One of the common misperceptions of the Fair Tax Act is that it will fuel inflation and dramatically impact the demand for goods with high price elasticities. However, it's likely that the sales tax will have minimal impact on prices. This is because there are already embedded taxes on all products and services that are purchased at the retail level that are estimated to be around twenty-two percent of their costs (Boortz, 2003). This twenty-two percent represents the payroll taxes and corporate business and income taxes paid by manufacturers, shippers, wholesalers, merchandisers and retailers. So, with regard to prices,

Some fear that a consumption type tax would lower the overall demand for goods and services, thus harming businesses and our country's growth. Although savings and investment may increase while domestic consumption falls, many other factors must be factored into the productivity equation. In 1995, businesses and individuals in the United States spend more than $150 billion to comply with the federal income tax system (Burton and Mastromarco, 1997). Compliance costs averaged an estimated twenty to fifty percent of the total revenue raised by the tax system and 1.9 to 4.1 percent of the Gross Domestic Product. Small businesses disproportionately bear the burden, enduring compliance costs 3.8 times the tax actually collected from them. By replacing income taxes with a national sales tax compliance costs for businesses and workers would fall by more than ninety percent. This means that The Fair Tax Act would remove the cost of corporate taxes and compliance costs from the cost of American exports, putting them on a level playing field with foreign competitors (Thumbnail sketch of the FairTax a comprehensive plan to replace income and payroll taxes). Lower prices would increase demand for exports from the United States, thereby increasing job creation in United States manufacturing sectors.

Critiques of the Fair Tax Act claim that is a regressive tax system that will benefit the wealthy at the expense of the poor. But, this isn't true. The reason is that the Fair Tax plan provides a prepaid, monthly rebate for every registered household to cover the consumption tax spent on necessities up to the federal poverty level (Thumbnail sketch of the FairTax a comprehensive plan to replace income and payroll taxes). The Fair Tax Act would eliminate taxation on the poor, lower the tax burden fo

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Approximate Word count = 1215
Approximate Pages = 5 (250 words per page double spaced)