Thumbnail sketch of the FairTax
a comprehensive plan to replace income and payroll
The FairTax proposal is a comprehensive plan to replace
federal income and payroll taxes, including personal, gift,
estate, capital gains, alternative minimum, Social
Security/Medicare, self-employment, and corporate taxes.
The FairTax proposal integrates such features as a
progressive national retail sales tax, dollar-for-dollar
revenue replacement, and a rebate to ensure that no
American pays such federal taxes up to the poverty level.
Included in the FairTax plan is the repeal of the 16th
Amendment to the Constitution. The FairTax allows
Americans to keep 100 percent of their paychecks (minus any
state income taxes), ends corporate taxes and compliance
costs hidden in the retail cost of goods and services, and
fully funds the federal government while fulfilling the
promise of Social Security and Medicare.
Americans take home their whole
Not only do more Americans have jobs, but they also take
home 100 percent of their paychecks (except where state
income taxes apply). No federal income taxes or payroll
taxes are withheld from paychecks, pensions, or Social
No federal sales tax up to the poverty level means progressivity
like today's tax system.
To ensure no American pays tax on necessities, the
FairTax plan provides a prepaid, monthly rebate (prebate)
for every registered household to cover the consumption tax
spent on necessities up to the federal poverty level.
This, along with several other features, is how the FairTax
completely untaxes the poor, lowers the tax burden on most,
while making the overall rate progressive. However, the
FairTax is progressive based on lifestyle/spending choices,
rather than simply punishing those taxpayers who are
successful. Do you see how much freer life is with the
FairTax instead of the income tax?
No tax on used goods. The amount you pay to fund the government
is totally visible.
With the FairTax you are only taxed once on any good or
service, the sales tax is charged just as state sales taxes
are today. If you choose to buy used goods - used
car, used home, used appliances - you do not pay the
FairTax. If, as a business owner or farmer, you buy
something for strictly business purposes (not for personal
consumption), you pay no consumption tax. When you decide
what to buy and how much to spend, you see exactly how much
you are contributing to the government with each
Retail prices no longer hide corporate taxes or their compliance
costs, which drive up costs for those who can least, afford to pay.
Did you know that hidden income taxes and the cost of complying
with them currently make up 20 percent or more percent of all
retail prices? It's true. According to Dr. Dale Jorgenson of Harvard
University, hidden income taxes are passed on to the consumer in
the form of higher prices - from an average 22 percent on goods
to an average 25 percent on services - for everything you buy. If
competition does not allow prices to rise, corporations lower labor
costs, again hurting those who can least afford to lose their jobs.
Finally, if prices are as high as competition allows and labor costs
are as low as practical, profits/dividends to shareholders are driven
down, thereby hurting retirement savings for moms-and-pops and pension
funds invested in Corporate America. With the FairTax, the sham
of corporate taxation ends, competition drives prices down, more
people in America have jobs, and retirement/pension funds see improved
The income tax exports our jobs, rather
than our products. The FairTax brings jobs home.
Most importantly, the FairTax does not burden U.S.
exports as they are with the current income tax. So the
FairTax allows U.S. exports to sell overseas for prices 22
percent lower, on average, than they do now, with similar
profit margins. Lower prices sharply increase demand for
U.S. exports, thereby increasing job creation in
U.S.manufacturing sectors. At home, imports are subject to
the same FairTax rate as domestically produced goods. Not
only does the FairTax put U.S. products sold here on the
same tax footing as foreign imports, but the dramatic
lowering of compliance costs in comparison to other
countries' value-added taxes also gives U.S. products a
definitive pricing advantage which foreign tax systems
The FairTax strategy is revenue neutrality:
Neither raise nor lower taxes so consumer costs remain stable.
The FairTax pays for all current government operations,
including Social Security and Medicare. Government
revenues are more stable and predictable than with the
federal income tax because consumption is a more constant
revenue base than is income.
If you were in a 23-percent income tax bracket, the federal government
would take $23 out of your paycheck for every $100 you made. With
the FairTax, if the federal government gets $23 out of every $100
spent in America, the same total revenue is delivered to the federal
government. This is revenue neutrality. So, instead of paycheck-earning
Americans paying 7.65 percent of their paychecks in Social Security/Medicare
payroll taxes, plus an average of 18 percent of their paychecks in
federal income tax, for a total of about 25.65 percent, consumers
in America pay only $23 out of every $100. Or about 30 percent at
the cash register when they elect to spend on new goods or
services for their own personal consumption. And this tax is collected
only on spending above the federal poverty level, providing important
Tax criminals - don't make criminals out of honest taxpayers.
Today, the IRS will admit to 25 percent non-compliance
with the code. FairTax.org will be generous and simply
take the position that this is likely a conservative
estimate of the underground economy. However, this does
not take into account the criminal/drug/porn economy, which
equally conservative estimates put at one trillion dollars
of untaxed activity. The FairTax will tax this -
criminals love to flash that cash at retail - while
continuing to provide the federal penalties so effective in
bringing such miscreants to justice. The substantial
decrease in points of compliance - from every wage earner,
investor, and retiree, down to only retailers - also allows
enforcement to concentrate on following the money to
criminal activity, rather than making potential criminals
out of every taxpayer struggling to decipher the current
What is Americans For Fair Taxation?
Americans For Fair Taxation (FairTax.org) is a
non-profit, non-partisan, grassroots organization dedicated
to replacing the current tax systems. The organization has
hundreds of thousands of members and volunteers
nationwide. Its strategy supports sound economic research,
education of citizens and community leaders, and grassroots
mobilization efforts. For more information visit the web
page: www.fairtax.org or call