Changes

The '''FairTax''' is a tax proposal that would replace all federal [[income tax]]es &mdash; including corporate, gift, estate, capital gains, alternative minimum, [[Social Security]], [[Medicare]], and self employment taxes &mdash; with a federal national retail [[sales tax]] on personal consumption. The tax would be paid on the purchase of all new goods and services, and would be collected at the final point of sale.<ref> Americans For Fair Taxation, “About the FairTax,” http://www.fairtax.org/site/PageServer?pagename=about_main</ref> Thus, instead of taxing "income", the FairTax would tax spending. This is known as a [[consumption tax]] &mdash; a method for taxing income on the back end, when the money is spent, rather than when it is earned.   

The '''FairTax''' is a tax proposal that would replace all federal [[income tax]]es &mdash; including corporate, gift, estate, capital gains, alternative minimum, [[Social Security]], [[Medicare]], and self employment taxes &mdash; with a federal national retail [[sales tax]] on personal consumption. The tax would be paid on the purchase of all new goods and services, and would be collected at the final point of sale.<ref> Americans For Fair Taxation, “About the FairTax,” http://www.fairtax.org/site/PageServer?pagename=about_main</ref> Thus, instead of taxing "income", the FairTax would tax spending. This is known as a [[consumption tax]] &mdash; a method for taxing income on the back end, when the money is spent, rather than when it is earned.   

A consumption tax would have a positive effect on savings and investment.<ref>{{cite news| url=http://online.wsj.com/article/SB112492381500022421.html| title=A Consumption Tax| work=The Wall Street Journal| last=Auerbach| first=Alan J| date=2005-08-25| accessdate=2008-02-05}}</ref> Supporters state the plan would ease tax compliance, increase economic growth, have incentives for international business to locate in the U.S., and increase U.S. competitiveness in international trade.<ref>{{cite book| first=Neal| last=Boortz| coauthors=Linder, John| year=2006| title=The FairTax Book| edition=Paperback| publisher=Regan Books| isbn=0-06-087549-6}}</ref>  The rate for the FairTax as proposed under current legislation is 23 percent of the total payment including the tax ($23 of every $100 spent in total—calculated similar to income taxes).<ref> "Embedded Taxes Change Fair Tax Analysis",http://www.roanoke.com/editorials/commentary/wb/wb/xp-51569</ref> This would be equivalent to a 30 percent traditional sales tax ($23 on top of every $77 spent—$100 total). Although some critics say it would be higher to be revenue neutral (take in the same amount as the current system).<ref> http://www.factcheck.org/taxes/unspinning_the_fairtax.html</ref>  The effective tax rate for a family household would be variable due to the fixed monthly tax rebates.

A consumption tax would have a positive effect on [[Savings rate|savings]] and [[investment]].<ref>{{cite news| url=http://online.wsj.com/article/SB112492381500022421.html| title=A Consumption Tax| work=The Wall Street Journal| last=Auerbach| first=Alan J| date=2005-08-25| accessdate=2008-02-05}}</ref> Supporters state the plan would ease tax compliance, increase economic growth, have incentives for international business to locate in the U.S., and increase U.S. competitiveness in [[Trading|international trade]].<ref>{{cite book| first=Neal| last=Boortz| coauthors=Linder, John| year=2006| title=The FairTax Book| edition=Paperback| publisher=Regan Books| isbn=0-06-087549-6}}</ref>  The rate for the FairTax as proposed under current legislation is 23 percent of the total payment including the tax ($23 of every $100 spent in total—calculated similar to income taxes).<ref> "Embedded Taxes Change Fair Tax Analysis",http://www.roanoke.com/editorials/commentary/wb/wb/xp-51569</ref> This would be equivalent to a 30 percent traditional sales tax ($23 on top of every $77 spent—$100 total). Although some critics say it would be higher to be revenue neutral (take in the same amount as the current system).<ref> http://www.factcheck.org/taxes/unspinning_the_fairtax.html</ref>  The effective tax rate for a family household would be variable due to the fixed monthly tax rebates.

The proposal includes monthly payments to all family households of lawful U.S. residents as an advance rebate, or 'prebate', of tax on purchases up to the poverty level.  The rebate is meant to eliminate the taxation of household necessities and make the plan progressive. Used goods, exports, and intermediate business transactions would not be taxed, nor would savings, investments, or education tuition expenses as they would be considered an investment (rather than final consumption).  The tax is voluntary to the extent that individual consumers can choose when to increase or decrease their product buying, unlike now, when income taxes are withheld from the paychecks of most workers.   

The proposal includes monthly payments to all family households of lawful U.S. residents as an advance rebate, or 'prebate', of tax on purchases up to the [[poverty level]].  The rebate is meant to eliminate the taxation of household [[necessities]] and make the plan progressive. Used goods, [[exports]], and intermediate business transactions would not be taxed, nor would savings, investments, or [[education]] tuition expenses as they would be considered an investment (rather than final consumption).  The tax is voluntary to the extent that individual consumers can choose when to increase or decrease their product buying, unlike now, when income taxes are [[Withholding|withheld]] from the paychecks of most workers.   

==Proposal==  

==Proposal==