FairTax Overview
Feature
Other international
competitiveness
concerns
Current Income Tax
FairTax
Flat Tax
Imposes the highest marginal
corporate tax rate in the world,
impelling companies to locate
overseas and market back to the U.S.
Makes the U.S. the only advanced
country in the world with a zero rate of
taxation on income, creating the world’s
largest tax haven for direct investment.
Territorial system - income generated
overseas is not taxed by the U.S. This
will further encourage the migration of
industry and jobs overseas.
How the FairTax Compares, January, 2013
Feature
Current income tax
FairTax Plan
Flat tax
Complexity and
compliance costs
72,536 pages of tax code, regulations,
and IRS rulings. More than 6B manhours wasted filing an est. 249M
forms by 2010. Total annual
compliance costs exceed $431B.
Individuals exempt from filing tax
returns. Businesses making retail sales
will file sales tax returns for a total of
about 15 to 20M tax filers. Compliance
costs reduced 90%.
Tax withholding and payroll tax
deductions from paychecks continue.
Individuals and businesses must still
track income and file income tax forms.
Compliance costs reduced by 50%.
Taxpayer rights
Tax code requires massive
disclosure, recordkeeping, individual
audits, and collection activities where
constitutional protections yield.
As the Founding Fathers intended, the
FairTax does not directly tax individuals
and privacy rights are preserved.
A flat tax still requires individual
reporting, individual audits, and
collection activities.
Compliance rates
System increasingly disregarded,
and effect on tax gap contributing to unfairness. Through
evasion and innocent error, tax gap
now totals more than $450B.
Reduced tax rates, fewer numbers of
collection points, visibility, and simplicity
ensure the FairTax is enforced at lower
cost with higher compliance rates.
States have used sales taxes for over
60 years.
Improved compliance from
simplification and rate reduction;
however, same number of collection
points as current law and international
enforcement is complicated through
territoriality.
Effect on non-filers
and illegal
immigrants
An estimated 18% of “taxpayers” have
simply dropped out of the system and
no longer file returns. The income tax
fails to capture the cash payments
and other undocumented transactions
with illegal immigrants.
Non-filers and illegal immigrants are
taxed