Fair Tax: Recap
A little confusion seems to be out their with the Fair Tax so I will do a brief recap of the Fair Tax. The information is widely available for FairTax.org and numerous books.
The Fair Tax or HR 25 is a complete replacement of the current tax code. The Fair Tax will repeal all payroll, income, savings, investment, estate, gift, and death taxes. The Fair Tax is a 23% federal sales tax on the final purchase of any new item or service. Used items or items produced in the home are untaxed. The Fair Tax does not change any current government program like Social Security or Medicare. The only thing that changes are how taxes are collected.
Under the Fair Tax productivity and hard work are no longer penalized as taxes are no longer based off of your income. Likewise people are free to save and invest without paying taxes on the interest or resulting income from a stock, CD, or other investment related transaction.
Under the Fair Tax you will receive your full paycheck.
The Prebate:
Under the Fair Tax every citizen in the United States will receive a prebate each month to cover the taxes on spending up to the poverty level. The prebate is dependent only on family size and the current poverty level rate as determined by the Dept. of Health and Human Services (In some cases the poverty level is also dependent upon the state of residence). The prebate will be adjusted for the rate of inflation yearly in accordance with inflation changes by the poverty level.
Under that Fair Tax your income is not reported to the federal government. The only thing reported is your employment status by the company of employment to determine Social Security status.
To clarify. The Fair Tax prebate is not based on income. A single person with no children will receive $196 per month no matter their level of income. To the prebate size you would receive each month please visit FairTax.org prebate levels.
Since taxation is based on spending, those who spend more will pay more. If you don't spend above the poverty level you don't pay. A family that spends twice the poverty level will have a tax rate of 11.5 percent. As spending increases the rate of taxation will increase until the rate reaches 23% because of the prebate. Taxation is totally voluntary under the Fair Tax. Because of the prebate the Fair Tax is a progressive tax.
I hope this recap clarifies some misconceptions that have popped up about the Fair Tax.
