The Grassroots Corner September 1st, 2025

THIRTEEN REASONS THE TAX SYSTEM MIGHT NOT BE AS FAIR AS YOU THINK – AND HOW THE FAIRTAX MAKES IT BETTER

         

         Your friends who support the graduated income tax system are probably under the mistaken impression that in order to be fair, a tax system must be complicated.  It must contain a myriad of special provisions designed to ensure that people who deserve a break get one, and those who can afford to pay more actually do.

         Journalist Precious Uka, who writes frequently for MSN.com, may disagree. She writes: “The tax system is often seen as fair, but specific rules create hidden inequalities. Some groups enjoy significant benefits, while others incur higher costs than expected. Many tax policies unintentionally favor wealthier individuals or specific lifestyles, leaving some taxpayers at a disadvantage despite following the rules.” You can view her presentation here:
https://www.msn.com/en-us/money/personalfinance/13-reasons-the-tax-system-might-not-be-as-fair-as-you-think/ss-AA1Fz0JL?ocid=msedgdhp&pc=EDGEESS&cvid=55947ffcd5244e88bb2fff89719554f4&ei=59

         We at FAIRtax agree with Ms. Uka that the attempt to make the tax system fair has, in large part, had the opposite effect. Here is the text from her slides and our comments:

1. Higher Earners Benefit More from Deductions.

         • Tax deductions often favor those with higher incomes. Wealthier individuals can claim larger deductions through investments, business expenses, or charitable donations. These deductions reduce taxable income, providing greater benefits to those in higher tax brackets. As a result, lower earners miss out on these savings opportunities.

         FAIRtax comment: Indeed, those who can itemize receive greater benefits from the tax code than those who can only take the standard deduction. The FAIRtax replaces the standard deduction with the Prebate.  The FAIRtax offers no deductions which, as Ms. Uka points out, tend to favor wealthier taxpayers.
 

2. Tax Brackets May Penalize Modest Raises.

         • A small pay increase can unexpectedly push you into a higher tax bracket. This shift may increase your overall tax rate, reducing the benefit of your raise. While tax systems are designed to adjust rates gradually, the impact can still be perceived as unfair. Understanding tax bracket thresholds allows you to plan more effectively.

         FAIRtax comment: Under the FAIRtax, nobody is punished for earning more. People keep what they earn and continue to receive the Prebate regardless of income level.
 

3. Uneven Tax Breaks for Homeowners.

         • Home ownership often comes with tax advantages like mortgage interest deductions. Renters, on the other hand, typically receive fewer benefits. This favors those who can afford property, while lower-income individuals may miss out. The system indirectly rewards wealthier households, adding to financial inequality. Exploring homeownership strategies may improve your tax position.

         FAIRtax comment: The FAIRtax offers no deductions for mortgage interest or property taxes, but these deductions are unnecessary because the FAIRtax does not tax income. The FAIRtax taxes rent as a retail service.
 

4. Investment Gains Are Taxed Differently.

         • Profits from ETFs, stocks, and other investments are often taxed at lower rates than regular income. This benefits those with significant investment portfolios. Meanwhile, individuals relying solely on wages may face higher effective tax rates. This system rewards wealth accumulation rather than labor income.

         FAIRtax comment: This point is irrelevant to the FAIRtax discussion because the FAIRtax imposes no tax on any income, including capital gains. The income tax taxes capital gains at lower rates than ordinary income because capital gains accrue over several years and are realized in the year of sale. The realization of several years of income in the year of sale pushes the income into a higher tax bracket and necessitates smoothing it out. This consideration is not a point of discussion with the FAIRtax.
 

5. Self-Employed Workers Face More Complex Rules.

         • Freelancers and small business owners often deal with complicated tax rules. While they may qualify for deductions, they must also manage self-employment taxes. These added costs can reduce their overall earnings. Tracking expenses and maintaining organized records can simplify this process. Without proper planning, self-employed individuals may end up paying more than expected.

         FAIRtax comment: Self-employed freelancers and small business owners could disregard income if we had the FAIRtax. They would report the wages they pay employees to the Social Security Administration so that those employees’ Social Security benefits could be calculated.

         Retail sellers must report gross sales of tangible items but may deduct certain credits, such as the administration credit, for timely remitting tax to the State Sales Tax Authority. The administration credit is ¼% of gross sales. Retailers can retain this credit after making timely remittances of tax proceeds to their State Sales Tax Authority.
 

6. Wealthy Individuals Can Defer Taxes.

         • Specific tax strategies allow wealthier people to delay paying taxes. Techniques like retirement account contributions or property investments can postpone tax bills for years. This advantage isn’t as accessible to those living paycheck to paycheck. Those without extra income often miss out on these tax-saving options.

         FAIRtax comment: With the FAIRtax, the only taxable events are retail purchases of new goods and services.  People can defer paying the FAIRtax by postponing their retail purchases, but they will pay the tax when those purchases are made.  We should point out as well that lower income households can legally avoid paying the FAIRtax altogether by purchasing used rather than new items.
 

7. Tax Credits Often Overlook Key Groups.

         • Many tax credits are designed to support families with children, leaving single adults with fewer benefits. While some programs assist low-income earners, they often exclude those without dependents. This creates gaps for individuals who don’t fit traditional family structures. Exploring available tax credits can help you uncover overlooked opportunities.

         FAIRtax comment:  The FAIRtax replaces deductions with the Prebate. The credits in the bill are few. The common ones are administrative credit, intermediate sales and export credit, and any credit for amounts paid in excess of the amounts due. The others are less common: 1) the business use conversion credit, 2) the bad debt credit, 3) the insurance proceeds credit, and 4) the transitional inventory credit.
 

8. Medical Expenses Are Difficult to Deduct.

         • Claiming medical expenses often requires exceeding a high threshold, making it difficult for many households to qualify. Individuals with chronic conditions or those undergoing ongoing treatments may struggle to meet the required limit. As a result, some face large medical costs without meaningful tax relief.

         FAIRtax comment: There are no deductions with the FAIRtax.  Therefore, there is no income threshold with the FAIRtax below which credits are not applicable. Instead, there are special rules for medical expenses. Medical insurance premiums are taxed, but the benefits that these premiums pay for are tax-free. Deductibles and copays are taxed. Insurance premiums paid by an employer are taxed as “proxy buying” for an employee to equalize the tax treatment between employer-provided healthcare and individually purchased healthcare. Still, the employee brings home their whole paycheck.
 

9. Complex Rules Confuse Taxpayers.

         • The tax system features complex language, confusing forms, and frequent changes, making it more challenging for individuals to identify available deductions or credits. Those without access to expert advice may miss valuable tax-saving opportunities. Hiring a tax professional can help uncover benefits that may otherwise be overlooked.

         FAIRtax comment: The FAIRtax sweeps aside over 75,000 pages of code, regulations, and revenue rulings and replaces them with a simple 132-page (double-spaced, wide-margin) code. The FAIRtax promises to stay simple because it removes disputes over two characteristics of income taxation that cause it to become complicated: 1) the identity of the tax subject matter and 2) the timing of the taxable event. The FAIRtax is simple because it taxes only the final retail sale.
 

10. Retirement Accounts Offer Uneven Benefits.

         • Tax-advantaged retirement accounts provide greater benefits to those who can contribute more. Wealthier individuals can maximize these contributions, reducing their taxable income. Those with limited incomes may struggle to save, missing out on these advantages. Consistent contributions to your savings can still provide long-term benefits, even in smaller amounts.

         FAIRtax comment: Money that is saved for any purpose is not taxed under the FAIRtax.  Therefore, tax-free retirement accounts are available to everybody.  Additionally, people can save more because they can bring home their entire paychecks and invest them tax-free. It is up to each American to decide whether to save for retirement, and with the FAIRtax, there is every incentive to do so since the tax system no longer penalizes saving.
 

11. Tax Audits Target Certain Groups.

         • Lower-income taxpayers and self-employed individuals are often audited at higher rates. This focus arises because these groups claim deductions that require closer review. Meanwhile, complex tax strategies used by wealthier individuals may go unchecked. Keeping accurate records can reduce audit risk and ensure you’re prepared if questioned.

         FAIRtax comment:  Since the FAIRtax abolishes the IRS, no individual, regardless of income level, will ever be audited again with the FAIRtax.  For retail businesses that come under an audit, the FAIRtax features a comprehensive set of taxpayer rights, outlined in Chapter 6, including a Problem Resolution Office with the authority to issue a Taxpayer Assistance Order.
 

12. Inconsistent Property Tax Rates.

         • Real estate values play a significant role in determining property taxes. However, assessment methods vary widely between regions. This can result in similar homes being taxed at different rates. Homeowners in rapidly growing areas may face sudden tax increases. Staying informed about local tax policies can help you anticipate these changes.

         FAIRtax comment: This issue falls outside the scope of the Internal Revenue Code and the FAIRtax, as neither imposes property taxes. Property taxes are the exclusive domain of the states and localities. A central problem with property taxes is that they penalize homeowners for improving their properties. We want homeowners to improve their properties in order to preserve neighborhood values. Some states, including Iowa and New Jersey, are discussing the possibility of replacing property taxes with a sales tax, such as the FAIRtax.
 

13. Credit Card Rewards May Be Untaxed.

         • Credit card rewards often provide untaxed financial benefits. Cash back, points, or travel rewards can reduce expenses without impacting your taxable income. While this may seem advantageous, it disproportionately benefits those who spend more. Responsible credit use can help you earn these rewards without accumulating debt.

         FAIRtax comment: This is an interesting point for the FAIRtax. If credit card companies want to reward their holders by making the next purchase free, there would be no tax under the FAIRtax. If these companies want to give cash back, their holders have already paid tax on the item that earned them the refund. Do credit card companies propose to rebate the FAIRtax sales tax as well? If not, credit card holders are penalized for being spendthrifts, which may be a good policy.

         I would love to hear your comments on Precious Uka’s points.
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