Arguments Against the FairTax

Reasons to Call Representatives About HR 25

Jul 14, 2009 Christopher Pascale

The tax code is complicated. The FairTax will simplify it so that every taxpayer can understand it, but that doesn't mean that it is without fault.

The FairTax has been in Congress since 1999 when it was introduced by Georgia Representative John Linder (R). If implemented, taxes would be collected based on a 23% inclusive sales tax, meaning that $77 retail items would cost $100.

While the FairTax has many good points, it also has disadvantages, which include:

• No proven track record
• More jobs would be lost than under the Flat Tax
• Tax rate could be adjusted

The FairTax has Never Been Implemented

According to The FairTax Book, the FairTax came about because several businessmen were so frustrated with how much of their time was wasted on the tax consequences of their decisions that they formed a group called Americans for Fair Taxation.

Their mission was to find the fairest means in which taxes could be collected by the government so that it would not mistreat any citizens, nor would it favor others. What came about was a system in which people and businesses chose what they paid by what they spent.

While corporations pay less in taxes, their earnings will increase and enrich the accounts of their investors, such as employees with 401(k) retirement accounts.

While this sounds very good, the idea has never been implemented, and, therefore, is just an idea. So, while if implemented it would make the United States a tax haven it cannot be proven with no basis other than the collection of ideas put together by Americans for Fair Taxation from research conducted at MIT, the Cato Institute, and Harvard University.

The FairTax Will Eliminate Almost all Taxes and Many Jobs

The IRS will be significantly reduced if not completely eliminated if the FairTax was to be put in place. While it is true that the institution will not be needed if this bill passes into law, it does not take away the fact that as many as 100,000 families would lose their primary source of income.

In addition to this, companies such as H&R Block would be out of business if they could not adjust their practice to a new area.

The FairTax Could be Adjusted After Passed Into Law

Another matter of concern is that the US history of taxation on income is not one that has always worked in favor of the people. In Robert Kiyosaki's best-selling book, Rich Dad, Poor Dad, it is said that taxes were initially proposed as only being for the wealthy.

Since then it has led to all citizens paying taxes for earning, spending, and holding property. To complement those measures of collection, regressive systems, such as lotteries, have been enacted to raise more funds.

The FairTax was said to be "income neutral" by former Arkansas Governor Mike Huckabee (R) when he was promoting it during the 2008 GOP primary race. However, with a new system in place, and a government with a track record of waste, it is hard for conscientious citizens to believe that more expense would not be incurred as they implement a new tax system.

With the desire for more money, government officials can claim that they need the rate to be 25%, where $75 items cost $100, or that they need to "help the less fortunate" by creating a sales tax structure based on income, leading to a government organization solely for the monitoring of every Americans' sales tax rate. Former IRS employees would be highly qualified.

Again, the FairTax is not without merit, and there are good points to the system, but they are all in theory. This idea has never been implemented, just theorized. And it would be hard to justify the elimination of so many jobs on a theory that is likely to be changed for the worse by a government that has so drastically changed its policies on other issues, both foreign and domestic, in recent years.

Sources

Linder, J. Boortz, N. The FairTax Book. William Morrow.

Kiyosaki, Robert. Rich Dad, Poor Dad. Business Plus.

Clark, Derek. "Pros and Cons of the FairTax". geekpolitics.com

Jackson, J. "What is Wrong With the FairTax?" thelandofthefree.net

The copyright of the article Arguments Against the FairTax in Accounting is owned by Christopher Pascale. Permission to republish Arguments Against the FairTax in print or online must be granted by the author in writing.

Possible Rise/Fall of Fair Taxation Under US Gov't

As Rates Change, so Will Consumers' Spending Power

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Comments

Jul 14, 2009 7:22 PM

Guest :

You also forget the prebate where you would get your monthly check every month so that people under the poverty line would not be paying any taxes because this money would come in before the taxes. There are so many positives that this idea is worth a shot. As one of the persons screwed over by the IRS due to complicated tax law i completely support this new system. It can't be any worse then the IRS/flat tax system today. And if it was really worse we could get it changed. Sticking with something that is broken because a new idea could be worse is just not the way to think.

Jul 15, 2009 5:47 AM

Christopher Pascale :

Excellent points. You may not have noticed that this article was #6 of a 7 article series about the Flat Tax and the FairTax where I explained both programs, weighed their pros and cons, and then compared the two.

In the end I found that the FairTax has greater revenue potential because, while the Flat Tax will tax everyone who has earned income at the same rate, the FairTax will tax everyone, even those who claim no income such as drug dealers and illegal immigrants, at the same rate.

Thanks for the comment.

Aug 26, 2009 8:52 AM

Guest :

"If implemented, taxes would be collected based on a 23% inclusive sales tax, meaning that $77 retail items would cost $100"

You may want to check your math on this one.

FAIR TAX ALL THE WAY

3 Comments