What is The FairTax Plan?

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll-based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion legislation, the repeal of the 16th Amendment.

This nonpartisan legislation (HR 25 / S 296) abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax — administered primarily by existing state sales tax authorities. The IRS is disbanded and defunded.

The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

Quoted from FairTax.org: FairTax Tagline

How does the FairTax work?

• Americans take home their whole paycheck.

  No Federal Income Tax withholding, no Social Security Tax contributions, no Medicare Tax deductions — What you earn is what you take home (excluding state taxes). This also goes for Social Security checks, inheritances, and profits from investments.

• The FairTax is only charged on new retail goods and services, not on used goods.

  With the FairTax you are only taxed once on any good or service. If you choose to buy used goods, you do not pay the FairTax. Business purchases (not for personal consumption) also pay no consumption tax.

• The prebate makes the FairTax progressive.

  To ensure no American pays tax on necessities, the FairTax Plan provides a prepaid, monthly rebate (prebate) for every registered household to cover the consumption tax spent on necessities up to the federal poverty level. The prebate is estimated to be about $200/adult and about $70/child. (Learn more about the FairTax Prebate (PDF).)

• The amount you pay to fund the government is totally visible.

  When you decide what to buy and how much to spend, you see exactly how much you are contributing to the government with each purchase. The current proposed FairTax rate is 23% inclusive (like an income tax) = 30% exclusive (like a sales tax). (Learn more about the FairTax Rate and Inclusive vs. Exclusive.)

• Retail prices no longer hide corporate taxes or compliance costs.

  Did you know that income taxes and the cost of complying with them currently make up 20% or more of all retail prices? It’s true. According to Dr. Dale Jorgenson of Harvard University, hidden income taxes are passed on to the consumer in the form of higher prices for everything you buy. (Learn more about Retail Prices.)

• The current income tax system exports our jobs, rather than our products. The FairTax brings jobs home.

  The FairTax removes the cost of corporate taxes and compliance costs from the cost of our exports, putting them on a level playing field with foreign competitors. Lower prices will sharply increase demand for our exports, thereby increasing U.S. jobs. The FairTax gives our products a definite advantage that foriegn products cannot match. (Learn more about Foriegn Trade.)

• The FairTax strategy is revenue neutral: It neither raises nor lowers taxes so consumer costs remain stable.

  The FairTax pays for all current government operations, including Social Security and Medicare. Government revenues are more stable and predictable than with the federal income tax because consumption is a more constant revenue base than is income. (Learn more about Consumption Stability.)

• Criminals, tax cheats, and illegal aliens pay The FairTax.

  Today, the IRS will admit to 16% noncompliance with the code (tax cheats). Add on to that the criminal/drug/porn economy, which is about one trillion dollars of untaxed activity. Then consider the illegal aliens who are paid cash and don't pay taxes. The FairTax spreads out the cost of government over a much larger base by taxing everything these people buy.

• The FairTax is easier to enforce and doesn't target confused taxpayers.

  In 2003, the IRS received about 156 million returns but only about 25 million retailers would have to submit FairTax returns. Having almost 85% fewer returns to check, the FairTax allows enforcement to concentrate on finding criminal activity, rather than making potential criminals out of every taxpayer struggling to decipher the current code. (Learn more about Enforcement and Compliance Costs (PDF).)

  Adapted from FairTax.org: Thumbnail Sketch of the FairTax (HTML) (PDF)