Fair Tax Nation

Replace All Federal Taxes on Income with the Fair Tax Act , HR 25


Yes, the press and politicians will probably refer to a VAT (Value-Added Tax) as a national sales tax, so it is important for FairTax supporters to understand the differences between the two so that we can answer questions from the public.

Actually, they have much in common, but the differences are critical.

Both tax final consumption only once.
They have the exact same tax base, if they both have no exemptions.
Business to business purchases are not taxed.
The full amount of the VAT is reflected in retail prices which are paid by the consumer.
They are both better for US international competitiveness than the income tax. Both of them do not tax exports and are border-adjustable.

How they are different:

The FairTax is a replacement for the federal personal income/payroll tax and corporate tax system. The VAT is proposed as a source of new revenue on top of the individual income/payroll taxes and corporate taxes.

The FairTax has a prebate so that no individual pays taxes on their personal consumption up to the poverty level.

The FairTax collects the tax at the retail level, which is transparent to the consumer and simple to understand. All sellers of goods or services for final consumption file monthly tax returns. This would reduce tax filers and compliance costs by 85 to 90%.

The VAT, on the other hand, is collected from all businesses at every stage in the production process. Each business has to keep track of what taxes they paid on their purchase of inputs and subtract it from the tax they owe. This is called a credit-invoice system. It is complex record keeping and especially difficult for small businesses who don't have in-house tax experts.

The FairTax is transparent, the amount of the FairTax being clearly stated on the retail receipt. VAT retail receipts may state the rate of tax, but they do not state the actual amount of taxes paid.

I have created a one page chart comparing the FairTax and the VAT

Karen Walby, Ph.D.
Research Director

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Comment by chiefcook on April 3, 2010 at 8:16am
Is there a link to the one page chart?

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