Economics Made Economical

Why Is The Fair Tax Fair?

The Fair Tax is fair because it charges everyone a fixed 30% sales tax for every purchase made anywhere in America. The wealthy, who spend the greatest amounts of money the most often, would be paying 30% on higher-priced goods than the poor.

What the Fair Tax also does is provides every American household with an automatic monthly sales tax rebate equivalent to the poverty level for the household. For example, if a family of five is considered to be under the poverty level if they bring in less than $36,000/year or $3,000/month, every American family of five will automatically receive a rebate worth 30% of $3000, or $900, each month.

If the family does not spend more than $3,000/month, they end up paying no net taxes because the $900/month rebate covers the full cost of sale tax.

If the family spends on average less than $3,000/month (less than $36,000 over the course of the year), they still get to keep the full $900/month refund checks and actually end up getting more money from the government than they’ve paid them. This is a scenario that does not currently happen unless you’re receiving some form of government assistance.

With the Fair Tax, anyone who chooses to live and spend frugally, as if they were at the poverty level, ends up making money from the government. It’s not about how much you earn. It’s about how much you spend. So the tax is fair for all Americans.

An Example:

Let’s look at the family mentioned above. The government pays them $900/month under the assumption that they will spend up to $3,000 each month incurring up to $900 each month in sales tax. What if the family does not spend $3,000 each month? What if they can make do spending only $2,000 every month?

For every $2,000 they spend, they will pay $600 in sales tax. But they’re still getting an automatic $900 from the government each month. Therefore the government is giving this family a net $300 each month. If the family chooses to save the $300 every month, they are left with an extra $3,600 at the end of the year. The best part is that any American–rich or poor–can choose to pay no taxes to the federal government assuming that they can live at or below the poverty level.

Remember the Fair Tax does not tax essential items such as food and non-luxury clothing. The Fair Tax will reward those who are frugal, prefer to save their money, and know how to live within their means. Those who choose to be extravagant or waste money non-essential purchases will have to pay taxes on any luxury spending they choose to do above the poverty level.

The bottom line is, if you are poor you should not be spending more than you bring in in a year and the bulk of your purchases should be essential goods. Consequently, you get to keep whatever portion of the government rebates you choose not to spend. If you are above the poverty level, you can still choose to live at, above, or below your means. And you will be rewarded or penalized accordingly.

The Fair Tax forces all Americans to be responsible for balancing their own budgets and will greatly reduce the burden the federal government currently has in taking action against people who choose to live beyond their means.




    1. The Sin Tax: Why It’s Pro-Liberty and Pro-Capitalist « Econoblog
    2. What The Fair Tax Is Not « Econoblog
    3. Why Does The Fair Tax Increase Economic Efficiency? « Econoblog
    4. Tip of the Day 11: FDR’s New Deal « Econoblog
    5. What Is Fiscal Policy? « Econoblog

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