S01E10: the Fair Tax Act

At Main Street Insider, we often seek out bills to cover whose common-sense logic transcends partisan divisions. In the case of the FairTax, we go the other direction, covering a proposal drawing broad skepticism from left and right alike. We see a situation here where the rhetoric used by supporters simply does not mesh well with reality.

With the FairTax possibly slated to receive some attention next year if Republicans retake the House, we thought it worthy of your attention as a 90 Second Summary. As always, see below for the one-pager and links with more info.

One page summary below the fold…

H.R. 25: Fair Tax Act of 2009
Introduced 1/6/2009
Sponsor: Rep. John Linder (R-GA7)
Click here to download this summary (pdf)

Cosponsors: 65 (1 Democrat, 64 Republicans). Full list at http://thomas.loc.gov/cgi-bin/bdquery/z?d111:HR00025:@@@P

Status: In Ways & Means Committee. No hearing scheduled.

Senate Companion: S. 296, sponsored by Sen. Saxby Chambliss (R-GA). In Finance Committee, no action scheduled.

Purpose: Few would disagree that the current federal tax system can be improved. Since the last major tax overhaul in 1986, the proliferation of loopholes and exemptions has rendered the tax structure highly inefficient. This proposal sets forth a radically different vision for federal taxation.

Summary: H.R. 25 would replace many of the major federal taxes with a single consumption-based tax. Specifically, the provisions are as follows:

• Repeals the following taxes:

◦ Personal income tax
◦ Corporate income tax
◦ Estate tax
◦ Gift tax
◦ Capital gains tax
◦ Alternative minimum tax
◦ Payroll taxes directed to Social Security and Medicare

• Enacts a new national sales tax on all consumption:

◦ Imposes a retail sales tax of 23% (inclusive) on all goods and services at the final point of purchase
◦ Business-to-business transactions and sale of used items are not subject to taxation
◦ Administered primarily by states
◦ Subjects imported goods to the same duty and exempts goods intended for export

• Issues a “prebate” equivalent to the amount of FairTax paid on spending up to the federal poverty line. For 2010 this would have been $2,491 for a single filer and $6,702 for a two-parent family of four.

• Issues directives for implementation and distribution to the general fund and major trust funds

The FairTax is proposed with the intent of being a revenue-neutral swap for the taxes it is replacing. However, this estimate assumes it can avoid the loopholes and other exemptions that plague the current paradigm and all existing state sales tax regimes. It also assumes the repealed taxes negatively impact economic activity, while the new tax would not.

Note: The inclusive rate of 23% indicates a percentage of the total amount paid by the consumer. If calculated as an exclusive rate, as is standard practice for sales taxes in the United States, the rate would be roughly 30%.

CBO Score: none provided.

Supporters: Americans for Fair Taxation, some TEA Party groups, Mike Huckabee, talk radio personality Neal Boortz

• FairTax champions argue the bill will boost economic activity by raising after-tax incomes, dramatically simplify the tax system to unleash needed investment, and perhaps most importantly, abolish the IRS.

Opposition: Progressive budget and tax organizations, most Democrats, many Republicans, etc.

• Detractors primarily believe the FairTax would be a large loss in net federal revenue, shift the burden dramatically to the middle class, and potentially hurt state sales tax revenue. Opposition from conservatives has arisen for more nuanced reasons; most notably, they see the FairTax not being able to live up to its claims.

Further links
Full bill text: http://www.govtrack.us/congress/billtext.xpd?bill=h111-25
Official CRS summary: http://www.govtrack.us/congress/bill.xpd?bill=h111-25&tab=summary
FairTax.org FAQ page: http://www.fairtax.org/site/PageServer?pagename=about_faq
FactCheck.org analysis of the FairTax: http://www.factcheck.org/taxes/unspinning_the_fairtax.html
Conservative argument against the FairTax: http://www.americanthinker.com/2010/04/fair_tax_distraction_1.html
Huckabee answering McCain on the FairTax in 2008 presidential debate: http://www.youtube.com/watch?v=Com4TSxI1rA

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  • Mybookwork

    Fairtax is total nonsense. It should be EASY to now have hearings, under oath, about Fairtax — let’s see if there are any.

    Fairtax leaders know their own plan is BS — and if they dare have hearings under oath, they will be exposed for the looney birds they are.

    Fairtax is nonsense because they pretend most government revenue would come FROM a tax on the government. Think I’m kidding? Think again.

    Here is the fine print in their own books :

    “The federal government ITSELF will become a MAJOR taxpayer.” Page 148, The Fairtax Book, by Neal Boortz.

    “Fairtax treats all governments alike —- federal state and local — as individual consumers…..Under our plan, all government purchases of LABOR, supplies, and services, would be subject to the fairtax.”

    Fairtax The Truth Book, page 138.

    It’s not just the books that say they will have government paying most of it’s own taxes — contact Fairtax. org, as I did. Are you REALLY counting on taxing every city government, every state government, on their spending?

    Yes, they are.

    So let’s see them sell that collosal absurdity to the cities and states. Lets see their list of what each state government would have to pay, and what each city in each of those states — where is the LIST of governments, and how much they will have to pay?

    Fairtax says they spend 22 million on “research” — and that every city and state governments will pay huge sales taxes on their spending. Fine— show me the research. Show me how much California will have to pay, how much New York. Show me a complete list.

    See how long this goofy pretend idea sticks around —

    Since Fairtax knows their plan is goofy, they won’t dare have hearings under oath. I just hope some of these Tea Party folks — who do NOT know that Fairtax is a farce — will push to have hearings about it. I would love to be there when they find out, its all BS!.

  • SAVEAMERICA

    The Fairtax is an Amazing Plan that will save America and expose the “crooks” on both sides of the aisle in DC and take away their ability to make crooked money with thier “Lobbiest” friends.
    Don’t believe any of the smears from anyone. Simply read the books. You can’t give an honest opinion or believe anyone if you haven’t read the book.