FairTax Overview
benefits. In fact, even tax-free income from municipal bonds gets counted in that calculation. All of
this affects the amount of money a retiree gets to keep.
Many retirees find they need to make quarterly estimated tax payments to the Internal Revenue Service,
something they may not have done in their working years.52 And the 16 percent who work will owe
Social Security and Medicare taxes as well as income taxes on that income. Up to 85% of Social
Security benefits can be taxed depending on how much income a retiree earns. They paid payroll taxes
to receive those benefits and must pay taxes on the benefits! The FairTax repeals both income taxes and
payroll taxes.
1) The FairTax repeals the taxation of Social Security benefits and adjusts Social Security
indexing to protect seniors.
The FairTax legislation totally repeals the current income tax on Social Security benefits. The FairTax
legislation also adjusts the Social Security benefits indexing formula, commonly known as the cost of
living adjustment or COLA, so that benefits increase to the extent, if any, that the federal sales tax
results in higher costs to seniors.
2) The FairTax ends gift and estate taxes, along with all of the unfairness to heirs and complex
planning for those who earned the money.
Under the FairTax, gift and estate taxes are repealed. The need for small businesses and farmers to
engage in expensive estate planning involving attorneys, complex estate freeze transactions, and
expensive life insurance plans in anticipation of future estate and gift tax liability disappears.53 Heirs no
longer need to sell the business or farm out of the family or borrow heavily, putting the business at risk,
in order to pay the estate tax.
Repeal of the corporate and individual income tax and the estate and gift tax has a substantial positive
impact on the stock market.54 Those seniors who own stocks either directly or through mutual funds,
individual retirement accounts, 401(k) plans or otherwise, experience significant gains. In 2009, onethird of seniors owned stock and/or mutual funds.55 In addition, unrealized capital gains that would have
been subject to the income tax when realized are no longer taxed.
3) The FairTax ends all record keeping and income tax filings of any kind for seniors, totally
insulating them from the high costs and abusive tactics of tax preparers.
Seniors (and their heirs) no longer need to keep tax records of any kind. Planning needs (and costs) are
minimal and simple. There are no income tax filings of any kind. With this change, seniors no longer
need assistance with complex forms, nor are subject to the devious and unethical tactics and expense of
tax preparers. Nor are seniors the deliberate target of IRS audits – there is nothing to audit!
52
Lauricella, Tom, “When Work is Done, Tax Headaches Begin,” The Wall Street Journal, August 27, 2006.
Three separate studies found that the compliance costs associated with the estate planning industry exceed the revenue
yield of the tax itself. The Estate Tax: Even Worse than Republicans Say, Tax Foundation, Fiscal Fact No. 326, August 29,
2012.
54
See FairTax whitepaper, “Impact of the FairTax on the Stock and Bond Market.”
55
U.S. Bureau of the Census, 2012 Statistical Abstract of the United States, Table 1211.
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