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Flat Tax vs. FairTax

Steve Forbes famously supported the flat tax in his run for president.

Kenneth Lambert/Washington Times/Getty Images

Neither the flat tax nor the FairTax plans are radically new ideas. The U.S. implemented a flat income tax for a short time after the Civil War. Many states and countries use a flat tax today, but the specific plan for the FairTax is relatively new and dates back to the mid-1990s. Did you know that the U.S. federal government relied on sales tax before the income tax was fully enforced with the passing of the 16th Amendment in 1913? To understand how radically different the two ideas are, let's delve into how each would work.

Supporters of a flat tax believe that the only fair income tax would apply an equal percentage to all taxpayers. Specifically, many supporters advocate a rate of 17 percent. In other words, if one person earned $50,000 a year and another earned $300,000 a year, both would pay 17 percent of their income to the federal government. Although flat

tax plans do away with most of the exemptions, loopholes and deductions that result in much of the complexity of the current system, many versions include an exemption for families [source: Mitchell ]. Advocates say that, with a flat tax, most people could figure their annual taxes on a simple postcard.

The most notable element of the FairTax is that it would completely abolish Federal income and corporate taxes as well as the Internal Revenue Service. Instead, it would institute a national sales tax that would pull in enough to cover all government programs -- taking revenue from what is spent rather than what is earned [source: ]. To make sure that the poor don't suffer the brunt of these sales taxes, the government would send a monthly check called a prebate to families that would cover taxes on necessary expenses. The idea is that "no American pays tax on necessities" [source: AFT ]. The check amount would be up to the poverty level; a family doesn't need to fall below the poverty line to receive one.

Category: Taxes

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