I can understand why the fair tax is very appealing to many limited government activists. It has various benefits similar to the flat tax, such as overhauling the current tax code and eliminating all forms of double taxation. The fair tax, however, could be dangerous. If we don’t repeal the 16th Amendment first, we could end up with both an income tax and a national sales tax. The politicians in Washington would love to have both sources of money. Several European governments have added a national sales tax on top of their federal income tax. The same trick could happen in America if we aren’t careful.READ MORE
Fair tax advocates claim that it would get rid of the IRS but it would likely be replaced with another agency by a different name. The proposal promises that most individuals will get a monthly prebate paid in advance. The amount of the prebate is determined by the Department of Health & Human Services' poverty level guidelines. Who would administer this? Unlike the flat tax, the fair tax as a replacement for the income tax has never been implemented in any country. We have no real world examples of what a fair tax would look like in action. Perhaps the fair tax isn’t as politically feasible as the flat tax. It’s important to remember that repealing a constitutional amendment requires the approval of 290 House members, 67 Senators and a majority of the legislatures in three-fourths of the states.
People don’t like a Fair Tax because it has never been tried in any other country in the world causing some to fear that it is too experimental (a transitional hybrid system combining income and Fair Tax has been floated). The Fair Tax is also considered by some to be regressive since necessities are still subject to tax. Additionally, since the burden for collection shifts from the federal government to individual businesses, some of which are not currently collecting taxes (those which sell exempt goods, businesses in states where there are no sales taxes and businesses currently not subject to taxes on providing services), there’s a concern about the added burden that would place on those businesses, specifically small businesses. And while the tax purports to do away with those who make money off of the current tax system, the Fair Tax does provide a fee for acting as a collection agent which adds another layer of complexity.READ MORE