This doesn't seem to make sense to me as it almost seems a reverse progressive tax. People earning just enough to get by will be spending almost 100% of their income on goods, thus having a very high VAT tax as a proportion of their income, while people in the very high income brackets tend to spend far less on actual "goods" as a percentage of their income.

My family, for example, puts far more money in the stock market than they do in groceries every month.

Eventually the money gets spent. Might not be right away, but eventually. You have to tax services as well for it to work though.

Uhh, why would it eventually get spent? My inheritance is probably going to be very high.

And what are you going to do with the money?

You'll spend some, invest some, etc. You'll also have kids, so even if you save it all, it'll get divided amongst more and more people.

Or you'll give it all away to charity.

Just look historically - are they any wealthy families that kept all the money in the family and never spent it?

I don't think there are any that even lasted 3 generations before it was spent or diluted among many children.

The Rockafeller and Walton families come to mind. My sister and I know a half-dozen families that have kept millions in inheritance over the course of about 100-150 years. Remember that America isn't that old and "modern" America is even younger.

My family tends to put a fair share of its yearly spending into family vacations, also, which wouldn't generate any taxes for the United States. This isn't really about my family though, it just doesn't make sense that you would rely on "eventual" wealth dissipation in order to collect taxes. Also, would you seek to tax different items differently? It seems like it would be more difficult to find and tax luxury items differently than simply using a progressive income tax. Would you have to establish VAT for items imported to the country? Would this be double taxation if you bought a good which has a VAT tax in another country?

The Rockefeller family is unusual in that the money is locked in a trust, but when it expires there are over 150 family members who will split the money.

The Walton is just now reaching it's 3rd generation, so isn't that old.

If this part really bothers you, you can have a sales tax plus estate tax, but no income tax.

BTW, you are asking me a bunch of questions on the details, when none of this is my idea. I'm just parroting what the proponents of the "Fair tax" say.

Fair enough. For what it's worth, according to the President's Advisor Panels and the Brookings institute, this would raise taxes for the bottom 90% of taxpayers and drop taxes for the top 10%. http://www.brookings.edu/papers/1998/03taxes_gale.aspx

Reading his paper it seems like this idea has some merit but this implementation is also fairly suspect.