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
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.
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