The Grassroots Corner February 7, 2022

This Grassroots Corner continues a series on dealing with hostile questions, comments, and myths that people may raise about the FAIRtax. Many of these suggested responses will be good comebacks for you to have in your pocket when you need them. However, some of these suggested responses can be too long to insert into an actual conversation. You may want to boil them down to where they'll be more useful when you're talking face-to-face with someone attacking the FAIRtax.

This week, we take on the myth that the FAIRtax is unfair to the poor and middle class because it taxes sales. A couple of weeks ago, we pointed out that in general, sales taxes are rightfully considered to be regressive.  That is, they have a more significant impact on those at the lower end of the economic spectrum than they do on the rich.  If the FAIRtax were a straight sales tax without any other features, it would rightly deserve this criticism, but that’s not the case.

Consider these facts. First, the FAIRtax eliminates the federal payroll taxes that fund Social Security and Medicare – without eliminating these two vital programs. The federal payroll tax is unquestionably the most regressive tax in Uncle Sam’s quiver.  It is paid exclusively by the working class.  Hamburger flippers at MacDonald's pay it on their wages, but Jeff Bezos does not pay it on the investment income on which he lives. The FAIRtax goes a long way towards tax equity by eliminating this regressive tax.

Next, the FAIRtax eliminates the enormous tax costs, both tax liability and compliance costs, that are passed on to unwitting consumers in the prices of every product and service we buy.  These costs are embedded in the prices of food, clothing, medicine, shelter, and many other items that exceptionally impact the poor and middle class. The FAIRtax eliminates these costs that consumers pay but never see. If there is any modicum of supply competition and demand elasticity, low-and-middle-income Americans will benefit greatly from the FAIRtax as pretax consumer prices drop dramatically.

After eliminating the payroll taxes and dropping pretax prices, the FAIRtax makes sure that no legal household pays the tax on their spending for their basic necessities.  This is the feature that sets the FAIRtax apart from other sales taxes and makes the FAIRtax a fair tax.

Under the FAIRtax, every legal household has a Family Consumption Allowance equal to the Federal poverty level for their household size.  That’s the amount of spending that is not subject to the FAIRtax.  In effect, it gives the FAIRtax a “standard deduction” like we have with the current income tax.  Everyone will still pay the FAIRtax at the cash register on all of their retail purchases of new goods and services, but the amount of tax paid on spending up to the Family Consumption Allowance is refunded monthly in a payment we FAIRtax-ers call the prebate.  You don’t pay a dime of FAIRtax out of your own pocket until your spending exceeds your Family Consumption Allowance.  In other words, with the FAIRtax, you feed your family before you feed the government.

The Family Consumption Allowance is based strictly on household size, not income.  Everyone who qualifies receives it.  The prebate is a better idea than exempting basic necessities like food, clothing, medicine and shelter as some people have suggested.  It allows the FAIRtax to maintain its elegant simplicity, and it lets each household decide for itself what its basic necessities are by what they spend their money on first.  Lobbyists, politicians and bureaucrats won’t have the power to decide what’s a basic necessity and what isn’t.

By taxing food, clothing, medicine and shelter, the FAIRtax extends the tax base to those who are currently evading the income tax.  People working for cash under the table or making their income by less than legal means still have to buy food, clothing and shelter.  The FAIRtax ensures that everyone, regardless of how they make their money, pays their fair share of federal taxes.  Also, exemptions to any tax erode the tax base.  When the tax base dwindles, the tax rate has to rise to cover the shortfall. The FAIRtax preserves the tax base.

The prebate actually makes the FAIRtax more progressive than the income tax, raising the effective tax rate for wealthy people who consume more. Social justice warriors should be happy to hear that.

After dropping the payroll taxes, pretax prices and providing a prebate, the FAIRtax allows people to buy used items tax-free. Used items, for these purposes, are goods on which the FAIRtax has been previously paid by the item’s initial purchaser.  There’s also a provision in the FAIRtax that eliminates the embedded tax costs on items that were produced prior to the implementation of the FAIRtax.  This feature lets low- and middle-income people legally avoid paying the FAIRtax on the two biggest purchases most households make—cars and houses.  Buy a used car or a pre-existing house, and you pay no FAIRtax on that purchase.  Wealthier people will still tend to buy new items and will pay the FAIRtax on those purchases.

Finally, the FAIRtax un-taxes education tuition, making education more affordable. And because most universities are not for profit, they can procure their goods and services free of tax, enabling these institutions to provide education at lower tuition. The FAIRtax enables education to be the ticket for most people out of poverty.

I would love to hear from you about squeezing this explanation into a soundbite.


Take Back Control!

Jim Bennett

---