How the FAIRtax Could Finally Make the Rich Pay Their Share
Just how rich are the rich? Bank of America economist Aditya Bhave has an answer, and it's a striking one. Looking only at discretionary purchases — the vacations, luxury goods, and dining that exclude necessities like housing, utilities, and health care — spending by the richest 10% of U.S. households is equivalent to the total spending of the bottom 70% of households combined (CNBC). That single statistic captures why so many Americans feel the tax code isn't working as advertised: the people spending the most freely are often the ones whose real economic gains are hardest for the IRS to touch.
The reason is a well-documented maneuver often called "buy, borrow, die." A wealthy household buys appreciating assets — stock, real estate, art — and simply holds them. Because the income tax only applies when an asset is sold, unrealized gains grow tax-free indefinitely. When the owner wants cash, instead of selling (and triggering capital gains tax), they borrow against the asset through a securities-backed line of credit. The loan proceeds aren't income, so they aren't taxed either (DC Fiscal Policy Institute; Yale Budget Lab). When the owner eventually dies, the "step-up in basis" rule resets the asset's taxable cost to its value at death, erasing the capital gains entirely — the heirs never owe income tax on decades of growth. The strategy is common enough that California Governor Gavin Newsom has pushed to ban it at the state level, calling it a way for billionaires to "live like billionaires" while reporting little taxable income (CBS News).
This is where the FAIRtax changes the equation. The FAIRtax Act, currently before Congress as H.R. 25, would repeal the federal income tax, payroll taxes, capital gains tax, and estate and gift taxes, replacing them with a single national retail sales tax on new goods and retail services (Congress.gov; Tax Foundation).
The mechanism matters: instead of taxing income when it's earned — which the buy-borrow-die strategy is specifically engineered to avoid — it taxes wealth the moment it's spent. It doesn't matter whether the money used to buy a yacht, a Manhattan penthouse, or a private jet came from a paycheck, a stock sale, or a loan against an unrealized capital gain. Under the current system, only the first of those triggers a tax bill. Under the FAIRtax, all three are taxed identically at the point of purchase, because the tax follows the spending.
That closes precisely the loophole that makes buy-borrow-die effective. A household can defer capital gains tax forever and erase it at death, but it cannot defer eating at a restaurant, furnishing a second home, or buying a car. Given that the top 10% of households already account for such an outsized share of discretionary spending, according to Bhave's analysis, a tax on consumption captures a proportionally enormous amount of high-end spending precisely because that's where so much of the spending already is.
The FAIRtax also includes a monthly family consumption allowance, the "prebate," an amount equal to the poverty-level rate of consumption for every household, which is designed to ensure lower-income families owe no net tax on basic necessities (Tax Foundation;
FAIRtax.org's rebuttal to regressivity claims). In effect, the plan is built to tax lifestyle rather than income statements — and the lifestyles that generate the most FAIRtax revenue are disproportionately the ones the "buy, borrow, die" strategy was designed to protect from taxation altogether.
A note on the other side of this debate. Not everyone agrees the FAIRtax would land more heavily on the wealthy in practice. Critics, including the Tax Policy Center and the Center for American Progress, argue that because high earners save and invest a much larger share of their income than they spend, a flat consumption tax would actually let them shelter more of their income from tax than the current progressive income tax does — one academic analysis found the current system is more progressive than the FAIRtax under most models, and that the FAIRtax becomes more regressive at higher rates (Tax Policy Center; Center for American Progress).
CONCLUSION
There are calls for making the wealthy contribute more to government. However, most of these proposals call for confiscation a portion of the wealth. However, the worrying factor is, “Who determines the definition of “wealth”.
The present income tax was originally intended to impact only three to five percent of income earners. We see what happened there.
Rather than let government confiscate wealth, why not tax the consumption of the wealthy and eliminate one of the prominent ways the wealthy avoid the income tax?
People are upset with our present income/payroll tax system because it benefits only a small percentage of the population—the very wealthy and Members of Congress who fund their re-election campaigns by selling favorable tax treatment to the highest bidder.
For the rest of us, it’s an expensive, intrusive, incomprehensible mess that none of us fully understands.
THE FAIRTAX IS THE ANSWER.
The FAIRtax Act (H.R. 25) is more than just a proposal for a retail sales tax; it is a fundamental restructuring of the federal fiscal structure. Unlike other excise taxes which normally are applied to specific products and in different percentage amounts, the FAIRtax applies a 23% rate to all new retail products and retail services.
The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.
Many of you have labored tirelessly for freedom from the federal income tax and the IRS. You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.
It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax.
Make no mistake about it. The FAIRtax is a grave threat to the Ruling Elites. It will strip them of their power and their ability to control us though the tax system. Their opposition to the FAIRtax will be fierce and unrelenting. And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power.
However, with the support of this President, we can finally eliminate the income tax and the IRS!!!
Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well so no future administration can ever shackle the American people with an income tax again.
We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.
This will take the diligent efforts of all of us. We need your financial assistance, and we need your grass roots assistance.
If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.
Please email us at info@FAIRtax.org and we will give you some options on how you can best help us.
At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax. If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already. If not, ask why not. If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
By contributing (investing) $10.40 per month, you help provide a financial base to AFFT. If you can make larger contributions (investments), these will be used not for salaries, as we are all volunteers, but for the needed updates to our economic studies which will be vital for all future years.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.