Hank  Adler

This presentation is intended to review and raise issues with respect to Federal legislative proposal H.R. 25 (109th): Fair Tax Act of 2007, the “Fair Tax”. Because the title of the proposed legislation prejudices the discussion, this presentation refers to this proposed legislation as H.R. 25.


Summary of H.R 25:


*       Elimination of all Federal individual and corporate income taxes, payroll taxes, and the Federal estate and gift taxes


*       Implementation of a tax exclusive flat rate national sales tax of 30% on all goods and services sold at retail (ensuring that goods and services are only taxed a single time).[1] Exports would be exempted from the national sales tax. Property purchased for investment would be exempted from the sales tax. Retail purchases of goods and services by government would be subject to the 30% sales tax.


*       The flat rate national sales tax would be administered by agencies organized in the individual states, sales tax administrating authorities. If a state or states choose not to administer the flat rate national sales tax, the Federal Department of the Treasury would become the sales tax administrating authority in such states. In all events, Treasury would have general rule making responsibilities.


*       All lawful residents would receive a monthly “prebate” intended to be equal to the sales tax on cumulative expected monthly purchases at the poverty level. Unlawful residents would not receive the prebate. The prebate would be paid by the Social Security Administration acting upon information provided by sales tax administrating authorities.


*       H.R. 25 significantly revises the definition of self employment income for social security benefit calculation purposes.



H.R. 25 – Conclusions

  • With all of its complexity, the current Internal Revenue Code is a more evenhanded approach to collecting necessary Federal revenues than H.R. 25. This is not to say that the author believes the current Internal Revenue Code is the right long term answer for the United States; it is to say that H.R. 25 is not the right long term answer.


Hank Adler

Hank Adler is an Assistant Professor at Chapman University.

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