FairTax Overview
U.S.’s failure to recognize and confront this problem costs us more than $100 billion in exports
annually. 28
Border-adjustable taxes are consumption taxes that are removed/rebated upon the export of
goods from producing nations. Such nations reciprocate when importing, assessing incoming goods
with ad valorem29 taxes. Today, 29 of 30 OECD nations have border-adjustable tax regimes; only the
U.S does not. By failing to respond, the net effect is the export of both jobs and entire industries.
The FairTax levels the playing field.
Under the FairTax, imported goods and domestically produced goods incur the same U.S. tax. This
stands in stark contrast to the present system, where U.S. companies and workers must pay income tax
and payroll taxes, but foreign goods enter the U.S. entirely free of any tax, other than whatever modest
customs duties are levied.
The FairTax is inherently border adjusted.30 U.S. exports are not taxed since they are not sold at
retail in the U.S., but imports are taxed when sold at retail in the U.S. or when brought into the U.S. by a
consumer.31
The FairTax is GATT compliant.
Under the General Agreement for Tariffs and Trade (GATT), indirect taxes, such as VATs or the
FairTax, may be border adjusted, while a direct tax, such as the U.S. income tax, may not. Since the
FairTax is indisputably an indirect tax, this border-adjustment feature poses no difficulty in
implementation or legal compliance.
28
Hausman, Jerry, “Hausman Study Shows Distortions in International Trading System Hurting U.S. Manufacturers:
An Economic Analysis of WTO Rules on Border Adjustability of Taxes,” May 2006.
29
ad valorem - A tax, duty, or fee that varies based on the value of the products, services, or property on which it is levied; a
sales tax.
30
Border adjustment is commonly used to describe a feature of most value-added tax (VAT) systems in use today.