The Fair Tax – How Does It Work? #oktcot #tcot #fairtax #teaparty #fb

Abolish the IRS
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This section which explains how the Fair Tax operates is short, in essence, because the tax system is so simple.  This section concludes by demonstrating how the tax will work in the context of a couple with two children.

First, it is important to understand that under the Fair Tax several taxes will be repealed including the individual income tax, the alternative minimum tax, corporate and business income taxes, capital gains taxes, social security taxes, Medicare taxes, the self-employment tax, estate taxes, and gift taxes.[1] Instead, a 23 percent consumption tax on new items will be imposed at the retail level.  The consumption tax will not be imposed upon used or pre-owned items.  H. R. 25 uses 23 percent because that is the amount necessary to cover all current federal expenditures.   The beauty of the Fair Tax is that the 23 percent rate imposed in H.R. 25 can be lowered if spending cuts are made.

The consumption tax is collected by businesses dealing with taxable goods and services and remitted to the state governments, who will in turn pass the tax to the federal government.  Recall that purveyors of used items, like cars, would not collect the tax because used cars are not covered.  For collecting the tax, businesses and the states will receive one quarter of one percent of what they collect to cover the costs.

Finally, because it is important that everyone be treated fairly, including low income families, every family in America, no matter their level of income, will receive a prebate[2] check to cover the cost of taxes on the basic necessities of life.[3] Each head of household will receive this prebate every month to reimburse them for the sales tax they pay on all spending up to the federal poverty level.[4] The amount of the prebate will be determined by the government’s published poverty levels for various sized households.  To receive the prebate, the head of household will submit a list of those in the house along with their social security numbers to be placed in a database.  A person spending at the poverty level has a 0 percent effective tax rate while someone spending at twice the poverty level would have an effective tax rate of 11.5 percent.[5]

Using a couple with two children as an example, I’ll demonstrate exactly how the Fair Tax will work.  If they spend $45 on groceries a week under the current income tax system then when all of the embedded taxes are removed the price of those groceries will be lessened by around 22 percent to $35.10.  When the Fair Tax is added, the price of those groceries will be $45.58, which is only 58 cents more than they were paying.[6] However, under the Fair Tax this family will receive their entire paycheck back.  If the employers fail to take taxes out of price, the addition of formerly-withheld income taxes and payroll taxes to their paycheck will give them a 25 percent to 30 percent increase in take home pay.[7] The poverty level in 2009 for a family of four is set at $29,140[8] and the family will receive a prebate of $6,702 to be paid in twelve installments.[9]


[1] Boortz, p. 75

[2] An advance rebate

[3] Boortz, p. 79

[4] Boortz, p. 80

[5] Americans For Fair Taxation, http://www.fairtax.org, Karen Walby, Ph.D., February 16, 2009.

[6] Boortz, p. 84

[7] Boortz, p. 84

[8] Federal Register, Vol. 74 No. 14, January 23, 2009, pp. 4199-4201.

[9] Federal Register, Vol. 74 No. 14, January 23, 2009, pp. 4199-4201.

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Defeating the Second American Crisis

en: Thomas Paine (1737 – 1809), oil painting b...
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A Plan of Action for the Prosperity of America

During an American Revolutionary War, Thomas Paine inspired his fellow countrymen to not quit when things were tough and to fight for freedom.  During this economic crisis of the Twenty-First Century, this author hopes to inspire the reader to support a restoration of Constitutional principles and the implementation of a tax system which encourages growth and is compatible with the concepts of fundamental fairness and equality.

One of the most famous pamphlets produced during the era of our nation’s founding was entitled Common Sense.  That great work explained in simple fashion the importance of American Independence.  Thomas Payne wrote another series of articles throughout the course of the American Revolutionary War entitled The American Crisis.  In these articles, Payne encouraged his fellow countrymen to not give up in light of the crisis they were facing.  The first paragraph of the first article put it best:

THESE are the times that try men’s souls. The summer soldier and the sunshine patriot will, in this crisis, shrink from the service of their country; but he that stands it now, deserves the love and thanks of man and woman. Tyranny, like hell, is not easily conquered; yet we have this consolation with us, that the harder the conflict, the more glorious the triumph. What we obtain too cheap, we esteem too lightly: it is dearness only that gives everything its value. Heaven knows how to put a proper price upon its goods; and it would be strange indeed if so celestial an article as FREEDOM should not be highly rated.

America is once again at a crisis point.  Though the first crisis was resolved and secured us our sovereignty, this second crisis threatens to destroy the economic freedoms of America.  Congress recently raised the national debt ceiling to a shocking $14.3 trillion with no signs of slowed federal spending.  Representatives pass spending bills bloated with pork and special favors to benefit the few at the expense of the many.  The dollar is swiftly losing value.  The 9.7 percent unemployment is the lowest in five months but this figure does not include those who gave up searching for a job or who are no longer allowed to claim unemployment benefits.

During this Second American Crisis, this author hopes to inspire support for a restoration of Constitutional principles in our government and the implementation of a system which encourages growth that is compatible with the concepts of fundamental fairness and equality.

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