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Jul 13, 2011

Herman Cain on Fair tax.

Economic Vision, Part 3: A fairer tax

By: Herman Cain

Paying taxes is a fact of life, because there are certain things that our federal government must provide as enumerated in the Constitution. But paying taxes does not have to be unfair, burdensome and costly. Our current system of taxation is all three, and it got that way little by little over time since 1913.

The Fair Tax (H.R. 25) is a fairer tax because it is just the opposite. It is fair because the consumer determines their taxes based on their purchase behavior instead of being determined by the government based on one's capacity to produce. Our production is measured in terms of personal income and business profits.

The Fair Tax is a one-time one-point national sales tax on new goods and services. It is not collected on wholesale purchases, but rather, it is collected on retail purchases when the consumer consumes, and not when the consumer or business produces. This is totally consistent with Economic Guiding Principle #1 as described in Cain's Economic Vision Part 1.

The Fair Tax is also fair because everybody pays the same consumption rate of 23 percent. Liberals hate that concept because it does not give them a tool to redistribute the income of others as with the current tax code. The rate is revenue-neutral and replaces all federal income and payroll taxes.

That's right! There will be no more income tax fillings and no more Internal Revenue Service! That would be another day of independence worth celebrating.

As the big government liberals start screaming about how the Fair Tax is unfair to the poor, it actually empowers those with modest incomes through a sales tax pre-bate for basic necessities when coupled with a zero tax on used goods and services. My dad would have achieved his American dreams a lot sooner if we had had the Fair Tax in his lifetime.

It is a burden on every worker and business to have to keep track of nearly every financial transaction made during the year in order to try and comply with the ridiculous tax regulations. Even worse, it costs us collectively about $430 billion dollars a year. That's insane!

In contrast, each state would collect the federal retail sales tax, as about 45 of them do today for their state sales tax, by adding one additional line to the sales receipt and sending those proceeds to the newly created Sales Tax Administration (STA). The STA would be for administrative purposes only, with no authority or mechanism to harass the taxpayers. The states would enforce the collection of sales taxes from retailers as they are already doing.
It's called not reinventing the wheel.

The opponents of replacing the tax code with the Fair Tax will launch their usual distortions and lies against the Fair Tax. The most common ones include that it‚s on top of the federal taxes we already pay. That‚s a lie. Or, that the rate is really 30 percent, which is another lie.

Proposed legislation clearly states that the rate is 23 cents on a dollar of goods purchased. Over time, the taxes embedded in that dollar will go away due to price competition, such that the item costing one dollar will now cost 77 cents. The consumer still pays only 23 cents, which would make the 23 percent tax look like a 30 percent tax, if you divide 77 cents by 23 cents. The liberals call it inclusive versus exclusive rate to confuse people, but they don‚t bother to tell you it‚s the same 23 cents.

Replacing the current tax code with the Fair Tax is Phase Two of my Economic Vision for America, discussed in Parts 1 and 2 in the two previous commentaries. We must take some time to introduce and explain the concept of shifting taxation from income to consumption, and how it is fairer, flatter, simpler and less burdensome and costly than what we are doing today.
As president, I will end the insanity of the current tax code.

It's common sense.


  1. The so-called "Fair Tax" is just more of the same Socialism.

    #1) a 23% sales tax would crush the economy and created an underground Black Market economy of sales and barter to avoid taxes.

    #2) the Fair Tax proposals involve so-called "rebates" to the those with lower incomes. TRANSLATION: Marxist income re-distribution.

    This is all bull pucky.

    The Right-Wing Socialists are beating around the bush. Just do a flat income tax or abolish the income tax and keep cutting spending until the budget balances.

  2. Hi Garry, From over here in Oz where we are used to a 10% GST it does seem to be a little high at 23%. Our GST was used to replace a stack of other taxes such as Sales tax and so on. My understanding is though, that this tax would replace other federal taxes, whereas our GST is in conjunction with a fairly aggressive progressive income tax.

    For that reason it doesn't seem too bad, but then again I am not fully conversant with your system.

    Rebates to those who are on lower incomes is not necessarily bad. In the LDP we advocate a 30/30 tax under which any income over $30,000/year would be taxed at 30%, with rebates at the same rate to those below that figure. We however, would use those rebates to replace the welfare system as it stands at the moment.

    While from a libertarian perspective, I acknowledge that it is not 'pure' we are attempting to come up with something reasonable that should be acceptable electorally, which is a reasonable start point to implementing our ideas.

  3. **** Rebates to those who are on lower incomes is not necessarily bad. ****

    Karl Marx called that the re-distribution of the wealth.

    Politicians in every nation use those "rebates" to buy votes from special interest groups from welfare non-workers to green industries etc.

    Flat tax. Let the market work its magic.

  4. gary you are wrong when you say the fair tax is just more of the same Socialism. Fair Tax is far less socialistic than income tax. You mention karl Marx who was a promoter of income tax, what do yo think the flat tax is? Taxes are defined socilistic by two ways. How it's being received by the government and how it's being used by the government. How the fairtax is being received on a socialistic scale of 0 to 10, o being donation by choice and 10 being most socialistic, I would rate the fairtax a 4 and that high only because of the prebate. Income tax, flat or progressive is a 9 and a 10 if you get caught cheating. How the fair tax is being used by the Government has nothing to do with wether or not the fairtax or income tax is socialism. once it's in the governments hands it's just tax.

  5. If you think Fair tax will limit your ability to purchase things, think again, that's what the income tax has been doing because you didn't even get to make your choice of purchase yet before the taxes were taken from you.

  6. For clarification the pre-bate goes to every person who registers, not only those below the poverty level...

    Rich and Poor will get the same pre-bate amount based on household size.

    Earners at or below the poverty level pay an effective tax rate of 0% or less. The more you spend, the more the effective rate goes up, maxing at 23%.