FairTax Overview
The chart below displays the results from a research study by Dr. Laurence Kotlikoff which compares
net average lifetime tax rates for households from various income categories for both the income tax
system and the FairTax. Dr. Kotlikoff created a typical lifetime income stream and expenditure pattern
for each household income category using his financial planning simulation model for families in each
income category. Then using this representative lifetime income stream, he computes the income and
payroll taxes that would be paid by the household over its remaining lifetime.
For the income tax system, the net average lifetime tax rate = net income and payroll taxes paid on the
lifetime income – Social Security benefits received divided by the household’s lifetime income.
For the FairTax, the net average lifetime tax rate = national sales taxes paid on lifetime expenditures –
the FairTax prebate - Social Security benefits received divided by lifetime income.
The chart below compares the average remaining lifetime tax rates for the current income/payroll tax
system to the tax rates that would occur under the FairTax. 69 Specifically, it displays the results for a
fairly typical two-adult, two child household at various income levels.
Net Average Lifetime Tax Rates
(Couple with Two Children)
Income/Payroll Tax System
FairTax
40.0%
35.9%
35.0%
29.5%
30.0%
23.2%
25.0%
Tax
Rate 20.0%
17.6%
12.6%
15.0%
10.0%
5.0%
7.1%
2.4%
19.8%
11.3%
12.5%
15.2%
21.1%
17.8%
5.0%
0.0%
$20,000
$30,000
$50,000
$70,000
$100,000 $200,000 $500,000
Annual Household Income
69
The study estimated remaining lifetime taxes paid, lifetime benefits received, and lifetime income earned for 42 different
types of households in various income, marital status, and age groups. Kotlikoff, Laurence J. and David Rapson,
“Comparing Average and Marginal Tax Rates under the FairTax and the Current System of Federal Taxation,” NBER
Working Paper No. 12533, revised October 2006.
http://www.fairtax.org/PDF/Comparing%20AverageandMarginalTaxRates-110206.pdf
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