Since the FairTax includes a percentage that would fund these retirement plans, it inherently has no cap on either, meaning that the uber-wealthy would continue to be taxed when they by their private jets or yachts.

Reduced Complexity: The current Federal income tax alone is over 70,000 pages. The entire FairTax proposed bill is about 200 pages. Retailers, who already collect taxes, would be the point of collection, so April 15th becomes just a regular spring day to the average person, not the stress-filled deadline for taxes.

No Loopholes: Corporations and individuals have no loopholes that a team of lawyers and accountants and use to cheat on their taxes. Thus, the wealthy pay the same amount that anyone else does.

Investment Incentive: Since stocks, bonds, savings interest, bullion, and tuition, are considered investments, not retail goods, they are no taxed. Thus, the FairTax encourages investment and savings for families for their retirement or next big vacation. It also turns the US into the "tax haven". I recent poll done of 100 corporate CEOs across the world concluded that 40 would immediately open a new building in the US. The other 60? They would make immediate plans to move their headquarters to the US.

Larger Tax Base: Foreign vacationers, illegal immigrants, and current tax evaders, would all be paying into the FairTax, inherently, so the tax base grows considerably, providing more income for the Federal government (which allows the tax rate to be lower).


I would like to continue this as a blog series for anyone who is interested. If you have questions about the FairTax, I will start a series of Q/A blogs to try answering those questions.