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Thursday, March 13, 2008

How Fair is the Fair Tax?

There's a proposal called the "Fair Tax". Essentially, the Fair Tax would involve repealing the income tax and replacing it with a national sales tax. The sales tax rate would be chosen so that the government realizes the same level of income afterwards.

After careful analysis, passing the "Fair Tax" reform would be logically equivalent to the US government shutting itself down.

Currently, the vast majority of jobs are corporate W-2 jobs. Taxes are automatically withheld from your paycheck. Tax resistance is very difficult. If I have a W-2 job and purchase goods in the grey market, I have *ALREADY* paid tax on my income.

Under a "fair tax" proposal, if I have a W-2 job, I don't pay any direct income taxes. If I purchase goods in the grey market, I'm *COMPLETELY* avoiding taxation of my income. The "fair tax" would give a HUGE boost to would-be grey market laborers. They could sell their services with pre-tax income instead of post-tax income.

This would effectively destroy the status of Federal Reserve Notes as Work Permission Points. Instead, Federal Reserve Notes would become "Purchase Permission Points".

Without income taxes, ALL the taxes that prevent people from using gold and silver as money would be gone! There's no way the Supreme Leader of Humanity would allow that to happen.

Unfortunately, the "fair tax" is TOO FAIR. It makes it too easy for the average American to escape the clutches of an unfair taxation system and monetary system. I doubt such a reform will ever be passed.

1 comment:

Fairtax-MO said...

The FairTax plan took 10 years of research & analysis, cost $23 million, has over 600,000 grassroots supporters, is endorsed by 80 professional and university economists, and is co-sponsored by 72 Congressmen!

I recommend reading the paper by The Beacon Hill Institute at Suffolk University and Laurence Kotlikoff, Professor of Economics at Boston University (available at It presents a sound methodology for estimating the FairTax base and computing the FairTax rate. Their paper demonstrates that the 23 percent rate specified by the Fair Tax Act (HR 25) is eminently feasible.

Hard economic research by respected scholars on the price of consumer goods reveals that from 20% to 25% (depending on the product) 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 Once these taxes are repealed and replaced with the FairTax, it is likely that market pressure would force retail prices to fall and the cost of consumer goods will be about the same as before, thus not putting retirees at a disadvantage. The proper tax rate has been carefully worked out; 23 cents of every dollar spent does the job of: (1) raising the same amount of federal funds as are raised by the current system, (2) paying the universal rebate, and (3) paying the collection fees to retailers and state governments. Also consider that only 30% of the people pay Income Tax, whereas 100% will pay with the FairTax. This includes the 50 Million visitors to America as well as illegal aliens. Unlike some other proposals, this rate has been independently confirmed by several different, nonpartisan institutions across the country. Detailed calculations are available from

Since the FairTax eliminates income taxes and payroll taxes (Social Security and Medicare), which are costly to collect and end up as "embedded" in the price of everything we buy, the FairTax would eliminate the distorting effect that income and payroll taxes have on the economy. 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 FairTax would do, would likely make the American economy the most desirable place in the world to do business. Therefore, when people see their paychecks are much bigger, because they will not pay Income Tax, Social Security Tax or Medicare Tax coupled with the monthly prebate check, there will not be widespread cheating or tax evasion. By the way, it only takes one to cheat the Income tax system; it takes two to cheat the FairTax system (the retailer and the buyer).

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