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 Richmans' Trade and Taxes Blog

The FairTax Solution
Howard Richman, 4/12/2010

Every year, Congress makes the personal income tax more complicated and time-consuming. Why not replace our entire tax system with the FairTax, a national sales tax with a prebate? Five huge problems would be addressed:

1. High Compliance Costs. The income tax code squanders 12-15% of the tax collected in compliance costs. In contrast, the FairTax, if collected like the Value-Added Tax, would cost just 3-5% of the tax collected.  You would no longer have to spend several days in April working for the government without pay.

2. American Competitiveness. One of the greatest benefits of the FairTax comes at our borders. Products that are imported into the United States would pay our sales tax but products that we export would not. The result would be that American products become instantly more competitive.

3. Low Savings Rate Those people and countries that save, become wealthier; those that borrow from abroad to buy consumer baubles go broke. The FairTax taxes wealth consumption, but leaves wealth accumulation tax free.

4. Disincentives Against Work. The FairTax comes with a brilliant progressive method, a prebate which makes it more progressive than the current system. The current tax code, on the other hand, is filled with various traps such that if you make more money than a certain amount, you lose a certain benefit. The FairTax would eliminate all such disincentives, including ones that keep the poor in poverty.

5. Political Division. Currently about half of Americans pay income taxes, the other half don't. This divides Americans into two groups, those that want lower taxes and those that want to raise other people's taxes. Under the FairTax, The same tax rate would apply to everyone.

Moving to the FairTax is essentially a "no-brainer." A tax-inclusive FairTax rate of about 23-25% could completely replace all of our federal income taxes and payroll taxes.

Comment by david shipp, 4/14/2010:

Replacing the IRS and current income tax system with a sales tax of the same amount average Citizens now pay for Just the income tax,(23-25% ) is the only way we will get out of this recession and not reach a full blown depression.  From Ken Hoagland; Our tax system is exhibit number one, for all to see, of what has gone wrong with our government. Fundamental reform ideas ranging from the FairTax, a simple and fair national retail consumption tax to the Flat Tax, Steve Forbes’ idea for far simpler and less expensive tax system require both citizen anger at being so obviously fleeced and the will to take this government back from self-serving aristocrats. That tax rebellion is now under way in the nascent but powerful stirrings of the Online Tax Revolt, which brings together all those Flat Taxers, FairTaxers and Reagan tax cutters who believe that public policy should actually serve the public.