Any tax that leaves producers free to invent, sell, and profit from their work is a tax that is worth looking into. The FairTax on the face of it seems like a really good tax replacement for the Federal Income Tax. It is a tax on the consumption of products and services, is less invasive than an income tax, but it still has a few problems, including a disparity in benefits, rebate for the “poor”, and state government grumbling.
Aside from the benefits of less invasiveness from the IRS, and the taxing of consumption, the FairTax will most likely have a mixed benefit for Americans, depending upon which state they live in. States seem to still be permitted to lay an income tax, at least until the 16th Amendment is repealed in their plan. Until that amendment is repealed, those citizens who still have to pay a state income tax will still be burdened, while those citizens in income-tax-free states, such as Texas, will benefit from a greater increase in their income, which can then be spent or saved.
The largest problem with the Fair Tax is the prebate for the poor. Each family and individual will be entitled to a certain amount of cash meant to replace the expense spent on necessaries up to the federal poverty level. The rebate will not help those in poverty if they are not already responsible with their finances.
In addition, the poor do not suffer from a large expense of necessaries, in fact, one may say the poor in America by and large are extremely well-to-do, especially when compared to their “counterparts” in Africa and parts of Asia. Lastly, 47% of Americans do not pay federal income tax as it is, leaving the single largest source of the federal budget (43% in 2009) being paid for by the those in the top 50% of income brackets. Any rebate to Americans should come from money that is a surplus of collection, not as an entitlement or right.
While the economic effects have been theorized to be substantially positive, mostly from increased spending, where and when this tax would apply would be hard to predict. Sure, they can say it will apply to all goods and services at the point of purchase for the end-consumer; however, currently large parts of the health and education industry are not subject to sales tax. States also have complex sales tax, and the incentive to carry out the Fair tax would be small unless it came with concessions of some sort. Political pressure from lobbyists and states could erode the Fair Tax and in the end may become just another stream of revenue for the federal government, now a greater burden than before.
Taxes ought to be equal in burden upon all citizens as total percentage paid, whether they are poor or rich. Fiscal irresponsibility is one reason a poor person commonly remains poor, that does not excuse him from contributing equally to the government (though all taxes are immoral). The Fair Tax is partly good, as it eliminates taxation on production, and pushes it to consumption. It fails the 4 qualities test with its rebate to the poor though, and with political pressure for vast exemptions and kickbacks, this tax policy should not pass.