FairTax Overview
The net average lifetime tax rate = net payroll/income taxes paid minus social security benefits received divided by
annual household income. For the FairTax, net taxes = taxes paid minus the sum of Social Security benefits received
and the prebate.
The FairTax lowers net average lifetime tax rates across all income categories.
A glance at the chart shows that the FairTax entails either a significant or a substantial reduction in the
remaining average lifetime tax rates for each income category. The two-adult, two child household with
annual income of $20,000 would pays on average 2.4% of its remaining lifetime income to the federal
government under the FairTax compared to 7.1% under the current income/payroll tax system – a 67%
decrease. The same family with an annual income of $50,000 would pay 11.3% of lifetime income in
taxes under the FairTax compared to 17.6% under the current system – a 36% decrease. And finally, the
same household earning $500,000 would see taxes as a percent of lifetime income decrease from 35.9%
under the income/payroll tax system to 21.1% under the FairTax – a decrease of 41%.
The FairTax enhances progressivity of the tax system.
As can be readily observed the percentage decrease in tax rates for households in the lowest two income
categories exceeds the percentage decrease in tax rates for households in the highest two income
categories. In fact, the reduction in the tax rate is proportionately much greater with the average lifetime
tax rate reduction for the lowest income category ($20,000) being 1.6 times the tax rate reduction for the
highest category ($500,000) – thereby improving progressivity of the tax system.
Net Average Remaining Lifetime Tax Rates
(Two Adult, Two Child Household)
Income
Income/Payroll
Tax System
FairTax
Percent
Rate
Decrease
$20,000
7.1%
2.4%
-67%
$30,000
12.6%
5.0%
-60%
$50,000
17.6%
11.3%
-36%
$70,000
19.8%
12.5%
-37%
$100,000
23.2%
15.2%
-34%
$200,000
29.5%
17.8%
-40%
$500,000
35.9%
21.1%
-41%
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 (HR 25/S122) abolishes all f