Changes

Thus, instead of taxing "income", the FairTax would tax expenses. This is known as a consumption tax -- a method for taxing income on the back end, when the money is spent, rather than when it is earned. The estimated rate for the FairTax would be 23 percent<ref> "Embedded Taxes Change Fair Tax Analysis",http://www.roanoke.com/editorials/commentary/wb/wb/xp-51569</ref>, although some critics say it would be closer to 33%.<ref> http://www.factcheck.org/taxes/unspinning_the_fairtax.html</ref><br />

Thus, instead of taxing "income", the FairTax would tax expenses. This is known as a consumption tax -- a method for taxing income on the back end, when the money is spent, rather than when it is earned. In theory this would also allow the government to secure revenue from those who avoid paying taxes such as drug pushers of prostitutes, but who would still need goods and therefore pay under a FairTax system.  The estimated rate for the FairTax would be 23 percent<ref> "Embedded Taxes Change Fair Tax Analysis",http://www.roanoke.com/editorials/commentary/wb/wb/xp-51569</ref>, although some critics say it would be closer to 33%.<ref> http://www.factcheck.org/taxes/unspinning_the_fairtax.html</ref><br />

 

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.  Second-hand goods are not taxed under the current proposal and consumption of necessities, such as food, are offset for the poor based on prebate checks sent from the government to U.S. citizens.  It is estimated that 90% of U.S. households would pay some tax on these items.<ref>http://pubdb3.census.gov/macro/032007/pov/new04_100_01.htm</ref>  

Though frequently advertised by supporters as a "voluntary" tax, this is not entirely true. Consumers can indeed forestall the tax by choosing not to spend money, or by electing to purchase only second-hand goods (which are not taxed under this proposal). However, at some point, all consumers must purchase new goods and services, including various necessities such as health care, food, fuel, phone service, etc., at which point the tax would no longer be "voluntary" but mandatory. To help counter this effect -- and to make the tax more "fair" -- expenses such as those listed would be offset to a certain degree by a "prebate" -- a monthly check issued by the government to each worker. However, given the income level of most Americans, the vast majority of citizens (about 90%<ref>http://pubdb3.census.gov/macro/032007/pov/new04_100_01.htm</ref>) would end up paying some measure of tax on these items, prebate or no. The FairTax would therefore operate in direct conflict with the Constitution, which prohibits Direct taxes (those paid on the necessities of life, or on any [[unalienable right]]) without apportionment. Legal challenges to the tax would probably emerge shortly after its passage and lead to nullification by the U.S. Supreme Court for violating Article I, Section 9. (See Criticism below.)

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