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.  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 />

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 rate for the FairTax as proposed under current legislation 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>  

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 necessity items.<ref>http://pubdb3.census.gov/macro/032007/pov/new04_100_01.htm</ref>  

* Enable retirees to receive their full pension, untaxed, until they spend it.   

* Enable retirees to receive their full pension, untaxed, until they spend it.   

* Enable workers to keep their entire paycheck, untaxed, until they spend it.<br />

* Enable workers to keep their entire paycheck, untaxed, until they spend it.<br />

* Proponents believe the removal of the above will save 265 billion dollars a year in compliance costs under the current tax system.<ref>http://www.fairtax.org/site/PageServer?pagename=about_fairtax_four#neutral</ref>

* Proponents believe the removal of the above will save 265 billion dollars a year in compliance costs under the current tax system.<ref>http://www.fairtax.org/site/PageServer?pagename=about_fairtax_four#neutral</ref> and be more practical than the current system, which includes over 60,000 pages of tax code.<ref> 67,204-Page Code Confounds Taxpayers, Yet Congress Sits By, USA Today, http://www.usatoday.com/news/opinion/2007-04-03-edit_N.htm?csp=34 </ref>  

==History==

==History==

== Support==

== Supporters and Opponents==

[[Image:Fairtaxb.jpg|right|thumb|200px| A FairTax bus during a rally at the 2007 [[Republican]] [[Iowa Straw Poll]].]]

[[Image:Fairtaxb.jpg|right|thumb|200px| A FairTax bus during a rally at the 2007 [[Republican]] [[Iowa Straw Poll]].]]

Most of the support for the FairTax comes from the [[Republican Party]] and the [[Libertarian]]s. A significant number of [[Conservative]]s want Republican presidential candidates to support the FairTax, including one Indiana group called ‘Hoosiers for Fair Taxation’<ref>”FairTax Supporters Vent Frustration”, June 2007, http://www.theindychannel.com/news/13651607/detail.html</ref>. <ref>”FairTaxer's continue to “flex their muscles”, July 2007, http://www.fairtax.org/site/PageServer?pagename=news_feature</ref>. Former Arkansas governor and presidential candidate [[Mike Huckabee]] made passage of a national sales tax a part of his platform during his recent bid for office. Former Federal Reserve chief [[Alan Greenspan]] also exhibited support for the FairTax in a recent interview.<ref>Greenspan: Consumption Tax could Help Economy, Fox News, March 2005, http://www.foxnews.com/story/0,2933,149298,00.html</ref>

Most of the support for the FairTax comes from the [[Republican Party]] and the [[Libertarian]]s. A significant number of [[Conservative]]s want Republican presidential candidates to support the FairTax, including one Indiana group called ‘Hoosiers for Fair Taxation’<ref>”FairTax Supporters Vent Frustration”, June 2007, http://www.theindychannel.com/news/13651607/detail.html</ref>. <ref>”FairTaxer's continue to “flex their muscles”, July 2007, http://www.fairtax.org/site/PageServer?pagename=news_feature</ref>. Nevertheless, while the number of the members of Congress who have signed on to the proposal has been growing, it still lacks popular support to be close to passage. Former Arkansas governor and presidential candidate [[Mike Huckabee]] made passage of a national sales tax a part of his platform during his recent bid for office. Former Federal Reserve chief [[Alan Greenspan]] also exhibited support for the FairTax in a recent interview.<ref>Greenspan: Consumption Tax could Help Economy, Fox News, March 2005, http://www.foxnews.com/story/0,2933,149298,00.html</ref>

 

None of the 2008 Democratic Presidential candidates support the tax, in line with the general view of their party, although [[Mike Gravell]] indicated he could support a new kind of system based on consumption rather than income.  [[Rudy Giuliania]], a one time candidate for President on the Republican side, was also hesitant and did not support it.<ref> “Giuliani Jeered For Opposing Flat Tax”, Associated Press, July 2007, http://www.forbes.com/feeds/ap/2007/07/07/ap3891710.html</ref>: "I don't think a Fair Tax is realistic change for America. Our economy is dependent upon the way our tax system operates<ref> “Giuliani Jeered For Opposing Flat Tax”, Associated Press, July 2007, http://www.forbes.com/feeds/ap/2007/07/07/ap3891710.html</ref>  

==Criticism==  

==Criticism==  

*Another problem with the FairTax (although less serious than any constitutional challenge) is that it would fail to close all loopholes. For example, purchases made overseas, although subject to the tax, would be difficult to track. This could lead to the movement of U.S. dollars offshore, accompanied by individual and corporate "hoarding," and a loss of revenue for the government.

*Critics contend that the FairTax would have Constitutional issues. Supporters have painted the tax as an "[[excise]]", but opponents question this view believeing that an excise is a tax that is strictly limited to privileged or luxury goods and activities. They believe this view is confimed in other court rulings.<ref>http://www.conservapedia.com/Excise</ref> and the FairTax, including necessities, would therefore make it a [[Direct tax]], and not allowed under law. In ''Brushaber v. Union Pacific Railroad Co.'' (1916), the Supreme Court ruled that whenever any "[[excise]]" morphs into a tax on items of common right (such as anything necessary to preserve and carry out a normal life) "the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it."

*Further, in an effort to avoid the tax, many people would be inclined to buy only second-hand goods. This would reduce the demand for new goods and affect the growth of the economy.

*The FairTax would fail to close all loopholes. Purchases made overseas, although subject to the tax, would be difficult to track and therefore cheating might occur, much as it does now under the current system.

*Finally, the FairTax shares at least one major flaw with the current income tax system: There is no cap on the rate that might be imposed by Congress. If the FairTax were to become law, the rate might be initially established at 23%, as proponents believe. But nothing in the FairTax proposal prevents Congress from raising the rate to 30%, or even higher. Given the government's proclivity for spending money, an eventual increase in the FairTax rate, were the measure to pass, seems inevitable.<br />

*A greater dependence on second-hand goods might occur, since they are exempt, and therefore alter the spending habits of the U.S. consumer.

==External Links==

==External Links==