Wikipedia:Today's featured article/July 15, 2008

The FairTax is a proposed change to the tax laws of the United States that would replace the Internal Revenue Service (IRS) and all federal income taxes (including corporate taxes and capital gains taxes), as well as payroll taxes (including Social Security and Medicare taxes), gift taxes, and estate taxes with a national retail sales tax. Its enacting legislation, the Fair Tax Act, is pending in the United States Congress. The tax would be levied once at the point of purchase on all new goods and services. The proposal also calls for a monthly payment to all households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level. The sales tax rate, as defined in the legislation, is 23% of net prices which includes the tax (23¢ out of every $1 spent—calculated like income taxes), which is comparable to a 30% traditional sales tax (23¢ on top of every 77¢ spent). With the rebate taken into consideration, the effective tax rate would be progressive on consumption and could result in a federal tax burden of zero or less. However, opponents of the tax argue that while progressive on consumption, the tax would be regressive on income, and would accordingly decrease the tax burden on high income earners and increase the tax burden on the middle class. (more...)