The Fair TaxThe Fair Tax
Americans for Fair Taxation
2
The Fair Tax Founders
Where Did it Start?Leo Linbeck* and two business associates(*Chairman and CEO, Linbeck Corp; Past Chairman, Federal Reserve of Dallas)
$4.5 mil. seed money from three associates
Funded studies at major universities and financial institutions
3
Economic Research Participants
The Argus group (David Burton and Dan Mastromarco)
Boston University (Larry Kotlikoff)
Cato Institute (Steven Moore)
Harvard University (Dale Jorgenson)
Heritage Foundation (Bill Beach)
National Bureau of Economic Research (Jim Poterba)
Rice University, Baker Institute for Public Policy (George Zodrow)
Massachusetts Institute of Technology (Joseph Kahn)
4
FairTax Objectives
Simplicity
Fairness
Eliminate Loop Holes
Protect the Poor
Encourage Investment
Stimulate Business/Job Growth
5
Recommended System
A Consumption Tax
Replaces all Federal Taxes– Except special purpose excise taxes
Applies to all Consumption Expenditures– Personal– Business– Government
6
The Fair Tax Replaces
All personal and business income taxes
All capital gains and investment income taxes
All social security and Medicare payroll taxes
All gift and inheritance taxes
7
The Fair Tax Base
Fair Tax is imposed on ALL consumption:– Personal– Business* – Government
*Fair Tax is NOT imposed on:– Purchases used in a product for
subsequent sale through a retailer
8
Special Provisions
Rebate to all Americans for tax on the necessities of life– At the poverty level, households have a zero
tax rate
Charities do not collect a tax on donations – They are not a consumer
Educational institutions do not tax tuition or other receipts and gifts– Expenditures for education are treated as
an investment
9
Fair Tax BaseSource: National Income Product Accounts, Survey of Current Business, Aug., 1996 (From Emancipating America from the Income Tax by D. R. Mastromarco and D. R. Burton)
Description of Taxable Item Billions (1995)Personal Consumption Expenditures $4,924.9
Purchases of New Homes $ 156.4
Improvements to Single-family Homes $ 73.9
Imputed Rent on Housing –$ 534.3
Additional Financial Intermediation Services –$ 53.0
Foreign Travel by U.S. Residents –$ 26.4
Expenditures Abroad by U.S. Residents –$ 2.7
Food Produced and Consumed on Farms –$ 0.4
State and Local Government Consumption $ 682.6
State and Local Government Gross Purchases $ 150.1
Federal Government Consumption $ 453.8
Federal Government Gross Purchase $ 62.7
Less: Education Expenditures –$ 97.5
Plus: Expenditures by U.S. Non-residents $ 73.1
Fair Tax Base: $5,978.2
10
Rate Determination
Total Taxes Collected + Rebate
Total Consumption Expenditures
The necessary tax rate: 23%
Results in lower taxes for 95% of All Americans!
=_______________________________
11
Tax Inclusive vs. Tax Exclusive Rates
Income Tax Rate of 23% is Tax Inclusive– Income includes the tax that is paid
Fair Tax Rate of 23% is Tax Inclusive– Equivalent to an exclusive rate of 29.9% added
to a purchase– $100 purchase + 29.9% = $129.9 gross purchase– $29.9 tax divided by $129.9 = 23%
No American can pay more than 23% of his gross purchases for Federal Taxes
12
Fair Tax Rebate—Year 2008
Household Size
Poverty Level
Annual Rebate
Monthly Rebate
Adult $10,400 $2,392 $199
Adult + child $14,000 $3,220 $268
Adult + 2 children $17,600 $4,048 $337
Couple $20,800 $4,784 $399
Couple + child $24,400 $5,612 $468
Couple + 2 children $28,000 $6,440 $537
Couple + 3 children $31,600 $7,268 $606
(Poverty level determined by the Dept. of Health and Human Services)
13
FAIR TAX EFFECTIVE TAX RATE
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
$22,500 $45,000 $90,000 $180,000 $2,250,000
-11.5% 0.0% 11.5% 17.2% 20.1% 22.8%
14
The Fair Tax Stimulates Economic Growth
Through encouragement of:Reinvestment of tax free earnings
Reinvestment of tax free dividends
Reinvestment of untaxed capital gains
Increased personal savings and investment
Foreign capital investment
Lower interest rates
15
Compliance/Tax Evasion
Easier tax enforcement– 90% reduction in tax filers– Only audits of customer shipments from
manufacturers needed– Cash register records of retails
Relative simplicity of Fair Tax will encourage compliance
16
Why Prices Will Decrease 18-28%
Product/Service Labor Cost Loaded with:
Social Security and Medicare Taxes (employer half of payroll taxes included in labor overhead)
7.8125%
Business/corporate Income Tax 5–10%
Cascading of Taxes in Tiered Production 5–10%
Total Tax Load in Product Prices 18–28%
17
The Fair Tax Accomplishes:
It lets every worker keep their entire paycheck—NO income or payroll taxes
It lets retirees keep their pensions and social security checks—Untaxed
It lets everyone keep capital gains and investment income—Untaxed
It encourages savings and investments
18
The Fair Tax Accomplishes:
It eliminates gift and inheritance taxes
It taxes spending of inherited/gifted wealth more fairly
It ends personal and corporate income tax filings
It eliminates the $225 billion cost of the income tax industry
19
The Fair Tax Accomplishes:
It eliminates the need for the $8 billion IRS
It encourages repatriation of wealth from tax havens
It encourages foreign capital investment
It stimulates exports
It stimulates economic growth and job formation
20
The Fair Tax Accomplishes:
It eliminates all tax loopholes
It has a significantly lower cost of enforcement
It eliminates a significant percent of congressional lobbyists
It makes the real federal tax rate visible to voters—every time the cash register rings
21
Flat Tax vs. Fair Tax
Fair Tax Flat Tax
Is still an income tax No Yes
Eliminates $250 mil. Income tax industry Yes No
Simplifies business accounting and reporting Yes No
Stimulates exports Yes No
Encourages capital repatriation from tax havens Yes No
Encourages investment Yes No
Eliminates product tax build up in product cycle Yes No
Result in lower interest rates Yes No
Eliminates double taxation of business profits Yes No
Facilitates home ownership Yes No
Taxes inherited and gifted wealth more fairly Yes No
22
Probable Fair Tax Effect on State Tax Policy
Repeal State Income Tax– Enforcement too expensive without IRS
Eliminate Exemptions to State Sales Tax– Necessary to become Fed tax collector– Too confusing to have different rates
Become Fed Tax Collector– Collect 1/4% from Feds
23
The Fair Tax Is:
Deceptively Simple
Extraordinarily Efficient
Fair to all Tax Payers
24
What do we want from you?
Join FairTax Nation
Participate in – Tea Parties and special events– Community Meetings– State Organization
Let elected officials at State and Federal know you want the FairTax
Contribute $$ to support effort (even ¢)
25
Americans for Fair Taxation
www.fairtax.org
1-800-FAIRTAX
www.ohfairtax.org
Top Related