FairTax Overview
The FairTax generates the same amount of revenue as the current tax system, but at a much lower
administrative cost. Of the 154 million tax returns filed in fiscal year 2011, over nine out of ten were
filed by individuals (143.6 million). Under the FairTax, individuals do not file tax returns. Only
businesses that sell goods or services at retail are required to file tax returns, reducing the number of tax
filers by at least 80%. These businesses remit the FairTaxes they collect on consumer purchases along
with their state sales taxes once per month. They no longer have to administer income tax withholding
and payroll tax deduction on wages paid to their employees on behalf of the federal government.
According to an estimate by the Tax Foundation, the replacement of the income tax with a national retail
sales tax would reduce compliance costs by 95 percent.95
Economic impact
Slow economic growth and economic stagnation have an adverse impact on low wage earners. These
families are more likely to lose their jobs, are less likely to have the resources to weather bad economic
times, and are more in need of the initial employment opportunities that a dynamic, growing economy
provides. The income tax retards economic performance by creating a significant bias against saving
and investment through double, triple, and even quadruple taxation. Under the FairTax, what you earn
is what you take home. Americans are able to save more and invest more. The FairTax dramatically
increases investment levels compared to levels that would have been achieved under the current income
tax system. 96 Increased savings will stimulate investment and productivity and the economy will grow
more rapidly, creating demand for workers and improving job opportunities. Because taxes on capital
are removed, foreign capital will flow into the United States, creating businesses and jobs. U.S.
products competing abroad are free of the hidden costs of taxation while the FairTax is collected on
foreign products sold in the United States. Virtually all economic models project a much healthier
economy under a broad-based consumption tax such as the FairTax.
Summary
The ever-increasing taxpayer demand for a simpler, less intrusive system of taxation is building daily.
The FairTax delivers these benefits to the American people, and more – more government accountability
for taxpayer dollars, the elimination of tax returns for individuals, a tax system which is transparent and
less susceptible to being manipulated by special interests, and perhaps most importantly, a tax system
that promotes economic growth and job creation.
What is the FairTax Plan?
The FairTax Plan is a comprehensive proposal that replaces all federal income and payroll taxes with an
integrated approach including a progressive national retail sales tax, a rebate to ensure no American pays federal
taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion
legislation, repeal of the 16th Amendment. This nonpartisan legislation (HR 25/S122) abolishes all federal
personal, gift, estate, capital gains, alternative minimum, Social Security, Medicare, self-employment, and
corporate taxes and replaces them with one simple, visible, federal retail sales tax – collected by existing state
sales tax authorities. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not
raise any more or less revenue; it is designed to be revenue neutral. The FairTax is a fair, efficient, transparent,
and intelligent solution to the frustration and inequity of our current tax system.
95
Hall, Arthur P., “Compliance Costs of Alternative Tax Systems,” Tax Foundation, Testimony before the House Ways and
Means Committee, June 6, 1995.
96
Kotlikoff, Laurence J. and Sabine Jokisch, “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the
FairTax,” National Tax Journal, June 2007; David G. Tuerck, et.al., “The Economic Effects of the FairTax: Results from the
Beacon Hill Institute CGE Model,” The Beacon Hill Institute at Suffolk University, February 2007.
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