Fair Tax

To be clear, the FairTax is not a Social Security reform bill. It touches on Social Security in that it promises to end the payroll tax completely - a permanent holiday.  

The information here is taken from the http://www.fairtax.org/.  At one point the site provided substantial research on various issues like Social Security.  It is no longer there.

Endorsement

Social Security seems to be an afterthought to the people at the FairTax.Org.  Supporters claim largely that these changes will not make the situation worse.  We have our doubts.

This change introduces incentives in the system which will make costs spiral higher.  It ends the link between contribution and benefit, making Social Security which we believe is a terrible idea.  Once there is no link between what you have paid and what you get, Social Security will be little more than a pot of money with which politicians buy votes. 

How Does It Work?

In ending the payroll tax, Social Security will collect a defined portion of the revenue collected by the national sales tax.  That percentage will change as the size of reported wages change.

Strengths

Social Security will be funded by all Americans not just the working class.  "Instead of being funded by taxes on workers’ wages, which is a small pool, they’ll be funded by taxes on overall consumption by all residents", <more>

Weaknesses

We believe that the cost to participate in Social Security is a major disincentive to participate in the system.  At this point there are about 6 million workers who are not covered by Social Security, roughly 4% of the workforce.  As the cost to participate is lowered to zero, employers will see Social Security as a free benefit for its employees.  As a consequence of lower payroll taxes, we envision all workers will join the system.  Candidate Cain has talked about Galveston County workers, who left Social Security many years ago.  Under this plan, the cost to participate will be zero.  So it is only reasonable to expect every employer like Galveston County to join the system.

"Employers continue to report wages for each employee, though, to the Social Security Administration for the determination of benefits." 

Essentially, we are replacing a system which future benefits are associated to past contributions.  Now benefits will be connected to reported wages - which have no cost.  This is an invitation to fraud and it should be expected that reported wages will rise.  This will create a massive shift in the taxbase from other priorities to Social Security as the percentage of the national sales tax rises to cover the 'rising' wages.

Distortions

Politifact rated Candidate Cain's claim about Galveston County Workers as Mostly True.  It passes our review, but  You be the judge

Open Questions

Traditionally, Fair Tax supporters have claimed that the Fair Tax is revenue neutral for Social Security.  That basically means that Social Security is as unstable under the Fair Tax as it is today.

We would like to hear from supporters what will happen to the workers of Galveston County.  There retirees from that system who will be expected to contribute to Social Security, but will not receive a penny of benefits.  We would like to understand how the 60 year-old who cannot build enough credits in Social Security will be treated.   Will they be able to collect benefits for which they are paying?

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