What’s The Difference Between A Value Added Tax And A Fair Tax

By Phillip Williams on April 10, 2010, 7:32 am Posted in Economy News

Experts have speculated that the non-partisan government accounting office may suggest implementing a value added tax to pay for the new health care program. European countries already use the value added tax to help them pay for many of the social programs. A Fair tax should not be confused with this type of tax. One will increase the tax burden of Americans if passed, the other will drastically decrease the power of the Internal Revenue Service.

Value Added Tax

A value added tax is a direct tax that is added onto the price of a book. If you have seen a book sold in both the United States in England, you will find that the prices listed frequently includes the VAT price. This type of tax is simply a sales tax that gets applied before the purchase of a product. A value added tax works differently from state sales taxes charged in many areas of the United States because the sales tax gets added when a consumer purchases an item. Like a sales tax, the value added tax is determined as a certain percent of the amount charged.


Fair Tax

A fair tax is a tax on a person’s income. Unlike the current income tax, which gets lowered or adjusted based on a person’s ability to pay, a fair tax is simply a flat percentage of a person’s income. If a fair tax, also called at flat tax is set at 10%, a person who earns $100,000 per year pays $10,000 in taxes. A person who earns $10,000 conversely only pays $100. The difference is in the type of tax a flat tax and a value added tax is. Both types of tax systems do have one thing in common, everyone pays these taxes. If either system were adopted as a replacement for the current income tax system, it would simplify the tax code and bring in additional revenue.

15 Responses to “What’s The Difference Between A Value Added Tax And A Fair Tax”

  1. UM Bergin says:

    You might have a point that a flat tax is more fair than a VAT but I think there would be more opposition to the former. The inevitably of a VAT and the political reason’s Paul Volcker’s remarks were immediately disavowed were very interestingly laid out by the “VAT Bastard” at http://www.tax.com

  2. Melva Anderson says:

    The VAT tax does not get rid of the income tax, social security tax or FICA. It adds a tax at each point of the process of making any item and the consumer will not know how much they are paying in taxes when the item is purchased. This tax will be on top of the Income Tax. The Fair Tax gets rid of the Income Tax, Social Security Tax and FICA, so you will take home your whole pay check. The consumer will pay a tax at the retail level on New goods and services but not on any used merchandise.You will be able to see on your receipt exactly how much you are paying for taxes. It will untax the poor as everyone with a valid social security number who signs up for it, will receive a prebate every month up to the poverty level to offset the taxes they would pay on the necessities of life. It will keep politicians from lining their pockets from lobbyists in order for them to get exempted from paying taxes. It will also do away with corporate taxes so companies who have moved across seas to keep from complying with high taxes will want to relocate back into the United States. This should bring back jobs we have lost and decrease the power of the government. If you want to learn more go to http://www.fairtax.org

  3. Elvis McNeely says:

    You are confusing the “fair tax” and “flat tax”. The fairtax does not tax income at all. The fair tax method removes all income taxes and corporate taxes as well. The tax collection is shifted from collecing your gross income to collecting on what someone consumes (only new items).

    I just want to point that out as the Fair Tax gets rid of the IRS (at least for personal tax stuff) and gives more freedom to everyone, letting them take home all the money they earn and then decide where / how they want to spend their money to contribute to the federal government.

  4. Paul Livingston says:

    There is also the FairTax, bill HR 25/296 now in the Ways and Means Committee. This 133 page bill undoes almost 70,000 pages of existing, convoluted tax code to raise the same tax revenues to fund the U.S. Federal government with one tax; a fair, simple, transparent, easy to collect, harder to cheat, revenue neutral, end of sales process consumption tax. The FairTax eliminates the income tax, capital gains tax, regressive payroll taxes (Social Security and Medicare), estate taxes, businesses taxes (that are actually paid by the final consumer as hidden taxes with higher prices). The FairTax untaxes all U.S. citizens up to subsistence level spending with a monthly rebate. The changes in the tax code by the FairTax would take the hidden business taxes out of the pricing system to cause a huge job stimulus and attract over $12 trillion in offshore capital to the U.S economy, a no cost economic stimulas with zero government spending. The FairTax will tax the over 1$ trillion underground economy and greatly reduce cheating. The FairTax changes the tax code to reduce the powers of politicians and lobbyist to reward and punish, divide-and-conquer, hide-and-disguise and slowly ratchet up our tax burden. To learn more go to http://www.fairtax.org and become a FairTax supporter.

  5. Sandra Stewart says:

    The explanation given here of the difference between the flat tax and the fair tax is completely wrong. A flat tax is a tax on income at a flat rate for everyone. It is just as corrupt as the present system, since corporations and self-employed persons can take advantage of creative deductions to lower their bottom line income amount. A fair tax is a national sales tax INSTEAD of an income tax. It taxes everyone who buys products in this country at the same rate. There is no way to play with the numbers, no returns to fill out, and no need for an IRS any more with a fair tax. A value added tax (VAT) is a kind of national sales tax IN ADDITION to the current income tax. But, it is invisible. It is added to the price of the product, so it raises the cost of goods and services you buy, but you never know how much of the amount paid is going for the tax.

  6. Amerigo M. Cimino says:

    Wouldn’t it be nice to make 04/15/20–?, a holiday? What could be fairer than the Fair Tax! Our government would not like it, there would be no room for lobbyists, no preferential treatment, NO added taxes, and the government would have to live within the means of the taxes collected. ALSO, if you think of the rewards, NO other taxes, no more saving receipts, no more taxes on anything and you can look up the list of things that are taxed. This is on the Federal level. Raising the tax to any higher level would bring on a revolution! Let’s get this Fair Tax enacted!
    What a relief it would bring to all taxpayers.
    Let’s do it now. If you have not read the Fair Tax book, get one. There are other books that explain the objections and they are worth reading.

  7. Ken Scheid says:

    10% of $10,000 is $1,000 not $100. Please be accurate with numbers, it is extremely important to do so, especially with taxes.

  8. John Brown says:

    @Amerigo M. Cimino

    Of course there would still be lobbyist and preferential treatment. There would be ax exemptions on homes for the rich, etc. And who do you think would help them with that? There will still be bills passed. They can also raise the national sales tax if they wanted. I’m not going one way or the other, but this would be most beneficial to the wealthy. They would be able to get exemptions on homes and other luxury items through the power of the dollar.

  9. Aaron says:

    The description of the ‘fair tax’ is very wrong. From the website: The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal taxes on spending up to the poverty level, dollar-for-dollar federal revenue neutrality, and, through companion legislation, the repeal of the 16th Amendment.

    The FairTax Act (HR 25, S 296) is nonpartisan legislation. It abolishes all federal personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare, and self-employment taxes and replaces them with one simple, visible, federal retail sales tax administered primarily by existing state sales tax authorities.

    The FairTax taxes us only on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient, transparent, and intelligent solution to the frustration and inequity of our current tax system.

    The FairTax:

    Enables workers to keep their entire paychecks
    Enables retirees to keep their entire pensions
    Refunds in advance the tax on purchases of basic necessities
    Allows American products to compete fairly
    Brings transparency and accountability to tax policy
    Ensures Social Security and Medicare funding
    Closes all loopholes and brings fairness to taxation
    Abolishes the IRS

    Here is some recent research on the FairTax legislation too: http://www.fairtax.org/about_basics_main

  10. Locksmith says:

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  11. Thanks for actually using proper grammar. Most sites were complete nonsense…

  12. John says:

    As others have pointed out, an entire half of this is completely wrong.

    The last poster thanked you for using proper grammar and concluded that most sites were complete nonsense. Unfortunately having proper grammar doesn’t make what you’re saying any more correct.

    You have completely confused a “flat tax” (which is what you described) and called it a Fair Tax. The two are COMPLETELY DIFFERENT. You should either correct this or take it down. It’s a year and a half after you posted this and obviously people are still finding it. Who knows how many people you have misinformed.

  13. galaxy says:

    Understand me?

  14. Nenita says:

    They’ll probably thsurt a VAT on us, but they’ll forget to remove the income tax Hey, let’s just do both Technology and efficiency is constantly putting people out of work, and we keep adding more workers to the work force. In good times, maybe all those surplus workers can become musicians, sell Avon, or become merry maids. But with government screwing things up, higher unemployment/underemployment might progress.Manufacturing of ipods or anything is becoming more and more mechanized it sure seems it will get rougher for the average worker. The good thing is a nice standard of living can be had for not much money. But managing distribution or redistribution of wealth/jobs might make for some angst. Maybe competition would bring more services to more people merry maids and child care for more commoners ? Better care for the elderly? To some degree we’ve already had this problem, with government and unions providing cushy lifetime employment, often for those that might have more trouble competing in the open market. Perhaps a working welfare program would be needed, but they should make less than the privater sector, not much more with early retirement and lifetime super benefits.A vibrant middle class might keep a whole economy humming, but constant trillion dollar stumbles by big government keeps crippling the capitalist/socialist mix we have now.

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