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[[Image:FairTaxRally.jpg|thumb|350px|A pro FairTax rally in Florida]]
[[Image:FairTaxRally.jpg|thumb|350px|A pro FairTax rally in Florida]]
The '''FairTax''' is a tax proposal that would replace all federal [[income tax]]es -- including corporate, gift, estate, capital gains, alternative minimum, [[Social Security]], [[Medicare]], and self employment taxes -- with a federal [[sales tax]]. The tax would be paid on the purchase of all new goods and services, and would be immediately collected at point of sale. <ref> Americans For Fair Taxation, “About the FairTax,” http://www.fairtax.org/site/PageServer?pagename=about_main</ref>
The '''FairTax''' is a tax proposal that would replace all federal [[income tax]]es — including corporate, gift, estate, capital gains, alternative minimum, [[Social Security]], [[Medicare]], and self employment taxes — with a federal national retail [[sales tax]]. The tax would be paid on the purchase of all new goods and services, and would be collected at the 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]] — 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 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>
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 necessity 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>