Frequently Asked Questions

We cannot tax our way out of this deficit. How does the FairTax help?
Growing on the minds of many Americans, the ever increasing deficit is becoming a huge issue for the country. Even if we taxed incomes at 100% for those making over $100,000 it would not even pay this years deficit spending...we need a new plan.
The FairTax (a 23% national retail sales tax) is revenue neutral, thus it funds the government at its current level...so current spending rates are covered without having to cut any services.
Social security and Medicare are fully funded under this plan, so un funded liabilities are also addressed.
Under the FairTax the economy can grow tax free and thus businesses can create more jobs and thus unemployment will decrease (you'd have to hide not to be able to get a job in this kind of economy)...so in the long run people have more money and thus consumption increases.
Revenues to the government increase, so if we can get a hold on spending we can add the increasing revenue to the deficit and lower the national debt.
Understand however that the FairTax does not directly address anything other than the replacement of the way the federal government generates revenue, but indirectly it will increase revenue without hurting the poor, without over taxing the middle class and the wealthy see an increase in their tax rate but this does not hurt their productivity so the economy is not affected.
 
How can you be for a tax plan that would hurt the poor?
  We get this question and point in opposition to the FairTax a lot and the simple answers is, we're not!
The FairTax is progressive, not regressive like a standard sales tax.
The 'prebate' is what accomplishes this but un taxing everyone up to the poverty level.
The following graph shows the progressive tax rates based on your income and if you spent 100% of it.
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Full details on the prebate can be found in 'The Prebate Explained'
 
What is the different between a flat tax and the Fair Tax?
I refer to the flat tax as 'A' flat tax. There is no national movement for a flat tax, it's just an idea.
'The' FairTax is a plan, its a bill and its in congress.
A flat tax would remove the scale of income tax rates depending on the amount you make. Everyone would pay the same percentage of their income. If you make more you pay the same percentage...just a higher amount. You'll still pay all the other taxes (including embedded taxes) so nothing changes except a few numbers.
The FairTax ....everyone pays one tax at one rate at one time....that's it.
Under the FairTax there are no taxes on productivity or earnings....just on consumption.
Yes a flat tax is better than the current system....but the FairTax is so much better than a flat tax because it returns all on your earnings to you and only you decide when to pay taxes and how much.
So if we're going to reform the tax system....let's do it right the first time!!
Even Steve Forbes who promotes a flat tax has said the FairTax is much better.
Many politicians are saying they support 'a fair tax', but beware because that all depends on their definition of 'fair'. Unless they say they are for 'The FairTax', then they are not talking about the same bill.
 
Why do some people say it'll be 30% yet FairTaxer's say 23%?
It's just mathematics. If you have a loaf of bread that costs $1.00 and remove the embedded taxes (the taxes previously paid on labor and materials to bring it to the shelf) then it'll cost about $0.77.
The FairTax is inclusive so 23% of the final $1.00 price tag is $0.23. This is how the payroll taxes are calculated.
However if you calculate it exclusively then $0.23 of that $0.77 is 30%.
The loaf of bread still costs the same amount, it's just using the higher rate for calculating. Beware because many people use the 30% rate to scare people when in fact there is no difference in the end.
 
If the FairTax is so great, why aren't politicians clammering to support the bill?
Two words 'Social Engineering'. The power of the tax code gives Washington the power over what we do and how we do it.
When the cigarette tax was raised did you call Washington to complain? I didn't ...I don't smoke. I'm guessing many others who didn't smoke didn't either. So they've just raised taxes on one segment of the people without upsetting the masses.
The same goes for those making over $250,000, soda drinkers, gun enthusiasts etc....they raise taxes of segments of the populous to raise the same amount of revenue without upsetting everyone.
The FairTax would take this enormous power away from government and return it to we the people so that we control our money and how much we give to government. Those who co-sponsor the bill either want what's best for the people or fear being replaced.
 
Won't a consumption tax hit the poor people most?
Yes that is correct, but The FairTax is not a straight consumption tax.
Study after study show that any tax on consumption would effect the poor most of all. The creators of the FairTax took this into account and thus was born 'The Prebate'. No American household will pay taxes up to the federal poverty level.
So while a consumption tax will effect the poor, they can continue to live tax free unless they want to buy more goods in which case they either buy new and pay taxes or buy used and pay no taxes. But take into account they are also taking home their whole pay check on top of this.
 
Why do you say 'people take home their whole pay check' when other things get taken out?
  This is a great question as everyone's paycheck is a little different.
In some states there are state income taxes so state taxes will be taken out until the state reforms their own tax code. However all other items taken out are at the request of the worker. Benefits, 401k, additional insurance etc...so while other items are taken out...they are at the control of you the wage earner.
As for state income taxes ....these are calculated on federal tax tables....and once they don't exist changes at the state level will have to happen.
State level FairTax plans are already in the works for some states.
 
The problem is the size of government, we need to address the size of government first!!
  While not a question, it is on many many people's minds. Yes the size and cost of government is a huge issue for many, but how do you reduce the size of it?
Answer....cut them off at the source....our paychecks. Why do you think most people don't stand up and say 'enough' with taxes? Because they never see them. The money is gone before we see it, why? Because if there was no withholding and we all had to pay out of pocket after we cashed our checks....this would happen overnight!!
Why do you think those paying taxes file April 15th at midnight and those getting money back file in January?
Under the FairTax we'd all see what we pay, it would come out of pocket and if government tries to raise the rate ....EVERYONE would see it (not just smokers, soda drinkers etc). We'd still need to hold government accountable...but we'd have the power to pay taxes as and when we choose. We would have the power...not politicians. So passing the FairTax not only gives us the power of our money back, it also wakes everyone up to the cost of government.
 
What is the 'underground economy' I hear being talked about?
  The underground economy is the economy that goes on all around us, but does not comply with the federal tax code.
Drug dealers, pimps, prostitutes etc who make money yet pay no taxes on that income.
But most of these people drive flashy cars, have nice clothes and fancy homes right?
Let's move forward and look at these people under the FairTax. They bought the flashy cars, houses and clothes and paid the FairTax on every item without being able to avoid it (unless the business was also breaking the law. Would a high end clothing store or car dealership risk their business for one sale?)
Add on top of this illegal aliens ...workers who are paid cash under the table are also not paying into the system. This is the underground economy!
In addition (while we don't call them part of the 'underground economy') those who pay their taxes but make honest mistakes and don't pay enough...this accounts for billions of dollars every year.
Call the IRS 5 times with the same question, you'll get 5 different answers.
The current tax code makes criminals out of honest Americans.
 
I run a small business and adding a 23% sales tax on top of my prices would price me out of the market. I cannot support this!
  We understand the implications for businesses charging a 23% tax....but you need to look at the larger picture for it to make sense.
You will no longer be paying any taxes to run your business, this includes taxes on labor (employment and self employment taxes), materials as well as the taxes paid on labor and materials the previous company you bought from had to pay.
Economic studies show this can be up to 25% of the cost in some cases.
You will also be receiving the prebate each month as an individual for the essentials up to the poverty level. Your business decisions will be based on increasing profits and not tax implications and there will no longer be endless amounts of tax forms to fill out and thus time wasted. You'll fill out one form each month and that's it. Try the FairTax Calculator to get an idea.
 
What do economists think?
  I'll let them speak for themselves.
Economists who back The FairTax
 
Why aren't more Democrats onboard with the FairTax?
  The FairTax is a non-partisan bill that would benefit people of all walks of life here in America and thus should draw support from both political parties. However we are not 100% sure why the majority of democrats have not co-sponsored the bill.
Letter to President Bush with regards to tax reform/simplification - Link expired
Letter to President Bush with regards to tax reform/simplification - Same letter hosted on this website
Oklahoma FairTax's mission is to educate everyone on the FairTax and dispel the myth that this is a Republican only bill and would hurt the poor, these are simply not true.
 
Where did the FairTax come from?
  Americans for Fair Taxation (AFFT) was founded in 1994 by three Houston businessmen, Jack Trotter, Robert C. McNair, Bob McNair, and Leo Linbeck, who each pledged $1.5 million as seed money to hire tax experts to identify what they perceived as faults with the current tax system, to determine what American citizens would like to see in tax reform, and then to design the best system of taxation.The three went on to raise an additional $17 million to fund focus groups with citizens around the country and tax policy studies.

Some of the experts funded include:

  • Professors David Burton and Dan Mastromarco, University of Maryland and The Argus Group
  • Lawrence Kotlikoff, Boston University
  • Stephen Moore, The CATO Institute
  • Professor Dale Jorgenson, Harvard University
  • Bill Beach (economist), The Heritage Foundation
  • Jim Poteba, The National Bureau of Economic Research
  • Professor George Zodrow, Rice University and , The Baker Institute for Public Policy
  • Professor Joseph Kahn, Massachusettes Institute of Technology

   
More questions will be added over time.
Please 'Contact Us' with any questions you'd like addressed.

 

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Search the 'Library of Congress' and track the progress of HR.25 The FairTax