FairTax vs Income Tax

FairTax (HR 25) vs: Income Tax! Presentation by: Al Ose - Wisconsin Rapids, WI

Sunday, August 22, 2004
Dear Mr. Callender:
In response to your article "GOP Senate candidates clash on TV" dated August 21, 2004. I need to correct Mr. Darrow's statement, "But Darrow said a proposal to replace the federal income tax with a national sales tax would be a disaster to retailers, because people would only buy things out of necessity." Research shows that the costs of complying with our current tax system adds 20 to 30 percent to the costs of goods and services that we purchase now. The average is 22 percent. When the FairTax passes these hidden costs will go away. Competition will force prices down. When the FairTax (23 percent) is added on total prices will be about the same as they are now. But workers will be taking home their gross pay and receive a monthly rebate. The rebate is intended to pay for the FairTax on purchases up to the poverty level. That means that the poor will pay zero federal taxes except for excise taxes. If they buy used items they will pay no FairTax on those purchases.
The so-called Forbes/Armey "Flat Tax" (an income tax) retains the payroll tax so an income tax rate of 17 percent becomes 32.3 percent when you add the FICA taxes of 15.3 percent. An income tax also requires maintenance by the IRS. The FairTax would eliminate the IRS and be maintained by the states. Forty-five states and the District of Columbia already have sales taxes in place. Retailers are well equipped to add another line for the FairTax to the sales receipt. These 45 states now have the mechanisms in place required to police a sales tax like the FairTax.
You will find comparisons between our current tax system and the FairTax below.

EX: I A single parent with two children making minimum wage
(Assumes consumption spending at 100% of income)
How do they fare now? How do they fare under the FairTax?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . FairTax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . system . . . . . . system
Gross income......................................................................... $10,712 . . . . . . $10,712
Less payroll taxes.................................................................... -1,639 . . . . . . . . . 0.00
Plus Earned Income Tax Credit........................................... +4,204 . . . . . . . . . 0.00
Cost of hidden taxes & compliance.................................... -2,921 . . . . . . . . . 0.00
Add the prebate family allowance........................................... 0.00 . . . . . . . +3,604
Spendable income.................................................................. 10,356 . . . . . . . 14,316
Federal sales tax.......................................................................... 0.00 . . . . . . . -3,293
True after-tax purchasing power [a]................................ $10,356 . . . . . . $11,023
Under the FairTax, a 6.4 percent increase in spendable income.
This does not take into account:

No spending on tax preparation
The optional purchase of used goods on which no tax is charged

EX: II A couple living solely on $1081/month each in Social Security
(Assumes consumption spending at 100% of income)
How do they fare now? How do they fare under the FairTax?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . FairTax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . system . . . . . . system
Gross income......................................................................... $25,944 . . . . . . $25,944
Less payroll taxes........................................................................ 0.00 . . . . . . . . . 0.00
Less federal income taxes......................................................... 0.00 . . . . . . . . . 0.00
Cost of hidden taxes & compliance..................................... -5,708 . . . . . . . . . 0.00
Add the prebate family allowance............................................ 0.00 . . . . . . . +4,283
Spendable income................................................................... 20,236 . . . . . . . 30,227
Federal sales tax.......................................................................... 0.00 . . . . . .. . -6,952
True after-tax purchasing power...................................... $20,236 . . . . . . $23,275
Under the FairTax, a 15.9% increase in spendable income
This does not take into account:

No spending on tax preparation
The optional purchase of used goods on which no tax is charged
Automatic cost of living adjustments that may be triggered by retail price fluctuations

EX: III A family of four, with one wage earner making 2X minimum wage and one making minimum wage
(Assumes consumption spending at 100% of income)
How do they fare now? How do they fare under the FairTax?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . FairTax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . system . . . . . .. system
Gross income......................................................................... $32,136 . . . . . .. $32,136
Less payroll taxes.................................................................... -4,915 . . . . . . . . . . 0.00
Plus EITC and child credits..................................................... +987. . . . . . . . . .. 0.00
Cost of hidden taxes & compliance................................... -6,206 . . . . . . . . . . 0.00
Add the prebate family allowance.......................................... 0.00 . . . . . . . . +5,745
Spendable income................................................................. 20,028 . . . . . . . . 37,881
Federal sales tax......................................................................... 0.00 . . . . . . . . -8,713
True after-tax purchasing power..................................... $20,028 . . . . . . .$29,168
Under the FairTax, a 45.6% increase in spendable income
This does not take into account:

No spending on tax preparation
The optional purchase of used goods on which no tax is charged

EX: IV A family of four making $100,000 per year
How do they fare now? How do they fare under the FairTax?
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current . . . . . . FairTax
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . system . . . . . .. system[b]
Gross income........................................................................ $100,000 ......... $100,000
Less payroll taxes................................................................... -12,863 ................. 0.00
Less federal income taxes...................................................... -7,905 ................. 0.00
Total taxes ................................................................................ -20,768 ................. 0.00
Add the prebate family allowance............................................. 0.00 .............+5,575
Spendable income................................................................... 79,232 ............105,575
Mortgage payment................................................................. -19,960 ............. -16,566
After mortgage spendable income...................................... 59,272 .............. 89,009
Cost of hidden taxes & compliance................................... -13,040 .................. 0.00
Federal sales tax........................................................................... 0.00 ............ -20,561
True after-tax purchasing power....................................... $46,232 ........... $68,448
Under the FairTax, a 48.05% increase in spendable income
NOTE: With only an 11 percent drop in prices, rather than the conservative 22 percent above
Spendable income............................................................... 79,232 ..........105,575
Mortgage payment.............................................................. -19,960 .......... -19,167
After mortgage spendable income................................... 59,272 ........... 86,408
Cost of hidden taxes & compliance................................. -6,520 ............... 0.00
Federal sales tax..................................................................... 0.00 ........... -19,960
True after-tax purchasing power.................................. $52,752 .......... $66,448
Under the FairTax, a 25.96% increase in spendable income

What is the FairTax?
The FairTax is a non-partisan proposal (HR 25/S 1493) that abolishes all federal income taxes, including payroll, personal, gift, estate, capital gains, alternative minimum, Social Security/Medicare, self-employment, and corporate taxes, and replaces them all with one simple, visible, federal retail sales tax. It dramatically changes the basis for taxation by eliminating the root of the problem: Taxing income. The FairTax taxes us only on what we choose to spend, not on what we earn. It does not raise any more or less revenue; it is designed to be revenue neutral. The FairTax is a fair, efficient, and intelligent solution to the frustration and inequity of our current tax system.
Who is FairTax.org?
FairTax.org, Americans For Fair Taxation (AFFT), is a non-profit, non-partisan, grassroots organization dedicated to replacing the current income and Social Security tax systems. The organization has hundreds of thousands of members and volunteers nationwide. Its plan supports sound economic research, education of citizens and community leaders, and grassroots mobilization efforts. For more information visit the web page: www.fairtax.org or 1-800-FAIRTAX.
People will have more money to spend which means our economy will expand. Capital will not be taxed which also means our economy will grow. Wages are tied directly to capital investment. As capital investment increases so do wages. [c]
Best regards, Al Ose
Regional Director WI, IA (volunteer)
Americans for Fair Taxation
3311 Enchanted Drive
Wisconsin Rapids, WI 54494
715-424-4383
e-mail: [email protected]
[a] In all cases, we assume that all purchasing power amounts are completely consumed. If saved or invested under the current system one can assume additional returns and additional taxes. If saved, invested, or spent on education under the FairTax system, one can assume additional returns and absolutely no additional taxes.
[b] With prices falling 22 percent on average after enactment of the FairTax.
[c] The FairTax will have a very favorable impact on job-creation in the U.S. and make U.S. manufactured goods more competitive with goods imported from overseas AND make U.S. manufactured goods more competitive when shipped overseas for sale.
GoTo: FairTax FAQs! GoTo: FairTax INFO! GoTo: FairTax FACTS! GoTo: AFFT!

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