The Fair Tax is a bad idea period and to save myself time I will only generally outline the basics and then go to bed and resume this discussion later.

What is Tax?

Well most people would ask that Tax is the government's rightful levy of authority against a person's wealth or income in order to pay for public services and policies.

That is one definition (probably the only GIVEN definition).

But Tax is actually so much more; what it is is the BASIC Federal Reserve; Tax is the most BASIC form of "monetary policy".

For instance; the economy is soaring, people are making money in markets and jobs and royalties and patents....all over the board, growth is incredible.  What should you do?  Well - the best answer is tax the rich why?  Because in such an environment money is "free" or more accurately...available.  So we don't need MORE money in the market which promotes inflation (this is historically shown) and promotes wealth accumulation by a rich minority or "elite" and the shaft of the "working man".

During a great economy no one really cares however because every thing's good but happens when the economy slows in growth (like now) or is in negative growth (like early 2000s)?

All that accumulated wealth stays with the rich and money is scarce and the rich are no more able than the poor to infuse money into the markets...so what should happen?

Taxes should be lowered, the government should pay its bills by deficits and debts (to be paid off later) and in this way lower tax actually CREATES capital...it CREATES liquidity more accurately and allows capital infusion into the markets as are needed...without the need of private institutions issuing credit; the public is the issuer and the Government acts as the debtor in this case.

In this way, taxation acts as a "dam" against the market forces and economic cycles that afflict the entire WORLD.

This is why "fair tax" is not so fair...fair tax is easy, but it is too simplistic to behave as a functioning monetary policy which is what taxation ACTUALLY is (in the United States at least).

You see...the US began with private funding for all utilities and services; the military, the government was all paid for by the issue of private credit to the government which would then repay the private creditor in this case Roger Morris (first name incorrect?) who basically financed the government on his own sound assets.

The Government of the US is a unique product of British Imperialism which functions similarly and so to these two nations specifically (and other associated nations, and now after WW2, more nations are catching on) Tax is not the means to provide for a military but the means to control the economy.

The Government can provide for a military with or without a tax...it just issues debt and wealthy opportunists see a chance to make money off war...simple answer but I'm trying to illustrate that this tax system isn't universal but the product of unique factors of the Anglican world...and through Anglobalization its become more wide-spread.

So because of this culture the tax system in the US is in fact a monetary policy.

Originally it was levied only directly against market factors such as exports but now its levied against all market factors from capital gains to foreign currency transactions to income....

And therefore we need a COMPLEX progressive tax system that taxes the rich more than the poor in times of GOOD economy and the rich need to be taxed less in times of BAD economy (in all cases the poor are marginal characters so in reality...they shouldn't even be taxed...why bother?)

But in a Good economy the tax should be higher...to siphon off some wealth why?

It creates competition and therefore efficiency.

If you are earning 20% but are taxed at 25% you will only earn 15% return on your investments - oooh...well I guess to reach that 20% then you have to be THAT MUCH MORE competitive...and thus efficient...and so on.

But again in a bad economy the bottom line is people need MONEY...they need accessible currency to spend or to invest and off-set losses and basically not go bankrupt...and cutting taxes are the quickest answers.

But as we see the US is not an economy but a bunch of economies...what if in this case Banks are suffering but in general, exports are on the rise?  Cut taxes for Banking establishments say by removing the extra-tax for establishments earning most of their income from non-tangible assets...and raise an export tariff or such to adjust the revenue.

So the effect of government spending is then also a monetary policy...to stimulate portions of the economy through say...health care for the nation (and now government spends on Proctor and Gamble or Pfizer)...or the US is over-hauling its military and so it can infuse money into research in missile systems with Raytheon.

All-in-all I have illustrated the dynamic world of the US economies and how the tax policy will effect these economies and as such there cannot be a simplistic "fair tax".

But I will say...I think the US should curb its budget issues and just cut the bottom 20-40% of the people from being income taxed...the largest portion of the revenue comes from taxing the wealthy and capital gains//corporate taxation and so the income tax on the bottom 2 quintiles actually probably does very little as a means of control for the economy.

Since taxations often get transferred to the consumer ..... think of this kenundrum...

Does taxing a worker get transferred to the employer by increased labor costs (i.e. raises in wages) through say unions or just through general practice of worker competition for wages...if a living wage is increased by taxes on the income..then does this not get passed to the corporation by the aggregate demand of workers for higher wages?

Taxes effect everything so in the basics - taxes have to be seen as a control on the money supply...as "A" control...not "THE" control; other factors can be discussed elsewhere.