The FairTax plan is the nickname for two bills languishing Congress: H.R. 25 and S. 1025. According to the Americans for Fair Taxation web site, the FairTax plan calls for the following:

• Enables workers to keep their entire paycheck
• Enables retirees to keep their entire pension
• Refunds in advance the tax on purchases of basic necessities
• Allows American products to compete fairly
• Brings transparency and accountability to tax policy
• Ensures Social Security and Medicare funding
• Closes all loopholes and brings fairness to taxation
• Abolishes the IRS

The FairTax plan would place taxation on spending instead of on earning. A worker would actually receive his entire paycheck under this tax plan. The government would gain revenue through a retail sales tax, instead of taking a portion of an individual’s paycheck. Most states already have a sales tax in addition to local income taxes.

Eliminating the IRS
In addition to eliminating the federal income tax for individuals and corporations, it would also eliminate the “death tax” or estate tax and capital gains tax. The Plan also abolishes the IRS and calls for a repeal of the Sixteenth Amendment to the Constitution, which gives the congress the power to tax: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration.” This infamous amendment was added in 1913 under Democrat President Woodrow Wilson.

The current suggested rate of the federal retain sales is 23%. According to Americans for Fair Taxation, most workers are already paying more than that, because “much of it is just hidden from view.” They explain that most wage earners are in the 15% income tax bracket, and all workers pay 7.65% in payroll taxes. That total amounts to 23% without even accounting for the 7.65% matched by the employer. In addition to this 30% plus, there are business and other taxes that are passed on to the consumer.

Advantages of the FairTax
The research organization, Fairtax.org, which sponsors Americans for Fair Taxation, asserts that the following facts and benefits of the FairTax plan have been thoroughly researched for more than a decade:

• The FairTax is revenue neutral at $0.23 out of every retail dollar spent.
• The FairTax lowers the lifetime tax burden for most Americans.
• The FairTax benefits retirees who depend mostly on Social Security.
• The FairTax preserves the overall progressivity of the federal tax burden.
• The FairTax dramatically improves the U.S. economy.
• The FairTax improves the international competitiveness of American producers.
• The FairTax promotes home ownership better than the current system.
• The FairTax simplifies tax compliance, thereby reducing tax evasion.

They argue that “Direct taxes (income taxes/poll taxes/head taxes), throughout history, have been the tools of tyranny.” They also state that our Founding Fathers were aware of the adverse affects the direct tax would have on the economy.

For more information:
Fair Tax Act of 2007 H.R. 25 S. 1025 Plain English version
Americans for Fair Taxation