FairTax

The FairTax is a proposed soaking of the poor to give to the rich sweeping reform of the United States federal tax process. It would repeal the 16th Amendment to the U.S. Constitution, eliminate the federal income tax and all other payroll taxes, disband the IRS, and install a national 23% sales tax. It would also deliver "advance rebates" on the tax to households for the purchase of living essentials up to the poverty level. It could be thought of as the Flat Tax, but based on consumption instead of income.

FairTax advocates claim that implementing the plan would greatly simplify the tax code, result in comparable or better revenue for the government than the current tax system, and reduce the lifetime tax burden for most 'murcans.

Criticisms

23%?! More like 30%!

The 23% sales tax would not operate like traditional sales taxes, in which only the register price is taxed. Instead, the percentage would operate like the current income tax does; the 23% means 23% of the register price and tax. So, while a $100 purchase would cost the consumer $123 under a "traditional" 23% sales tax, it would cost about $130 under the FairTax (23% of $130 is $30). Thus, the "23% sales tax" is actually closer to what popular understanding would consider a 30% sales tax.

That's not really an argument against the tax per se, but saying 23% when most people would say 30% raises "They're being weaselly just to get this passed" questions.

Actually, the 23% talks of the inclusive tax on the sales of new items. For example, an item today costs $100. That item will still cost $100 with the tax included in the price of the item. The item will now actually cost $77 and you will pay $23 in sales tax on the item. That means that 23% of your purchase was taxes. Hence, the 23% inclusive tax rate. You could say that the tax is 30% of the cost of the item but that is still $23 of the $77 item.

Enforcement

Critics claim that lumping all of the government revenue into one tax, thereby putting all the eggs in one basket (so to speak), would make tax evasion more tempting and easier to pull off. Currently, even if one manages to illegally dodge one kind of federal tax, one still typically gets hit with others. But if you can dodge the FairTax (tempting to do if you wind up paying 30 cents on the dollar), you may be able avoid taxation altogether, depending on how many goods you can acquire this way.

The problem here is that cheating the current tax system only takes one person. If I want to avoid paying income taxes, I only need to find a way to hide my income. If I want to avoid paying the Fair Tax, I need to convince someone else to cheat with me. I need to ask the person (or store) who is selling me the NEW item that we need to cheat the government out of its money. I do not see that going really well at any big box retailer for example.

Black market explosion

A high sales tax would naturally encourage "off the record" sales to avoid it, and a fear is that a significant black market economy, as well as other criminal activity associated with it, would arise. On the bright side, if a black market sprang up that siphoned off tax, then the theory behind the Laffer Curve curve may just work, so there would be a legitimate excuse to lower taxes to increase tax revenue!

Of course, this is potential, except you forget that these companies (big box retail, car companies, etc) sell their products for a reason. That reason is to make a profit. So they will have to find a way to compete with the "black market" and if that means that they lower prices to meet the consumers' demand, I see that as a positive for the lower income individuals trying to buy things they both need and want.

Letting the rich off the hook?

The FairTax is in part based on the idea that the rich buy the most stuff, so they would pay more taxes. But critics argue that the tax is regressive on income, so that the rich effectively get a sizable tax break while taxes actually increase for the middle class.

One way to think of this is to ask what percentage of income people use to purchase goods. Poor and middle class individuals use almost all of their income, but richer people (though purchasing more) use a far smaller percentage of their income. With the current tax system a person's whole income is taxed but with the FairTax rich people essentially get the majority of their income tax-free, while poor and middle class individuals receive no break.

You leave out one important issue, the pre-bate. Everyone will receive their portion of taxes to be paid on necessities based on the fact that they are living, breathing, citizens of the US. For example, if the government decided that a family of four will spend $1000 in Fair Tax taxes in a month on necessities, they will give that family $1000 to pay the taxes. The only taxes you will actually pay is on the items you do not "need" but you "want". So your example of the middle class paying a larger percentage of their income on items is correct, but if those items are necessities, they will get the taxes back on those items. The rich are the ones buying more stuff that they do not need so they will pay more tax.

Who likes it?

The FairTax movement could probably be described as largely conservative and populist. Unsurprisingly, rich people who have given up on the flat tax can find a way to support it. However, as one of the few viable proposals for significant tax reform, it also draws support from people who don't normally favor the rich conservative cause, but are frustrated with the current tax system.

Mike Huckabee is a fan.

John McCain spoke against the Fair Tax in the 2008 Republican debates.