FairTax Overview
The FairTax plan increases economic growth.
Small businesses thrive in a healthy, growing economy but because of inadequate capitalization and lack
of access to sufficient bank credit, they have much more difficulty in a stagnant or shrinking economy.
The FairTax causes the economy to grow and become much more dynamic. The substitution of the
FairTax for federal taxes on a revenue neutral basis has an immediate and powerful impact on the level
of economic activity. GDP would increase by almost 10.5 percent in the first year.”47 Laurence
Kotlikoff found that implementation of the proposed tax reform plan “raises the economy’s capital stock
by 42 percent, its labor supply by 4 percent, its output by 12 percent, and its real wage rate by 8 percent.
It also lowers real interest rates by more than one quarter.”48
The impact of increasing economic growth can be substantial. A 90 percent drop in
compliance costs, equal to a $388 billion reduction in tax complexity, would increase GDP
growth between 0.8 percent and 0.9 percent. An increase in annual GDP growth by just one percent has
the potential, if continued for 10 years, to raise federal revenues and lower interest payments on the debt
enough to balance the budget at the end of the 10-year period. For a brief summary of these research
studies and others, see Research Summary: The Impact of the FairTax on the Economy,
http://www.fairtax.org/PDF/SummaryOfTheFairTaxOnTheEconomy.pdf
What is the FairTax Plan?
The FairTax Plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an
integrated approach including a progressive national retail sales tax, a prebate to ensure no American pays federal
taxes on spending up to the poverty level, dollar-for-dollar federal revenue replacement, and, through companion
legislation, the repeal of the 16th Amendment. This nonpartisan legislation (HR25/S122) abolishes all federal
personal and corporate income taxes, gift, estate, capital gains, alternative minimum, Social Security, Medicare,
and self-employment taxes and replaces them with one simple, visible, federal retail sales tax – administered
primarily by existing state sales tax authorities. The IRS is disbanded and defunded. The FairTax taxes us only
on what we choose to spend on new goods or services, not on what we earn. The FairTax is a fair, efficient,
transparent, and intelligent solution to the frustration and inequity of our current tax system.
47
David G. Tuerck, et.al., “The Economic Effects of the FairTax: Results from the Beacon Hill Institute CGE Model,” The
Beacon Hill Institute at Suffolk University, February 2007.
http://www.beaconhill.org/FairTax2007/EconomicEffectsFTBHICGEModel4-30-07.pdf
48
Kotlikoff, Laurence J.and Sabine Jokisch, “Simulating the Dynamic Macroeconomic and Microeconomic Effects of the
FairTax,” National Tax Journal, June 2007.
http://people.bu.edu/kotlikoff/FairTax%20NTJ%20Final%20Version,%20April%2024,%202007.pdf
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