FairTax Overview
(1) Eliminating all federal payroll withholding taxes, allowing wage earners to take home their entire
paychecks – it's the full paycheck plan. Social Security taxes, the most regressive tax of all, are no
longer withheld from paychecks.
(2) The FairTax also ends the income tax system, so paycheck-to-paycheck families have no income tax
withheld. Neither do they have to keep records, file returns to get their refunds, hire preparers for
complex earned income tax credit (EITC) forms, or defend themselves against EITC-targeted IRS
audits.
(3) The FairTax allows every family to purchase what they deem as basic living essentials tax free via a
system that rebates taxes on all spending up to the poverty level, based on the Department of Health
and Human Services poverty guidelines.64
(4) The FairTax ends the sham of corporate taxes – government can levy taxes on business, which will
collect and remit them, but never pay them. Business “pays” such taxes by raising prices to
consumers, lowering the wages paid to workers, and by lowering dividends paid to shareholders.
The FairTax removes these hidden taxes.
(5) Used products are not taxed, allowing these consumers yet another means to reduce their tax burden
on spending above the poverty level.
The FairTax is a revenue-neutral proposal, raising no more or less tax than the current system.
In addition, used products, used cars, homes, etc., are not taxed under this legislation. Only the FairTax
honestly and transparently achieves the goal of completely untaxing America’s low-income strata up to
the poverty level.
The FairTax is a discretionary tax.
The FairTax provides individuals with the maximum choice over what to do with their income: They
can consume it (and pay taxes) or save it (and pay no taxes). If one chooses to consume for personal
benefit beyond the necessities of life, one pays a tax. If one does not, but chooses instead to save and
invest for education, a home or a better retirement, one defers consumption and the tax. Unlike current
law, the FairTax is not biased towards consumption. It encourages young families to save and invest. If
we had enacted a FairTax ten years ago, according to a study by Beacon Hill Institute65, we would each
be ten percent better off today.
Save faster under the FairTax.
The FairTax puts the amount and timing of paying tax under the taxpayer’s control, it enables young
families and homebuyers to save for their purchase faster. Why are individuals able to save faster under
the FairTax? First, the FairTax removes the enormous disadvantage to savings and investment under
our income tax system. Wage and salary income is included in the income tax base when it is earned
originally. If that income is consumed, the benefits of consumption go untaxed. However, if what is left
of the wages and salaries is saved (for example, to buy a home), the earnings are taxed as the income
64
See whitepaper, The Prebate Explained, February 2013. http://www.fairtax.org/PDF/PrebateExplained.pdf
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.
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