FairTax Overview
The FairTax plan
The FairTax plan involves three specific actions:
· Passage of legislation that repeals the income tax, the payroll tax in its entirety, the estate tax, the
gift tax, the capital gains tax, the alternative minimum tax, the self-employment tax, and the
corporate tax.
· Passage of legislation that installs a single rate, national sales tax on all new goods and services at
the point of final purchase for consumption, and that provides for a universal rebate in an amount
equal to the sales tax on essential goods and services up to poverty level spending.
· Adoption of a constitutional amendment to repeal the 16th Amendment and to prohibit income
taxes. The FairTax will sunset if the 16th Amendment has not been repealed within seven years
following enactment, preventing the possibility of having both the income tax and a national
sales tax.
The FairTax has been introduced as “The Fair Tax Act of 2013” in the 113th Congress (H.R. 25
in the House of Representatives and S. 122 in the Senate).86
Fairness
Throughout the history of our country, our citizens and government have had an objective to increase
every American’s chance to achieve economic independence by providing greater opportunities to share
in our country’s growth and prosperity. The FairTax helps us achieve this goal. Americans are better
off under the FairTax. Although every taxpayer is subject to the same sales tax rate with no exceptions
or exclusions, those least able to share in the cost of government will carry no federal tax burden at all.87
Under the current system, the more your income is derived from wages, the more you are affected by
payroll taxes. In addition, under the FairTax, no one will pay tax on the cost of essential purchases, and
those who demonstrate their greater ability to pay by consuming more, will pay more taxes.88
86
H.R. 25 is sponsored by Congressman Rob Woodall, with 58 co-sponsors in the House as of January 23, 2013. The Senate
companion bill, S122, is sponsored by Senator Saxby Chambliss and has 7 co-sponsors.
87
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; Kahn, Joseph, “Examining a Change
to a National Retail Sales Tax Regime: Impact on Households,” Decisions and Ethics Center, Stanford University,
November, 1996.
88
The analysis shown in Tables 1 and 2 does not include the 2 percentage points payroll tax reduction for employees which
expired on Dec. 31, 2012.
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