FairTax Overview
Average remaining federal lifetime tax rates for seniors:
The current system vs. the FairTax
Single
Household
income
Couple
Tax rate
Current
FairTax
system
Household
income
Tax rate
Current
FairTax
system
$10,000
6.5%
-27.1%
$20,000
7.2%
-11.0%
$15,000
9.8%
-28.0%
$30,000
10.1%
-10.5%
$25,000
14.1%
-6.2%
$50,000
14.2%
1.4%
$35,000
16.7%
-5.9%
$70,000
17.0%
2.2%
$50,000
21.5%
3.9%
$100,000
22.4%
7.9%
$100,000
32.1%
9.2%
$200,000
32.2%
12.3%
$250,000
40.8%
18.2%
$500,000
41.5%
19.3%
A striking feature of this table is the negative average tax rates under the FairTax of low-income
seniors.63 These negative tax rates reflect the fact that, net of Social Security benefits and the FairTax
prebate, seniors receive more under the FairTax than they pay in. In contrast, under the current system,
low-income seniors would have positive average lifetime tax rates ranging from 6.5 percent to 14.2
percent of their annual income. Another key feature is how much lower average lifetime tax rates under
the FairTax are for middle- and upper-income seniors compared to the current tax system. For example,
high-income seniors experience significant positive average remaining lifetime tax rates of 18.2 percent
for singles and 19.3 percent for couples. However, these rates are significantly lower than what they
would experience under the current system – 40.8 percent for singles and 41.5 percent for couples.
9) The FairTax generates an economic boom, which eases future budget pressure on seniors’
entitlements.
Replacing the income tax with a consumption tax, such as the FairTax, makes the economy much more
dynamic and prosperous. Consequently, federal tax revenues grow, spending is under less upwards
pressure, and the deficit declines. Budget pressure on Social Security and Medicare spending, already
significant, becomes more pronounced as the post baby boomers enter their retirement years. There are
42 million people in the population age 65 and older today. By 2030, this number is estimated to rise to
72 million, a 71 percent increase. In contrast, by 2025 the number of workers is estimated to rise by
only 13 percent. The economic growth caused by the sales tax replacement of the current tax system
makes it substantially less likely that federal budget pressures will result in Medicare or Social Security
benefits cuts.
63
The results in the table are based on the assumption that all heads of household and spouses are age 60, retire at
age 65, and start collecting Social Security benefits at age 66. Earnings between the household’s current (2005)
age and retirement are assumed to remain fixed in real terms.
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