In this blog, I address some of the questions asked about the FairTax in the last blog. If you have not read that blog, it may help to understand the content of this one if you do so first.

Question. You said that it would inherently be a flat tax; how does this particular one handle the problem of there being a heavier burden of the lower class since they'd be paying a larger amount of their income (proportionally) than those in the higher classes? (by Skittles)

Aside from the uber-wealthy, who can afford off-shore accounts and teams of accountants and attorneys to lower tax liability, the idea that the lower class currently have a larger tax burden is actually political disinformation. The highest tax burden is on the majority of the upper class and the upper-middle class, since the tax brackets graduate upward as income levels increase. Actually, the lowest 45% of income levels either pay no income taxes or get subsidies from the Federal government. The top 10% pay about 90% of total income taxes.

The FairTax does not add any extra burden to the lower or middle class. The monthly prebate will actually pay every household in the country so that those below the poverty level will, effectively, have negative taxes. The lower middle class will pay very little or none in taxes, after the prebate is taken into account. Since there is no cap on Social Security or Medicare taxation, the wealthy will continue to pay for it past the current level caps, which they do not pay with the current tax system.


Comment. 23% sales tax, sheesh, and I thought Arizona had one of the highest sales tax %s in the nation at about 10%. (by purplepandafish)

Actually, since all the embedded taxes along the production process are removed from the picture, the tax would replace all of those, keeping products the same price as beforehand. For instance, if you buy something now for $100.00, the actual tax-free cost is about $77.00, and taxes are about $23.00. Instead of the taxes being placed during production, distribution, wholesale, and retail, that is all replaced with one lump-sum tax.


Question: I'm surprised more people wouldn't buy into this idea. Are there any cons to it? It seems too good to be true. (by Waffle King)

Since this would be a complete overhaul to the US Federal tax system, there are many unknowns to how it would affect certain aspects of the economy. Many economists, including Nobel laureates, have given their approval to the FairTax, it is inevitable that some unknowns still exist. For that reason, the FairTax legislation allows for adjusting of the 23% level, as needed, to keep revenue steady.


Comment: Less are buying into this program cause their still losing those big bucks that they used to have by outsourcing jobs. Overall this would work but, it needs to be mandated companies that don't follow this should be shut down temporary to keep America from sinking any lower in its economy. (by TehPhoenix)

The FairTax is not in effect yet, but if it was, companies would only be responsible for collecting taxes at the retail level. Thus, there is no incentive for off-shore production. Actually, it creates incentive for in-sourcing work since the US becomes the tax haven. That equates to more jobs and more tax revenue because of more people who have money to spend.


Comment: Very obviously the immediate day-to-day effect would be hurting our wallets, even as the long-term results would bolster growth. The plan on paper ensures more revenue, but some think more people would be inclined to evade the tax. That's a matter of opinion.

Many examples of tax structure changes (i.e. removal of air travel taxes in the early 1990s, etc.) in the past show that it takes just a matter of days for companies to adjust when the hand of the free market steps into place. It may take as long as the next round of products being shipped to the retailer for price adjustments to kick in. That is why the FairTax accounts for this by allowing all retailers to take a tax write-off for all current inventory. This skips the need to wait for the next shipment of products.

Tax evasion is easy with the current system. It just takes one person fudging the numbers on the tax return paperwork. With the FairTax, it takes a group of people or an entire company to cheap. A conspiracy like that is much riskier and much more difficult.


Comment: Federal and state income, along with ss, fica, and medicare takes out at least 100 bucks out of my paycheck. I could do a lot with 100. This system agrees with me because I'm still getting taxed while I earn and spend when I'd rather just deal with it when I spend. at any one time I spend 20 bucks most. 22.60 after taxes? I can deal. (by viperII)

The FairTax will only replace Federal taxes. You will still be responsible for state and local taxes. Maybe that $100 will drop to $30 or $40. If you live in a state with no income taxes like Florida, Texas, Alaska, etc., then you will get to keep that whole $100.


Keep the questions coming!