The Fair Tax

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The Fair Tax

• Americans for Fair Taxation

2
The Fair Tax Founders

• Where Did it Start?
• Leo Linbeck and two business associates(Chairma
  n and CEO, Linbeck Corp Past Chairman, Federal
  Reserve of Dallas)
• 4.5 mil. seed money from three associates
• Funded studies at major universities and
  financial institutions

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Economic Research Participants

• The Argus group (David Burton and Dan
  Mastromarco)
• Boston University (Larry Kotlikoff)
• Cato Institute (Steven Moore)
• Harvard University (Dale Jorgenson)
• Heritage Foundation (Bill Beach)
• National Bureau of Economic Research (Jim
  Poterba)
• Rice University, Baker Institute for Public
  Policy (George Zodrow)
• Massachusetts Institute of Technology (Joseph
  Kahn)

4
Tax System Objectives

• Simplicity
• Fairness
• Eliminate Loop Holes
• Protect the Poor
• Encourage Investment
• Stimulate Business/Job Growth

5
Recommended System

• A Consumption Tax
• Replaces all Federal Taxes
• Except special purpose excise taxes
• Applies to all Consumption Expenditures
• Personal
• Business
• Government

6
The Fair Tax Replaces

• All personal and business income taxes
• All capital gains and investment income taxes
• All social security and Medicare payroll taxes
• All gift and inheritance taxes

7
The Fair Tax Base

• Fair Tax is imposed on ALL consumption
• Personal
• Business
• Government
• Fair Tax is NOT imposed on
• Purchases used in a product for subsequent sale
  through a retailer

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Special Provisions

• Rebate to all Americans for tax on the
  necessities of life
• At the poverty level, households have a zero tax
  rate
• Charities do not collect a tax on donations
• They are not a consumer
• Educational institutions do not tax tuition or
  other receipts and gifts
• Expenditures for education are treated as an
  investment

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Fair Tax BaseSource National Income Product
Accounts, Survey of Current Business, Aug., 1996
(From Emancipating America from the Income Tax
by D. R. Mastromarco and D. R. Burton)
Description of Taxable Item Billions (1995)
Personal Consumption Expenditures 4,924.9
Purchases of New Homes 156.4
Improvements to Single-family Homes 73.9
Imputed Rent on Housing 534.3
Additional Financial Intermediation Services 53.0
Foreign Travel by U.S. Residents 26.4
Expenditures Abroad by U.S. Residents 2.7
Food Produced and Consumed on Farms 0.4
State and Local Government Consumption 682.6
State and Local Government Gross Purchases 150.1
Federal Government Consumption 453.8
Federal Government Gross Purchase 62.7
Less Education Expenditures 97.5
Plus Expenditures by U.S. Non-residents 73.1
Fair Tax Base 5,978.2
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Rate Determination

• Total Taxes Collected RebateTotal Consumption
  Expenditures
• The necessary tax rate 23
• Results in lower taxes for 95 of All
  Americans!

_______________________________

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Rate Determination

• How can it result in lower taxes for 95 of All
  Americans?
• By taxing
• The underground economy
• Visitors, tourists, and illegals

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Why Prices Will Decrease 18-28
Product/Service Labor Cost Loaded with
Social Security and Medicare Taxes (employer half of payroll taxes included in labor overhead) 7.8125
Business/corporate Income Tax 510
Cascading of Taxes in Tiered Production 510
Total Tax Load in Product Prices 1828
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Effect of FairTax on Prices
Price of goods under current system 100




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Effect of FairTax on Prices
Price of goods under income tax 100
- Embedded taxes - 18



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Effect of FairTax on Prices
Price of goods under income tax 100
- Embedded taxes - 18
Wholesale cost of goods under FairTax 82


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Effect of FairTax on Prices
Price of goods under income tax 100
- Embedded taxes - 18
Wholesale cost of goods under FairTax 82
Fairtax 25

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Effect of FairTax on Prices
Price of goods under income tax 100
- Embedded taxes - 18
Wholesale cost of goods under FairTax 82
Fairtax 25
Sales price, tax inclusive, under the FairTax 107
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Effect of FairTax on Paychecks

• Get to keep whole paycheck

Income Tax FairTax
Gross Pay 50,000 50,000
Income Tax (17 minus 5,150 deduction) - 3,550 - 0 -
Payroll (7.5) - 3,750 - 0 -
Take Home Pay 42,700 50,000
Prebate (Single) - 0 - 2,400
Effective Income/Purchasing Power 42,700 52,400
22.7
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Purchasing Power Under FairTax
Income Tax FairTax
Net Income 42,700 52,400
Price of Stuff 100 107

Amount of Stuff You Can Buy 427 490

Added Purchasing Power Under FairTax 14.8
20
Fair Tax RebateYear 2008
Household Size Poverty Level Annual Rebate Monthly Rebate
Adult 10,400 2,392 199
Adult child 14,000 3,220 268
Adult 2 children 17,600 4,048 337
Couple 20,800 4,784 399
Couple child 24,400 5,612 468
Couple 2 children 28,000 6,440 537
Couple 3 children 31,600 7,268 606
(Poverty level determined by the Dept. of Health and Human Services) (Poverty level determined by the Dept. of Health and Human Services) (Poverty level determined by the Dept. of Health and Human Services) (Poverty level determined by the Dept. of Health and Human Services)
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FAIR TAX EFFECTIVE TAX RATE
-11.5 0.0 11.5 17.2 20.1
22.8
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Tax Inclusive vs. Tax Exclusive Rates

• Income Tax Rate of 23 is Tax Inclusive
• Income includes the tax that is paid
• Fair Tax Rate of 23 is Tax Inclusive
• Equivalent to an exclusive rate of 29.9 added
  to a purchase
• 100 purchase 29.9 129.9 gross purchase
• 29.9 tax divided by 129.9 23
• No American can pay more than 23 of his gross
  purchases for Federal Taxes

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The Fair Tax Stimulates Economic Growth

• Through encouragement of
• Reinvestment of tax free earnings
• Reinvestment of tax free dividends
• Reinvestment of untaxed capital gains
• Increased personal savings and investment
• Foreign capital investment
• Lower interest rates

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Compliance/Tax Evasion

• Easier tax enforcement
• 90 reduction in tax filers
• Only audits of customer shipments from
  manufacturers needed
• Cash register records of retails
• Relative simplicity of Fair Tax will encourage
  compliance

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The Fair Tax Accomplishes

• It lets every worker keep their entire
  paycheckNO income or payroll taxes
• It lets retirees keep their pensions and social
  security checksUntaxed
• It lets everyone keep capital gains and
  investment incomeUntaxed
• It encourages savings and investments

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The Fair Tax Accomplishes

• It eliminates gift and inheritance taxes
• It taxes spending of inherited/gifted wealth more
  fairly
• It ends personal and corporate income tax
  filings
• It eliminates the 225 billion cost of the income
  tax industry

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The Fair Tax Accomplishes

• It eliminates the need for the 8 billion IRS
• It encourages repatriation of wealth from tax
  havens
• It encourages foreign capital investment
• It stimulates exports
• It stimulates economic growth and job formation

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The Fair Tax Accomplishes

• It eliminates all tax loopholes
• It has a significantly lower cost of enforcement
• It eliminates a significant percent of
  congressional lobbyists
• It makes the real federal tax rate visible to
  votersevery time the cash register rings

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Flat Tax vs. Fair Tax
Fair Tax Flat Tax
Is still an income tax No Yes
Eliminates 250 mil. Income tax industry Yes No
Simplifies business accounting and reporting Yes No
Stimulates exports Yes No
Encourages capital repatriation from tax havens Yes No
Encourages investment Yes No
Eliminates product tax build up in product cycle Yes No
Result in lower interest rates Yes No
Eliminates double taxation of business profits Yes No
Facilitates home ownership Yes No
Taxes inherited and gifted wealth more fairly Yes No
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Probable Fair Tax Effect on State Tax Policy

• Repeal State Income Tax
• Enforcement too expensive without IRS
• Eliminate Exemptions to State Sales Tax
• Necessary to become Fed tax collector
• Too confusing to have different rates
• Become Fed Tax Collector
• Collect 1/4 from Feds

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The Fair Tax Is

• Deceptively Simple
• Extraordinarily Efficient
• Fair to all Tax Payers

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What do we want from you?

• Join Five for FairTax
• text fairtax to 95495, or
• www.fiveforfairtax.org
• Participate in
• Tea Parties and special events
• Community Meetings
• State Organization
• Let elected officials at State and Federal know
  you want the FairTax

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Americans for Fair Taxation

• Texas FairTax www.txfairtax.org
• FairTax Nation fairtaxnation.ning.com
• AFFT www.fairtax.org