The Fair Tax is base solely on retail consumption so that only as purchases are made will a tax be paid. The more you consume, the more tax paid. Therefore those with more means (i.e. “the rich”) will pay more than those with less means (i.e. “the poor”). In addition, there is built into the system a rebate or allowance of taxes to offset the burden on lower income families, essentially poverty level income will not be taxed. This while those with the ability to purchase more will pay more.
Additionally, the whole economy will be available to the tax since everyone, wage earners, entrepreneurs, business owners, criminal enterprises, illegal aliens and so on must participate in the retail economy. No one can completely avoid being a consumer. Even government, as it purchases services and supplies through the economy, will be taxed, just like it’s citizens.
The coup de grace of the plan is that the cost of producing products and services will be reduced as those business doing so will no longer be tasked with the accounting and collecting payroll taxes, they will no longer need to spend countless hours and dollars in tax avoidance planning (a completely legal part of doing business) and they will no longer be required to pay corporate taxes, all of which are passed on to the consumer in the form of higher cost of goods.
As mentioned earlier, this is estimated at 20-30% of the cost of goods. Now watch this closely. If an item currently costs $100 and competition after the elimination of the current system forces it down 20% to $80, a fair tax of 23% on that will be $18.40. Added to the cost of $80, the final cost including tax will be $98.40. The savings to the consumer and taxpayer is $1.60.
Now if the cost savings to the producer is 30% and competition forces the cost to the consumer to be reduced accordingly to $70, the fair tax on that will be $16.10. Total final cost with tax, $86.10, savings to the consumer/taxpayer, $13.90. All the time funding government in a way that is fair to all.
This is only a very brief overview of the plan. There is much more information available at FairTax.org.
You will find research papers on the impact on various sectors of the economy as well as on the taxpayer. If you like what you see be sure to write your congressman. They won’t move on this unless they have an enormous amount of integrity, or find it in their best interest. Each of us holds the key to the latter.
To learn about the current tax code, read a simple overview of the proposal, and find out how to get involved check out the Volunteer page.