The Fair Tax Act repeals all Federal income, employment, and estate and gift taxes. These taxes are replaced by a national retail sales tax, which, for 2015, is imposed at a rate of 23 percent of the gross payments for the use or consumption of taxable goods or services. In design, the Fair Tax is similar to a State retail sales tax, although the Fair Tax is imposed on a base that is significantly broader than most State sales taxes. The Fair Tax incorporates a monthly rebate mechanism as a means of relieving low-income individuals.
“By far, the piece of legislation that I am most passionate about is H.R. 25, the FairTax, and with good reason. It is the most exciting tax proposal to ever come before the American people. The reason for this is that the FairTax isn't about simply taxes; it is about freedom, jobs, smaller government and the economy. It is about returning power to the people and finally finding a way to ensure America's economic growth. It is about completely abolishing the IRS and stripping the Federal government of the opportunity to dig deeper and deeper in the American people's personal pocketbooks. The FairTax is a plan for every American, no matter what his or her income might be. Specifically, the FairTax would repeal all Federal corporate and individual income taxes, payroll taxes, self-employment taxes, capital gains taxes, the death tax, and gift taxes - and replace them with a revenue-neutral personal consumption tax.”
“Under the [FairTax], the federal government would have to pay taxes to itself on all of its purchases of goods and services. Thus if the Defense Department buys a tank that now costs $1 million, the manufacturer would have to add the FairTax and send it to the Treasury Department. The tank would then cost the federal government $300,000 more than it does today, but its tax collection will also be $300,000 higher. Similarly, state and local governments would have to pay the FairTax on most of their purchases. State sales taxes have long exempted all but a few services because of the enormous difficulty in taxing intangibles. But the FairTax would apply to 100% of services, including medical care, thus increasing their cost by 30%. No state comes close to taxing services so broadly. Consumers would also find themselves taxed on newly constructed homes. Imagine paying 30% to the federal government on top of the purchase price of your next house. (Mr. Bartlett served as a domestic policy adviser to President Ronald Reagan and as a Treasury official under President George H. Bush.)”