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Fair Tax - What Is The FairTax Act Law?

Updated on February 5, 2010

Fair Taxation with Representation?

Fair Tax Act

You might be wondering who is behind The Fair Tax Act. Is it the crazy left wing liberals? Maybe it's the wild eyed extremists on the right? Or is it those loony libertarians? However, supporters of the Fair Tax Act (H.R. 25) transcend all party lines.

Moreover, the Fair Tax supporters don't fit any predetermined mold. They come from all walks of life, rich, poor, upper class, and middle class. No, it's pretty hard to peg Fair Tax supporters. Therefore, just like the Boston Tea party protesters, they represent a broad cross section of America. They are liberal, conservative, libertarian, and everything else in between. Moreover, it is an American cause and believe it or not, it is not about politics at all. It's about taking back control of our government, and returning power back to the people, where it belongs in the first place. That is why I believe that the “Fair Tax Act” is better taxation with proper representation.

What Is The Fair Tax Act (HR 25, S 296) you might ask?

It Is the nonpartisan legislation. It 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. (, 2009a)

Therefore, the Fair Tax is a single-rate of 23% of federal retail sales tax collected only once, at the final point of purchase of new goods and services for personal consumption only (it is the final sellable product). Furthermore, all used items, and business-to-business purchases for the production of goods and services are not taxed. A rebate makes the effective rate progressive. Moreover,

The Fair Tax Act (H.R. 25) has several objectives

Including tax simplification and economic growth. It abolishes the Internal Revenue Service (IRS), the federal agency that currently collects and administers federal taxes, and shifts the vast majority of these responsibilities to the individual state sales tax authorities.

Adopting such a fundamental reform would have implications for the entire process of collecting and administering taxes in the United States. The roles and responsibilities of governments at all levels, businesses, and individuals would change under the FairTax.

Individuals would no longer file tax returns, businesses would be responsible for collecting and remitting the tax to the states, and state governments would process the revenue collections and forward the appropriate revenue amount to the federal government. (Tuerck, David G, 2007)

However, under our current Income Tax System, an individual can make an undisclosed amount of unreported income and not report it on their tax return. Moreover, this act of tax evasion is responsible for sucking billions and trillions of revenue away from our national treasury on an annual basis.

America has two economies: First, there's the legitimate economy, in which craftsmen are licensed and employers and employees pay taxes. Then there's the fast-growing underground economy, where millions of nannies, construction workers, landscapers and others are paid off the books, their incomes largely untaxed. The best guess as to the size of the output of this shadow economy is about $970 billion, or nearly 9% that of the real economy. It could soon pass $1 trillion. (McTague, Jim. 2005)

Furthermore, this willful act of tax evasion, which is wide spread on all economic levels, would come to a complete halt should the FairTax Act be implemented. Therefore, this act ensures Social Security and Medicare funding for future generations to enjoy. However, this security that might not be around by the time you or I retire under the current economic deficit. Furthermore, there would not be any more tax shelters for the rich to get richer and the poor to stay poorer. Moreover, the Fair Tax Act closes all loopholes and brings fairness to taxation. Therefore, the Act brings with it transparency and accountability to the tax policy.

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. (, 2009a)

Payroll Taxes

The Fair Tax 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 neutrality, and, through companion legislation, the repeal of the 16th Amendment. (, 2009a)

Therefore, This Act will allow workers to keep their entire paychecks, retirees to keep their entire pensions and will provide refunds in advance for the tax on purchases of basic necessities. However, under the 16th Amendment we impose taxes on wages, social security, pensions, and offer only the Welfare system to assist with basic needs for low income families. Therefore, the Probate works like this:

All valid Social Security cardholders who are U.S. residents receive a monthly prebate equivalent to the Fair Tax paid on essential goods and services, also known as the poverty level expenditures. The prebate is paid in advance, in equal installments each month. The size of the prebate is determined by the Department of Health & Human Services’ poverty level guideline multiplied by the tax rate. This is a well-accepted, long-used poverty-level calculation that includes food, clothing, shelter, transportation, medical care, etc. (, 2009c)

2009 Fair Tax Prebate Schedule

How The Fair Tax is collected

By retail businesses from the consumer, just as the current sales tax that is currently collected. However, the Fair Tax is simply an additional line on the current sales tax reporting form. Firstly, retailers collect the tax and send it to the state taxing authority. Secondly, all businesses that are serving as collection agents receive a fee for collection, and the states also receive a collection fee. Thirdly, the tax revenues from the states are then sent to the U.S. Treasury.

Under the FairTax Plan, poor people pay no net Fair Tax at all up to the poverty level! Every household receives a rebate that is equal to the Fair Tax paid on essential goods and services, and wage earners are no longer subject to the most regressive and burdensome tax of all, the payroll tax. Those spending at twice the poverty level pay a tax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. (, 2009c)

However, our present income tax system is one of the reasons that people are finding it so hard to get ahead these days. Furthermore, this is also one of the reasons that our next generation will not have a standard of living as high as ours. Therefore, our current system of taxation is holding us back and making it to impossible to improve our future generation’s standard of living.

Imagine The FairTax -

Fair Tax Dramatically Improves Economic Growth

Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families.

Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow, thus harming low-income people the most.

In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free. (, 2009c)

Moreover, it is making it difficult for our businesses to compete with the international markets and it is wasting valuable resources by forcing us to complying with needless paperwork.

The current U.S. income tax code is widely regarded by just about everyone as unfair, complex, wasteful, confusing, and costly. Businesses and other organizations spend more than six billion hours each year complying with the federal tax code. Estimated compliance costs conservatively top $225 billion annually—costs that are ultimately embedded in retail prices paid by consumers.

The Internal Revenue Code cannot simply be "fixed," which is amply demonstrated by more than 35 years of attempted tax code reform, each round resulting in yet more complexity and unrelenting, page-after-page, mind-numbing verbiage (now exceeding 54,000 pages containing more than 2.8 million words). (Vance, Laurence M, 2005)

There is only one word to describe the fact that the federal government now spends almost $3 trillion a year: obscene. At least 90 percent of what the federal government spends is unconstitutional, wasteful, or against the limited-government principles of the Founders. The only thing the Fair Tax does is change the way the state confiscates the wealth of its citizens. As Congressman Ron Paul says: "The real issue is total spending by government, not tax reform." (Vance, Laurence M, 2005)

Fair Tax Benefits

Therefore, we as American’s can do better and we must. However, some individuals would like taxes to completely disappear.

Because the Fair Tax is a consumption tax, Murray Rothbard's conclusion about consumption taxes is apropos:

The consumption tax, on the other hand, can only be regarded as a payment for permission-to-live. It implies that a man will not be allowed to advance or even sustain his own life, unless he pays, off the top, a fee to the State for permission to do so. The consumption tax does not strike me, in its philosophical implications, as one whit more noble, or less presumptuous, than the income tax.

The Fair Tax does nothing to tame the federal leviathan. The solution is nothing less than a drastic reduction or wholesale elimination of its revenue source. What is fair about allowing the government to confiscate 23 percent of the value of every new good and service? Fair Tax proponents may call it necessary legislation, but I call it highway robbery. (Vance, Laurence M, 2005)

However, what individuals like the above fail to understand is that,

Research on the price of consumer goods reveals that up to 20% of all prices today represent hidden income taxes and payroll taxes. Once these taxes are repealed and replaced with the FairTax, it is likely that market pressure would force retail prices to fall.

Eliminating embedded taxes will also do something else -- it will remove significant price disadvantages suffered by American producers competing with tax-free imports. Eliminating corporate income taxes and capital gains taxes, which the Fair Tax would do, would likely make the American economy the most desirable place in the world to do business.

Another benefit of the Fair Tax is that, unlike other sales taxes, it would not hit the poorest Americans the hardest. The Fair Tax proposal calls for sending every American a "prebate" check to offset the cost of the national sales taxes paid by those living in poverty. This feature would effectively exempt those living below the poverty line from paying taxes to the federal government, and provide all taxpayers with a reimbursement of a portion of taxes paid.

The Fair Tax rate is 23% on retail sales when calculated "inclusively," as are income tax rates. It will, in a fairer, more transparent and less-expensive way, raise the same amount of money the federal government now collects through the income and payroll taxes. Because it would be levied on consumption at the final point of sale, instead of on earnings, it would dramatically expand the tax base. The Fair Tax would collect revenue from the underground economy. Even illegal immigrants and the 40 million foreign tourists who visit the U.S. each year would pay it. (Linbeck, Leo, 2007)

FairTax Greatest Benefit

The distributional effects of the Fair Tax have been extensively studied, and although the proposal has distinct advantages for investors and wealth creation across the income spectrum, the greatest benefit of the Fair Tax is to low- and moderate-income Americans. The effect of eliminating regressive payroll taxes is commonly overlooked when analyzing the Fair Tax, but it would have a very significant impact, as these taxes represent the single largest tax burden on these income earners.

Significantly, the Fair Tax eliminates all loopholes, gimmicks, exemptions and deductions from the federal tax system. Under the Fair Tax, Congress would no longer be able to reward friends, punish enemies or manipulate behavior through the tax code. The Fair Tax would also eliminate the lucrative tax lobbying practices that represent more than 50% of all lobby dollars spent annually in Washington.

It's no surprise, then, to see that vested interests have argued against the Fair Tax and in favor of keeping the mortgage interest deduction. But wouldn't it be better for everyone to stop the IRS from withholding from paychecks; to see the price of new homes -- and all other goods -- drop by removing embedded costs; and to have interest rates fall as the savings rate increases? Is it really in everyone's interests to keep the income-tax system so that one-third of taxpayers can go on deducting a portion of their mortgage interest from their federal taxes?

There have been many tax reform proposals over the years, but most of them simply call for reforming around the margins of the existing tax system. The President's Advisory Panel on Tax Reform was assembled by the Bush administration and concluded its work a few years ago. Instead of seriously looking at the Fair Tax, the panel looked at a very different type of consumption tax, riddled with exemptions, and then declared that it would be too expensive and that the rate would have to be far higher than the Fair Tax rate.

In Conclusion

Politically, the Fair Tax will only become law once enough citizens demand that it be enacted, overcoming the self-interest that members of Congress and others have in holding onto the current system. It is debatable whether a modern, citizen-led tax revolution is possible. But the growing popularity (even among presidential candidates) of the Fair Tax suggests that another Boston Tea Party may be at hand. (Linbeck, Leo, 2007)

I want to see this country return to the principles of personal freedom, liberty, and the pursuit of happiness. Therefore,

Do women have the right to vote in this country? Did we pass Prohibition? Did we repeal it? Do Civil Rights guarantee freedoms far beyond the lunch counter and mass transit? Do free-market economies dominate Eastern Europe, peoples once under the boot of communism?

All these were grassroots efforts that effected significant changes in our nation and the world. Is the current income tax system any less a yoke around the necks of otherwise free peoples? We think not.

Passing the original 16th Amendment and the income tax wasn’t easy and repealing the income tax and the 16th Amendment won’t be easy either.

That is why the Fair Tax has undertaken to build a grassroots movement and grassroots alliances to support the effort. When the Fair Tax generates unprecedented economic growth in the first few months of its effective date, citizens nationwide will make it clear to Washington that they want to make the change permanent. But this will only happen when the American people rally behind the effort, throw off the yoke, and demand rectification of 90 years of wrongs done by the income tax. (, 2009b)

Moreover, our great “America” was founded upon these principals and somehow we have allowed our government to slowly take away our freedom. Furthermore, it is time that the sleepers awaken to a new dawn and we demand our freedom from taxation without caring representation. Therefore, that is why I believe that the “Fair Tax Act” is better taxation with proper representation.

A Final Word

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Article(C)2009 - 2010 cluense, all rights reserved. Cluense creates articles and posts online. She creates articles on, accounting, entrepreneur, political issues, small business, society, relationships, taxes, work from home businesses, and Tutorials. She also has a strong passion for writing.


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    • profile image


      9 years ago

      I support The Fair Tax - it just makes sense. I think there may be some tweeking, it seems simple and if it remains simple, I think it will work. For those of you who question The Fair Tax, the questions you raise are NOTHING like the questions of our current tax system - the IRS, a system VERY VERY FEW understand and volumes of tax codes to keep you in the dark. Our lawmakers want to keep us in the dark - they want the IRS to remain our tax code because it is a tool they use to govern us and to keep us in line.

    • profile image


      9 years ago

      I was a big fan of Fairtax.

      Fairtax promised us great sounding things - only people pay taxes. No double talk! No forms! No corporate taxes!

      All those people who didn't pay taxes before, like drug dealers, will pay.

      Sounded absolutely great!

      Mostly, workers who did the actual work would be taxed the same as the others, who could manipulate the tax system.

      I love it. I really loved it.

      But then I read their fine print. Some things didn't add up. I'm no expert, so I just asked questions.

      I got a very different view of Fairtax.

      Fairtax promised it had no fine print! No bull. It was transparent and simple.

      But I found plenty of fine print, and even more bull.

      It was kinda like you hear this great sounding sales pitch, and then go backstage, and hear them saying a totally different thing.

      I have read everything I could find on Fairtax --the books of course, but also the "research". I have read things for and against it.

      But it was one very odd sentence in one book that made me a skeptic. And then when I asked Fairtax leaders about that - I knew. I knew it sounds great, but they are not serious.

      It's not like they are trying to cheat anyone. That's not it at all. No one in this Fairtax movement is out to screw anyone over.

      Fairtax leaders -- those who wrote the fine print ---know it's not a real tax plan. Its a great sounding plan, but the fine print is so, well, goofy, that they have no intention of really passing it.

      And I will show you why.

      In one sentence, Fairtax seemed to have a massive second tax system. This one sentence indicated a "two tier" system that would bring in 600-900 billion dollars.

      Which might sound great -- but it was totally contrary to what we were told. A two tier tax system?

      What happened to the "No BULL" stuff? What happened to the "no fine print" stuff"

      What happened to the "only people pay taxes" stuff?

      So I asked Fairtax leaders about it. Official Fairtax tax leaders. I asked them about this second tier --a massive tax on city and state governmment. What about this second tier? Here is the sentence:

      "Under our plan, all city and state governments will pay to the federal government a tax on all their spending -- on all their purchases, on services and goods, including labor (wages)." Fairtax Answer Book, page 138

      A tax on all city governments? A tax on all state governments? On all their purchases? On their labor expense?

      This was odd -real odd.

      So I asked Fairtax spokesman about it. In fact, I contacted several.

      Their answers, frankly, were goofy. Oh yes, we tax city and state government -- why not?

      Well, because you only mention it in ONE sentence, that is why not. Because city and states don't have a trillion dollars to give you. Because no court and no Congress is going to support a massive hidden tax on city and state governments.

      Really -- Fairtax is essentially a massive tax on city and state government.

      Oh yes, it's also a tax on people. But that would not be nearly enough revenue. That is why they had to count this money they pretend to get from city and state governments.

      Which might be fine -- if they had said so up front.

      If city and state governments knew about it. Fine. If they mentioned this in their speeches, fine.

      If they had mentioned it in their videos, fine.

      If city and state government officials knew about it - fine.

      But this is in their fine print.

      Read the "research" from Fairtax. IT's all based on this massive tax being paid!

      They don't mention this tax on city and state government, except in the deep fine print. And you can't tell even if you read it.

      You have to look closely at "their defintion of a person" You have to remember that by "person: they mean "city and state goverments".

      If this was on the level, they would say in the first few sentences -- city and state governments must pay this tax to the federal government.

      And people must pay.

      Where will city and state governments get this money?

      Go see the the Fairtax leaders try to explain away this trillion dollar "two tier" system. I have a web page showing what Fairtax leaders have actually said, or their books have said.

      Google Fairtax fine print. Or go to these web sites.

      I have heard all the arguments how this doesnt matter -- how of course city and state governments should pay it -- I could list 50 excuses they have given.

      But the fact remains -- this is a hidden tax. Fairtax spokesman have admitted they didn't tell city and state governments about this, and told me they have no plans to tell them now!

      Yet this would be almost a trillion dollars that city and state governments would pay!

      Doesn't matter what excuse they make up for WHY they have this tax -- they can't have it.

      City and states would not go along with it. But even more, where would city and states GET the money?

      Remember -- Fairtax said it was a "cruel hoax" to pretend to tax corporations!

      But that is exactly what they are doing. And they know it. They know they have a massive tax that is a cruel hoax.

      No one is going to vote for this in Congress--not even the supporters.

      You can hide this in your books by simply not mentining it. You can hide this in your speeches by not mentioning it.

      But you can't fool everyone forever. Fairtax will have to tell city and state governments about it.

      So it won't pass.

      That is why Fairtax has gone no where. That is why the leaders talk a big game, but don't ask for hearings under oath.

      They don't want a hearing. They don't want FAIRTAX!

      They don't want city and states to pay massive taxes. They know that is crazy and will never happen.


    • cluense profile imageAUTHOR

      Katie Luense 

      9 years ago from Buffalo, NY

      I do not dispute you on any of the above points that you have made. Your facts are true and valid. However, with the Fair Tax Act we will finally receive a much needed tax break and those that have never paid taxes (the evaders)will now have to pay taxes.

      This will help our economy by relieving the tax burden off of the working poor, middle class (If there are any left), and the small businesses that keep this country running. I know that you probably thought I would not approve your comments. However, this country was founded upon free speech! I thank you for your opinion and am enjoying the debate!

    • profile image


      9 years ago

      Who is Leo Linbeck? I see his name on the conclusion. Leo Linbeck is a Texas billionaire and a very wealthy man. Leo Linbeck is the founder and head of Fair I leave this under your conclusion.

    • profile image


      9 years ago

      According to Fair Tax Act-2005, these are the taxes that will be repealed if Fair Tax is enacted: Federal income tax, payroll tax, corporate tax,capital gains tax,self employment tax, gift tax and inheritance tax. Fair Tax will NOT eliminate gas tax (Fed. or state) Fair Tax will be added on. Fair Tax will NOT eliminate any state sales tax. It will be added on. Fair Tax will NOT eliminate any state income tax. Will still have to file before April 15th. No IRS? According to Fair Tax Act-2005, there shall be in the Department of the Treasury a Sales Tax Bureau (IRS with another name). Repeal of 16th ammendment? Requires a separate act of Congress,2/3 vote of each house of Congress, 3/4 rartification of the States. Read: There is no such ting as a Fair Tax-Laurence The truth of the Fair Tax and the people behind it.

    • cluense profile imageAUTHOR

      Katie Luense 

      10 years ago from Buffalo, NY

      Thank you! Please pass this hub on to others!

    • profile image

      Old Poolman 

      10 years ago

      Best explaination of the Fair Tax plan I have ever read. Thanks for doing this.

    • mod2vint profile image


      10 years ago from Sunny Florida

      You May Be Right.

    • cluense profile imageAUTHOR

      Katie Luense 

      10 years ago from Buffalo, NY

      mod2vint, Thanks for stopping by! I think this is going to happen sooner then you think! Why? because after our current administration gets through with us, the fair tax will be the only way to fix our nation! Just my humble opinion!

    • mod2vint profile image


      10 years ago from Sunny Florida

      I think this would be awesome if it happened. But I don't believe it will in my life time.

    • cluense profile imageAUTHOR

      Katie Luense 

      11 years ago from Buffalo, NY

      Me Too! Thanks for stopping by!

    • habee profile image

      Holle Abee 

      11 years ago from Georgia

      GREAT hub! I'm all for the Fair Tax! That's something I like about Mike Huckabee.


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