"The nice thing is that under the FairTax, Social Security and Medicare will continue to be fully funded -- no more Social Security Tax."
-- What's more is that it saves social security. No more worker-to-retiree ratios. ALL of sociaty funds retirees, not workers.
You're absolutely right, everyone pays it, and so everyone pays into it.
Social Security becomes even more of a pure Socialist program at this point. Which is bad. At this point there is at least some tenuous connection between what you put in and what you take out. Under your plan it becomes a completely unearned entitlement. Someone who never worked a day in their life would get exactly the same benefit as someone who worked 2 jobs for 40 years. Does that make sense to you? It's basically a lottery for those who live the longest.
My alternative is 100% privitization. Each person would get exactly what they put in, with interest, no more no less. Interest would be calculated based on T-Bill rates and compounded retroactively. At retirement each citizen could elect to 1) convert it to an annuity (no balance at death of self and spouse) 2)take interest only payments (full balance is inhereted at death).
We might still need a charity system for those who don't contribute, but it should be obvious that is a govenment charity, not a blurred issue like with todays system.