Video: What Is the Fair Tax?

Updated for Tax Year 2019


OVERVIEW

What do people mean when they mention the Fair Tax Movement, and why does this movement not affect you when you prepare your tax returns? Learn about the history and purpose of the Fair Tax movement in this video on tax basics.


Video transcript:

Hello I'm Sara from TurboTax with some information about the fair tax. You may have heard the term fair tax in the news and wonder what it is and how it may effect you... the short answer is the fair tax won't effect you when you prepare your tax return.

The term fair tax was coined in 1994 by the founders of the Americans for Fair Taxation who proposed replacing the U.S. income tax with the consumption tax, much like a state sales tax. Although this movement eventually lost steam, proponents believed that a 23 percent federal sales tax would be fairer than the current income tax.

Supporters argue that this would result in businesses hiring more workers and, overall, allow tax payers to focus on more productive activities rather then spending time planning on how to minimize their income tax.

As you may expect, even more people were against this tax, which is why the U.S. congress never passed this type of legislation. Many lawmakers were concerned that the tax would create a black market, meaning the merchants would offer lower prices by not paying the federal sales tax.

But what really alarmed opponents was that they believed the tax would result in the middle and lower classes paying most of the taxes while the wealthy enjoyed a significant tax cut.

For the time being, the income tax as we know it does not appear to be going anywhere—at least not any time soon. For more tax tips and guidance visit TurboTax.com.

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