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The FairTax is really a set of proposals through which all federal taxes are eliminated and a federal sales tax is implemented. In addition to this, a prebate is given based on the poverty level so that in effect no one pays sales taxes on basic necessities.

Has this ever been implemented anywhere on any scale? If so, how did it go. If not, has anything ever come close and how did it go?

  • Does your question require a 'Federal' system? In the UK all income and sales taxes are 'federal' in the sense of being implemented at the national level. Necessities have sales tax of zero. – DJClayworth Oct 16 '13 at 19:10
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I'm unaware of any FairTax systems being implemented in an actual real life situation, but there's a (length) article on the subject detailing about a simulation: Jokisch, S., & Kotlikoff, L. J. (2005). Simulating the dynamic macroeconomic and microeconomic effects of the FairTax.

The article is very positive about the potential implementation of a FairTax system. To be fair, the article was written in 2005 - well before the economic decline - but the simulations are done on a long term basis, so they should still be considered viable.

According to our simulation model, these policy changes would almost double the U.S. capital stock by the end of the century and raise long-run real wages by 19 percent compared to the base case alternative. They would also preclude a doubling of the highly regressive payroll tax. Indeed, the poorest members of each cohort experience remarkably large welfare gains from the FairTax. To be specific, today's elderly poor are predicted to experience a 13 to 14 percent welfare gain. In contrast, their middle class counterparts enjoy a 1 to 2 percent gain, and their richest counterparts experience a .5 to 1 percent welfare loss. Poor baby boomers experience 8 percent gains, while middle- and upper-income boomers experience either very small welfare losses or small gains.

And concluding..

Yes, some initial high- and middle-income households are made worse off, but their welfare losses are minor compared with the gains available to future generations, particularly the poorest members of future generations. The economic and welfare gains from switching to the FairTax are somewhat smaller if one models the U.S. economy as fully open to international capital flows. But these gains are nonetheless large and very significant.

The general consensus of the article seems to be that while the current US tax system benefits the aging, it is damaging to the macro-economy on a broader scale. The base case simulation (as executed by Jokisch & Kotlikoff) underlines this. The model predicts a major reduction in take-home-pay for average workers. FairTax is presented as a cure - not only does it increase general nett salary, it also has a levelling effect on the economy as a whole, benefiting the less well-off. While there is an ever so strong opposition to levelling policies in the US, on a global scale (e.g. in Western Europe) it's a more accepted approach.

  • You assume that those benefits suit the actual objectives (as opposed to stated objectives) of anyone in power. Actual prosperity of the masses has an inverse effect on the ability of those in charge to stay in charge when they do bone headed things. – SoylentGray Dec 12 '12 at 1:03
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This is a very broad question. I am assuming you mean in recent history. I am also assuming you mean OECD or rich countries, since there are some resource rich countries that have little to no taxes. I am also assuming, since you point to that specific proposal, that you are ruling out VATs and only want to know about sales taxes.

Having said that, the short answer is that I can't think of a single large economy that has only had a sales tax, and nothing else. Not even low tax countries such as Switzerland rely exclusively on sales taxes. In fact, countries that have tried high sales taxes have backed away from them because of tax evasion, some of them moving to use VATs: http://www.taxpolicycenter.org/briefing-book/improve/retail/abroad.cfm http://en.wikipedia.org/wiki/FairTax

  • Any idea if that article you linked to is talking about only a retail sales tax or a retail sales tax in addition to other taxes? – mikeazo Dec 12 '12 at 0:06
  • I did not read the whole report, so I am not 100% sure. – Ralph Pina Dec 12 '12 at 15:41
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The states which have no income taxes come the closest to having the FAIRtax. Texas, for instance is in the top 10 economies of the world. However, these states can’t compete with the overall proposal because even with no income taxes, there are still exemptions (the bane of a fair system) and no provision to protect every citizen’s spending for life's necessities (food, clothing, shelter, transportation, medical, etc). So, growth opportunities can never reach the capability provided by the FAIRtax. See BigSolution.org, fairtax.org and Member.fairtax.org!

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