One very desirable benefit of the FairTax system — and not part of any “flat tax” — is anonymity. No tax agency needs to be aware of your income, your transactions, or your assets.

This is a big deal. Currently, they must keep track of things to catch cheaters. But under the FairTax, all taxes are paid each day as purchases are made, and there is no reporting needed at all. No “structured bank transactions” to avoid scrutiny — as there is no longer any reason to scrutinize. We send people to jail for making withdrawals from their own bank accounts, if the amounts seem “suspicious” to the federal government. The act of intentionally making withdrawals of less than $10,000 at a time, in order to avoid triggering the bank’s required reporting of your activity, is a felony.

Progressive Prebate

We would still have Social Security — and the clever thing is how to help low-income people so that the system remains “progressive.” In order for low-income people to receive a “rebate-in-advance” of the tax paid each month, called a “prebate,” one would normally need to know who qualifies as low-income. And moderately low-income, and so on — triggering all the reporting the system would avoid.

Instead, the FairTax scheme simply sends the prebate to everyone, in every household. All they need is the number of people (including children) in the household, and a bank to deposit this money into.

Social Security current sends out huge amounts of such deposits every month. This additional burden would be small, especially since the calculations are simple — it’s based on people in the household, and that’s it.

Everyone Gets It

Yes, this results in high-income, high-spending folks getting the prebate, necessarily. But the total amount collected allows for this, so it’s all part of the plan. If you have a family of four, you get the amount deposited every month equivalent to what a family of four at the “poverty level” would pay in sales tax. If you spend only that much, you are tax free. If you spend only twice that much (i.e., of moderately low income) your effective tax rate is only half of the official percentage rate. No one pays 100% of the official rate, as even big spenders got that small (to them) offset.

A subtlety here is on the current calculation of income. High net worth people will spend money every month. So will businesses. But under the current scheme, paper losses can make their income (and thus taxes due) reduce to zero or even negative, and they have a lot of incentives (and a lot of arcane rules) to further such pursuits. All of the businesses and consultants who make their living deciphering and gaming the tax code — or lobbying for it to be rigged in their clients’ favor — can then find vocations more productive to society.

Black Market Taxing

One additional attraction of the FairTax in this regard is that even currently illegal income — drug sales, prostitution, and so on — would now be “taxed,” because those people buy products and services from cars to food just like everyone else.

Because income tracking would no longer be needed (except to the extent that employers report to Social Security), the entire IRS would be eliminated. Local tax collection would report to a very simplified collection point, involving a fraction of a percent of the IRS’s current 70,000 employees.The collection is done from businesses, most of which is being done already through current state sales taxes. The additional burden is small.

The FairTax legislation requires that the 16th Amendment be repealed, abolishing income tax, so there’s no chance of “double-dipping” by the government, hitting us both ways.

The IRS has been “weaponized” as a political tool, and the FairTax completely neuters that possibility. Wouldn’t that be nice?

===|==============/ Keith DeHavelle