FairTax :: FAQs



	Does the FairTax affect all of those taxes on my phone bill? What is the FairTax? Will the FairTax affect my Social Security or Medicare benefits in any way? How much money will I receive each month in my prebate check? Isn’t it a big deal to tax services for the first time? It has never been done before. Why do some people say the rate is 30 percent instead of 23 percent? Does the FairTax repeal the 16th Amendment? The 23% tax rate seems too high. I just did my taxes, and after all of my deductions and exemptions, I only paid 14% of my income in taxes. Why is the FairTax a good deal for me? How can we be sure that the costs associated with the embedded taxes will disappear? How are state tax systems affected, and can states adequately collect a federal sales tax?

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Q:

How can we be sure that the costs associated with the embedded taxes will disappear?

A:

Two words: simple economics. The FairTax will bring absolutely no new economic forces to bear on the marketplace. The markets will operate exactly the same way tomorrow as they do today. So the question is, “Why is a 19” television cheaper today than it was 10 years ago?” Why is a VCR cheaper today than it was 10 years ago? Why are computers cheaper today than they were 1 year ago…and 3 years ago…and so on? The answer again is simple economics. Do businesses want to keep prices high and maximize their profits? Of course…but they can’t in a competitive economy. That is why all of the prices of all of the goods above have continued to decline in price as the business inputs for those products have declined in price.

This question is always a fun one because I generally reply with the opposite question: If we raise embedded taxes by 20%, will the price go up? “Of course,” everyone says. “If you raise taxes, it will raise prices.” And we believe that. Every time the cigarette tax goes up, the price of cigarettes goes up. Every time the price of oil goes up, the price of gasoline goes up too.

So why do we believe that raising taxes will raise prices…that raising the cost of business inputs will raise prices…and yet we don’t believe that lowering taxes and lowering the cost of business inputs will lower prices? We’re just cynics, I suppose. Thankfully, we have centuries of economics and a host of real-life examples to prove that prices really will decline.

Have you ever noticed that all of the gas stations on the same corner tend to have the same prices? That is competition. And, if you don’t believe in competition…if you really think that companies can raise prices and keep them high…look at the recent rise in gas prices. We all talk about how high prices rise, but have you ever seen the price fall? Of course you have. If greedy business men can really keep prices high when the cost of business inputs don’t demand it, why does the price of gas ever decline…even by one penny? The answer is that competition overwhelms that greed…and the best way to make money is to lower your price and gain more volume.

Do you think that the price of taxes hidden in goods is any different than the price of business inputs, like oil, hidden in goods? It’s not. Changing the tax burden for the whole economy is just like changing the price of oil for gasoline.

So next time you wonder how we can be sure that when the FairTax eliminates embedded taxes price will decline, look at that local gas station and be confident.




	Will the FairTax affect my Social Security or Medicare benefits in any way? How much money will I receive each month in my prebate check? Why do some people say the rate is 30 percent instead of 23 percent? How much do Americans pay each year in Federal income tax compliance costs? Once the FairTax is passed and becomes law, what protection is there against a reinstitution of the income tax at a later date? Does the FairTax repeal the 16th Amendment? Is it safe to base American tax revenue on the sales tax? Isn’t consumption volatile? Isn’t it a big deal to tax services for the first time? It has never been done before. Has anything like the FairTax ever been tried before? Won’t people simply avoid the tax by trading and bartering rather than purchasing? Why is the FairTax helpful for capital formation in this country? Today, employers pay 7.65 percent of their payroll to the Federal government in a payroll tax. Do you expect that when the FairTax eliminates this tax that the employers will reduce their prices by this amount or increase wages by this amount? Does the FairTax affect all of those taxes on my phone bill? The 23% tax rate seems too high. I just did my taxes, and after all of my deductions and exemptions, I only paid 14% of my income in taxes. Why is the FairTax a good deal for me? How can we be sure that the costs associated with the embedded taxes will disappear? Right now I can deduct business lunches and other business expenses. I'm still going to have to take clients to lunch, but now I'll have to bear the entire cost. Does the FairTax have an answer to this problem? How will the FairTax affect charitable giving? How are state tax systems affected, and can states adequately collect a federal sales tax? What is FairTax.org? What is the FairTax? How would the FairTax be collected? What is taxed? What taxes does the FairTax replace? Does the FairTax rate need to be much higher to be revenue neutral?


		The Department of Commerce reports in its most recent Economic Census that just 688 retailers (0.03%) in the U.S. make 48.6% of all the sales. Just 3.6% of retailers collectively make 85.7% of all U.S. sales. Fewer points of collection will mean higher compliance with the FairTax than with today's complex system.

Q:

How can we be sure that the costs associated with the embedded taxes will disappear?

A:

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