The FairTax Solution

by: Howard Richman

Every year, Congress makes the personal income tax more complicated and time-consuming. Why not replace our entire tax system with the FairTax, a national sales tax with a prebate? Five huge problems would be addressed:

  1. High Compliance Costs. The income tax code squanders 12-15% of the tax collected in compliance costs. In contrast, the FairTax, if collected like the Value-Added Tax, would cost just 3-5% of the tax collected. You would no longer have to spend several days in April working for the government without pay.
  2. American Competitiveness. One of the greatest benefits of the FairTax comes at our borders. Products that are imported into the United States would pay our sales tax, but products that we export would not. The result would be that American products become instantly more competitive.
  3. Low Savings Rate. Those people and countries that save, become wealthier; those that borrow from abroad to buy consumer baubles go broke. The FairTax taxes wealth consumption, but leaves wealth accumulation tax free.
  4. Disincentives against Work. The FairTax comes with a brilliant progressive method, a prebate which makes it more progressive than the current system. The current tax code, on the other hand, is filled with various traps such that if you make more money than a certain amount, you lose a certain benefit. The FairTax would eliminate all such traps, including ones that keep the poor in poverty.
  5. Political Division. Currently, half of Americans pay income tax, the other half don't. This divides Americans into two groups, those that want lower taxes and those that want to raise other people's taxes. Under the FairTax, The same tax rate would apply to everyone.

Moving to the FairTax is essentially a "no-brainer." A tax-inclusive FairTax rate of about 23-25% could completely replace all of our federal income taxes and payroll taxes.

Disclosure: No positions

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