National Small Business Association

America's small business advocate
The Fair Tax
NSBA endorses the 23 percent national retail sales tax
The current U.S. income tax system discourages personal savings and investments by taxing
capital gains, dividends and earned interest. Business owners and wage earners struggle under
the burden of a very regressive payroll tax. The income tax-not to mention the Alternative
Minimum Tax-is unbelievably complex, time consuming and costly to administer.
In response to overwhelming sentiment calling for a simpler, more fair and efficient, and less
intrusive system of taxation, NSBA became the first small-business organization to endorse the
Fair Tax-a 23-percent, single rate, national retail sales tax which would be applied to the sale
of all consumer goods and services at the final point of consumption. The Fair Tax ensures that
every taxpayer will be subject to the same tax rate with no exceptions and no exclusions. Those
who are least able to share in the cost of government will bear no burden at all. Tax rates will
depend on the amount of purchases made. Used items will not be taxed, which promotes
reutilization. Business-to-business purchases for the production of goods and services will not
be taxed. In addition, the Fair Tax will replace the individual federal income tax, the capital
gains tax, all payroll taxes, corporate income taxes, the self-employment tax and the estate and
gift taxes.
Contrary to opponents' arguments that Fair Tax would harm elderly and low-income
individuals, the system actually would place these individuals in greater control over how much
they pay in taxes. The Fair Tax will include a rebate system, where all valid Social Security
beneficiaries will receive a rebate equivalent to the tax paid on essential goods and services.
This rebate will be paid in advance in equal installments each month. The size of the rebate will
be determined by the government's poverty level for a particular household (defined as one or
more individuals), multiplied by the tax rate. The Fair Tax also will be beneficial in terms of
compliance costs, which are continually seen as one of the most detrimental characteristics of
the current system. It is estimated that Americans spend at least $225 billion each year to
comply with the current tax code.
Under the Fair Tax, compliance costs will fall to less than $10 billion, creating enormous net
savings that eventually would be incorporated in lower product prices for consumers. The tax
will be collected at retail businesses, taking the tax burden out of the hands of the consumers.
Already, 45 states have a sales tax system, and the Fair Tax would simply add an additional
line onto the current sales tax reporting form. Businesses will collect the tax and send it to the
state's tax-collecting authority. All businesses serving as collecting agents will receive a fee for
collection, and the states also will receive a collection fee. While the Fair Tax should not be
interpreted as a tax cut, the reduction in work required to administer the new tax will certainly
be a relief for business owners and consumers alike.
On Jan. 2, 2011, the first day of the I 12th Congress, HR. 25 (the Fair Tax Act) was introduced
by freshman Rep. Rob Woodall (R-Ga.), with 48 original cosponsors-the most the Fair Tax
has ever had at the time of introduction.
NSBA continues to advocate that the Fair Tax is a fair, efficient, transparent, and intelligent
solution to the frustration and inequity of the United States' current tax system. NSBA supports
fundamental reform and looks forward to working with supporters of the Fair Tax to educate
taxpayers about the proposal.