FairTax Overview
Again, the pace of the change is slow, but by 2030 real wages under the FairTax are 11.5 percent higher
than they would otherwise have been. In transforming the economy’s prospect from one of a capital
shortage to one of capital deepening, the FairTax also reduces real interest rates, with the 2100 real
interest rate ending up 160 basis points lower than under the current system.
Table 4
Simulation Results for the U.S. (closed economy)
Year
Index of
National
Income
Index
of
Capital
Stock
Index
of
Labor
Supply
Index
of
PreTax
Wage
Capital
Price
Interest
Rate
Social
Security
Cost
Index
Average
Wage
Tax
Index
Effective
FairTax
Rate
FairTax
Rebate/
NI
Year to year index values
BASE CASE SCENARIO (continuation of the current system)
2004
2010
2020
2030
2050
2075
2100
1.00
1.12
1.36
1.59
2.10
2.92
3.84
1.00
1.09
1.27
1.44
1.74
2.37
3.17
1.00
1.14
1.40
1.67
2.29
3.20
4.19
1.00
0.99
0.97
0.96
0.92
0.91
0.92
2004
2010
2020
2030
2050
2075
2100
1.02
1.17
1.45
1.74
2.38
3.35
4.46
1.00
1.23
1.65
2.07
2.97
4.45
6.22
1.05
1.17
1.39
1.63
2.17
2.99
3.88
0.98
1.01
1.05
1.07
1.10
1.13
1.15
1.000
1.007
1.008
0.975
0.987
0.992
0.981
0.075
0.075
0.074
0.078
0.088
0.088
0.087
1.00
1.08
1.32
1.68
1.79
1.91
2.04
1.00
0.98
0.94
1.04
1.13
1.07
1.06
.00
.00
.00
.00
.00
.00
.00
.000
.000
.000
.000
.000
.000
.000
0
.00
.00
.00
.00
.00
.00
.00
.00
.00
.00
.00
.00
.00
0.23
0.24
0.25
0.28
0.28
0.29
0.30
0.047
0.049
0.053
0.061
0.062
0.065
0.068
FAIRTAX SCENARIO
1.261
1.216
1.158
1.098
1.072
1.048
1.023
0.075
0.079
0.075
0.075
0.076
0.073
0.071
In addition to the above three studies regarding the economic impact of the FairTax, there are a number
of studies that examine the effect of consumption taxes in general.
Alan Auerbach of the University of California at Berkeley found that long-run GDP per capita would be
9.7 percent higher under a national sales tax.102
Michael Boskin, former chairman of the Council of Economic Advisers has stated that the long-term
gain to GDP from a consumption-based tax reform would be about 10 percent.103
Dale Jorgenson, Ph.D., form