This is just one man's opinion, however having a masters in taxation and a strong financial and tax background, I feel I can make a case that the "Fair Tax" isn't fair at all.
The proponents say the current income tax system isn't fair, because it benefits the rich. It seems clear that statistics might show otherwise, especially when you consider that only around 50% of Americans pay any Federal income tax. Don't take my word for it, just do a quick internet search based on my last sentence.
As the theory goes, instead of an income tax, (which people say isn't fair) we would simply pay a "flat" tax of something in the range of 15-25% on everything we buy. The rate hasn't been determined, because it's just idealistic thought/discussion currently. I have heard that the Obama Administration is considering a VAT type tax, which is like a national sales tax. That's a different topic and I could write my opinion on VAT, which is generally similar, but would be an additional tax rather than a replacement for the income tax system we have. Europe already has VAT taxes.
My theory on what would happen with a "Fair Tax" is the following:
Let's assume the government decided tomorrow to impliment the "Fair Tax" to be effective January 1st, 2012 (or 2011, your choice). If I am a rich individual (for the purposes of this discussion assume I make several million a year), or at least one with a smart tax advisor, I would find out what that meant to me.
Personally, I would consider any large purchased I needed within the next few years such as TV's, Furniture, computers, cars, etc. Instead of buying after that tax goes into effect, I would buy them now. Sure, some things I can't afford right now, but rich people can.
Now, next year the "Fair Tax" goes into effect and I don't buy anything big. I just buy the essentials of life and that's it. Others buy a car and pay the "Fair Tax", but I don't buy anything. What would I pay in taxes? Nothing! Right or wrong?
The person who couldn't afford to buy things ahead of time now pays the 15% tax on the car, the furniture and all the other things they need, so their tax rate is 15% on everything they buy and I pay nothing as a millionare. Genius on my part! Sad for the other guy.
Now, this doesn't only mean that the poor and middle class people are paying all the taxes, it also means people aren't spending, because maybe they just can't afford the extra 15% that this tax costs on the items they wanted to buy. Now no one is spending and our economy suffers dearly. So what will the government do to make up for the revenue they aren't getting? They would have to bring the income tax back again, maybe with modified rules. Income Tax would have to come back or there wouldn't be enough tax revenue to run the country.
What has history told us about taxes and out government? When they create a new tax, it doesn't go away, so likely they would keep the "Fair Tax" and lower the rate and now we would pay income tax and the "Fair Tax"
That's my take on the concept of a Fair Tax. It would end up causing dire consequences to the economy as well as our country's ability to fund essential services.
When you think about it, with a Fair Tax, you are the one who decides how much tax you pay, if any. Ultimately that would result in tax cuts for the rich, with the poor and middle class having no choice but to purchase as they go and pay all the taxes.
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