"The FairTax will not be enforceable and evasion will be rampant"
The truth: More than 80% of all tax returns are eliminated under the FairTax--every individual filing. What remains are retail outlets collecting the FairTax. Of these, 80 percent of all retail sales now occur at large retail chains like Wal-Mart. The point is oversight will still reside under the Treasury Department but the government's responsibility will be over a far smaller "universe" of tax collection points making compliance oversight far less costly and far more effective than the current system which costs $265 billion a year in compliance costs and still comes up $350 billion a year short of what is owed.
Read more information about compliance in the FairTax white paper: FairTax Reduces Complexity, Compliance Costs and Noncompliance.
"The FairTax will not be revenue neutral (i.e. bring in the same revenue as the current system) at 23%"
The truth: The FairTax rate of 23% (when calculated inclusively like income tax rates) has been thoroughly researched to provide all the revenues now collected under both the income tax system and through FICA payroll taxes. Reports otherwise are largely based on the President's Advisory Panel on Tax Reform which declared the rate would have to be much higher. What the Panel failed to make clear in an amazingly shameless sleight-of-hand is that they never studied the FairTax legislation as it exists in pending legislation. They ignored $22 million of FairTax research and, instead, quietly devised their own national consumption tax which they loaded with the exemptions and deductions they felt were "politically realistic". They also failed to calculate the effects of elimination of the FICA tax on annual taxpayer burdens or on the distributional effects of the FairTax across the income spectrum. Upon completion--and after declaring a national consumption tax flawed--they then refused to publish their underlying assumptions.
For more information on this topic, see these research papers.
- Taxing Sales Under the FairTax - What Rate Works?
- A Comparison of the FairTax Base and Rate
- Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation
"The FairTax is not politically viable"
The truth: Great public policy changes do not happen easily. We believe, however, in the promise of the Founding Fathers that this is a nation, "of, by and for the people". In the last year we have seen more Congressional co-sponsors come on board faster than ever before. We have seen five of eight GOP candidates and one Democratic candidate embrace the FairTax. With increased media coverage, as at least one candidate has made this a central plank of his campaign, more and more Americans have come to understand the powerful benefits the FairTax offers the nation. They are, in turn, joining our growing citizen army and are beginning to communicate their wishes to their elected officials. All of this progress is a consequence of the body politic first learning about and then accepting the FairTax. As our ranks grow such pressure will increase on Members of Congress and at some point, the voice of the people will eclipse the voices of the relatively small number of Washingtonians who profit working the income tax system at great cost to the nation. Enactment of the FairTax will require an activist citizenry and a resurgence of what has been too often forgotten--public policy can and should be driven by the public. All that is required is that we all dare to be fair and remind our elected officials that they work for their constituents--not for the narrow self-interests of the tax writing committee, the lucrative tax lobby business or the academicians who have built careers around the complexity of the tax code.
For more information on this topic, see these research papers:
- Tax Administration and Collection Costs
- A Macroeconomic Analysis of the FairTax Proposal
- An Open Letter to the President, the Congress and the American People
- Fiscal Federalism - The National FairTax and the States
"The FairTax is regressive and shifts the tax burden onto lower and middle income people"
The truth: The FairTax actually eliminates and reimburses all federal taxes for those below the poverty line. This is accomplished through the universal prebate and by eliminating the highly regressive FICA payroll tax. Today, low and moderate income Americans pay far more in FICA taxes than income taxes. Those spending at twice the poverty level pay a FairTax of only 11.5 percent -- a rate much lower than the income and payroll tax burden they bear today. Meanwhile, the wealthy pay the 23 percent retail sales tax on their retail purchases.
Under the federal income tax, slow economic growth and recessions have a disproportionately adverse impact on lower-income families. Breadwinners in these families are more likely to lose their jobs, are less likely to have the resources to weather bad economic times, and are more in need of the initial employment opportunities that a dynamic, growing economy provides. Retaining the present tax system makes economic progress needlessly slow and frustrates attempts at upward mobility through hard work and savings, thus harming low-income taxpayers the most.
In contrast, the FairTax dramatically improves economic growth and wage rates for all, but especially for lower-income families and individuals. In addition to receiving the monthly FairTax prebate, these taxpayers are freed from regressive payroll taxes, the federal income tax, and the compliance burdens associated with each. They pay no more business taxes hidden in the price of goods and services, and used goods are tax free.
How can the FairTax generate lower net tax rates for everyone and still pay for the same real government expenditures? The answer is two-fold. Firstly, the tax base is dramatically widened by including consumer spending from the underground economy (estimated at $1.5 trillion annually), and by including illegal immigrants, those who escape their fair share today through loopholes and gimmicks. In addition, 40 million foreign tourists a year will become American taxpayers as consumers here. Secondly, not everyone's average net tax burden falls. For households whose major economic resource is accumulated wealth, the FairTax will deliver a net tax hike compared to the current system.
Consider, for example, your typical billionaire, of which America now has more than 400. These fortunate few are invested primarily in equities on which they pay taxes at a 15 percent rate, whether their income comes in the form of capital gains or dividends. In addition to having the income from their wealth taxed at a low rate, the principal of their wealth is completely untaxed either directly or indirectly. Assuming they and their heirs spend only the income earned on the wealth each year, the tax rate today is 15 percent. In contrast, under the FairTax, the effective tax rate is 23 percent. Hence, the very wealthy will pay more taxes when the FairTax is enacted. In a nutshell, those who spend more will pay more but low, moderate and middle income taxpayers will benefit from the greatest gains in reduced tax liabilities.
For more information on this topic, see Why the FairTax Will Work.