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Concept
FairTax
Summary
FairTax is a single rate tax proposal which has been proposed as a bill in the United States Congress regularly since 2005 that includes complete dismantling of the Internal Revenue Service. The proposal would eliminate all federal income taxes (including the alternative minimum tax, corporate income taxes, and capital gains taxes), payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes, replacing them with a single consumption tax on retail sales.
The proposed Fair Tax Act (115/115) would apply a tax, once, at the point of purchase on all new goods and services for personal consumption. The proposal also specified a monthly welfare payment for low-income earners to offset the regressive tax impact. This was styled by advocates as an "advance rebate", or "prebate", of tax on purchases up to the poverty level. First introduced into the United States Congress in 1999, a number of congressional committees have heard testimony on the bill; however, it did not move from committee. A campaign in 2005 for the FairTax proposal involved Leo E. Linbeck and the Fairtax.org. Talk radio personality Neal Boortz and Georgia Congressman John Linder published The FairTax Book in 2005 and additional visibility was gained in the 2008 presidential campaign.
As defined in the proposed legislation, the initial sales tax rate is 30% (i.e. a purchase of 30, resulting in a total price to the consumer of $130). Advocates promote this as a 23% tax inclusive rate based on the total amount paid including the tax, which is the method currently used to calculate income tax liability. In subsequent years the rate could adjust annually based on federal receipts in the previous fiscal year. With the rebate taken into consideration, the FairTax would be progressive on consumption, but would still be regressive on income (since consumption as a percentage of income falls at higher income levels). Opponents argue this would accordingly decrease the tax burden on high-income earners and increase it on the lower class earners.
Official source
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