WHAT IS THE FAIRTAX?

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ABOUT THE FAIRTAX

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The FairTax Plan levies a tax of 23 percent of every dollar spent on the retail purchase of new goods and services. Although that may seem high, most taxpayers will pay less in federal taxes under the FairTax than they currently pay under the income tax. Consider that the great majority of working Americans are in the 15 percent tax bracket or higher. Add to that the 7.65 percent in FICA and other payroll taxes, and you have almost 23 percent right there. Then other federal taxes must be paid like employer-matching payroll taxes, the Alternative Minimum Tax, capital gains taxes, gift and estate taxes, self-employment taxes, and corporate income taxes.

FairTax.org has created a calculator that lets you enter in your tax-relevant information and compare how your taxes under the FairTax compare to what you pay today. Keep in mind that this is a real-world model based on today's horribly complicated tax code. If you are in the middle of wrestling to figure out your own taxes, much of the information needed for the calculator may be at hand. In any case, the complexity of this calculator is necessary in order to accurately assess your details as they apply in the current system and are not a reflection of the FairTax. As you work with the calculator, imagine how you will be freed of all the time and money associated with preparing tax returns and how simple our tax lives will be under the FairTax.

The FairTax eliminates taxes on essential goods and services (as measured by the poverty level expenditures estimated by the Department of Health and Human Services) by sending a rebate check to each taxpayer every month. The amount of the check is determined by multiplying the FairTax rate times the poverty level guideline. This is a well-accepted, long-used poverty level calculation that includes food, clothing, shelter, transportation, medical care, etc. Under the FairTax Plan, the poverty guidelines are adjusted to eliminate the marriage penalty. These adjusted guidelines are called the Annual Consumption Allowance. See Figure 1:

Because of the rebate (or prebate, since the check is sent each month in advance of expenditures), people at or below the poverty level pay no federal taxes. This is why we say the FairTax untaxes the poor. But all American taxpayers will benefit from this, including seniors on fixed incomes and young people just starting out. As the chart shows, a couple will pay no federal taxes on the first $20,420 they spend.

While we are comparing, we have prepared a simple chart that compares the FairTax with today's income tax and the so-called "flat tax."

No matter how you look at it, the FairTax leaves more money in more taxpayers' pockets.