21 Facts About FairTax

FairTax was a single rate tax proposal in 2005,2008 and 2009 in the United States that includes complete dismantling of the Internal Revenue Service.

The FairTax legislation has been introduced in the House by Georgia Republicans John Linder and Rob Woodall, while being introduced in the Senate by Georgia Republican Saxby Chambliss.

The FairTax received visibility in the 2008 presidential election on the issue of taxes and the IRS, with several candidates supporting the bill.

The lowest effective tax rate under the FairTax could be negative due to the rebate for households with annual spending amounts below poverty level spending for a specified household size.

Key question surrounding the FairTax is whether the tax has the ability to be revenue-neutral; that is, whether the tax would result in an increase or reduction in overall federal tax revenues.

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FairTax's effect on the distribution of taxation or tax incidence is a point of dispute.

Economist Laurence Kotlikoff states that the FairTax could make the tax system much more progressive and generationally equitable, and argues that taxing consumption is effectively the same as taxing wages plus taxing wealth.

The Beacon Hill Institute reported that the FairTax would make the federal tax system more progressive and would benefit the average individual in almost all expenditures deciles.

The FairTax would be tax-free on mortgage interest and donations, but some lawmakers have concerns about losing tax incentives on home ownership and charitable contributions.

Proponents state that because the FairTax eliminates corporate income taxes and is automatically border adjustable, the competitive tax advantage of foreign producers would be eliminated, immediately boosting US competitiveness overseas and at home.

The Wall Street Journal columnist James Taranto states the FairTax is unsuited to take advantage of supply-side effects and would create a powerful disincentive to spend money.

John Linder states an estimated $11 trillion is held in foreign accounts, which he states would be repatriated back to US banks if the FairTax were enacted, becoming available to US capital markets, bringing down interest rates, and otherwise promoting economic growth in the United States.

FairTax would be tax free on mortgage interest up to the federal borrowing rate for like-term instruments as determined by the Treasury, but since savings, education, and other investments would be tax free under the plan, the FairTax could decrease the incentive to spend more on homes.

An analysis in 2008 by the Baker Institute For Public Policy concluded that the FairTax would have significant transitional issues for the housing sector since the investment would no longer be tax-favored.

Advocates argue the FairTax would provide an incentive for illegal immigrants to legalize as they would otherwise not receive the rebate.

Proponents believe that the FairTax would have positive effects on civil liberties that are sometimes charged against the income tax system, such as social inequality, economic inequality, financial privacy, self-incrimination, unreasonable search and seizure, burden of proof, and due process.

Opponents of the FairTax argue that imposing a national retail sales tax would drive transactions underground and create a vast underground economy.

Additionally, the FairTax legislation has several fines and penalties for non-compliance, and authorizes a mechanism for reporting tax cheats to obtain a reward.

Creation of the FairTax began with a group of businessmen from Houston, Texas, who initially financed what has become the political advocacy group Americans For Fair Taxation, which has grown into a large tax reform movement.

Boortz's book entitled The FairTax Book, explains the proposal and spent time atop The New York Times Best Seller list.

The FairTax received additional visibility as one of the issues in the 2008 presidential election.