The Fair Tax

Americans for Fair

Taxation
 The Fair Tax Founders

Where Did it Start?

Leo Linbeck* and two business associates
(*Chairman 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)
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 Tax System Objectives

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

A Consumption Tax

Replaces all Federal Taxes

– Except special purpose excise taxes

Applies to all Consumption Expenditures

– Personal
– Business
– Government

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 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

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 The Fair Tax Base

Fair Tax is imposed on ALL consumption:

– Personal
– Business*
– Government

*Fair Tax is NOT imposed on:

– Purchases for incorporation 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 Base
Source: 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

9 Fair Tax Base: $5,978.2

 Rate Determination

Total Taxes Collected + Rebate

_______________________________
Total Consumption Expenditures

The necessary tax rate: 23%* =

Results in lower taxes for

95% of All Americans!
*Shortly will have new analysis showing an even lower revenue neutral rate
expected between 19-20%

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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 Exclusive

– 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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 Fair Tax Rebate—Year 2004
2004 Rebate

Household Household Annual Monthly

Size Allowance Rebate Rebate

One $9,310 $2,141 $178

Two $12,490 $2,873 $239

Three $15,670 $3,604 $300

Four $18,850 $4,336 $361

Five $22,030 $5,067 $422

Six $25,210 $5,798 $483

Seven $28,390 $6,530 $544

Eight $31,570 $7,261 $605

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 FAIR TAX EFFECTIVE TAX
RATE
25.00%

20.00%

15.00%

10.00%

5.00%

0.00%
$22,500 $45,000 $90,000 $180,000 $2,250,000
-5.00%

-10.00%

-15.00%
-11.5% 0.0% 11.5% 17.2% 20.1% 22.8%
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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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 Why Prices Will Decrease
18-28%

Product/Service Labor Cost Loaded with:

Social Security and Medicare Taxes
(employer half of payroll taxes included in 7.8125%
labor overhead)

Business/corporate Income Tax 5–10%

Cascading of Taxes in Tiered Production 5–10%

Total Tax Load in Product Prices 18–28%

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 The Fair Tax Accomplishes:

It lets every worker keep their entire

paycheck—NO income or payroll taxes

It lets retirees keep their pensions and

social security checks—Untaxed

It lets everyone keep capital gains and

investment income—Untaxed

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 $280 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
voters—every 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 $280 bil. 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 of 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?

Your questions: Don’t understand?

Don’t agree?
Agreement to join Americans for Fair Taxation
Agreement to contact President Bush and
your congressional delegation
Your e-mail or phone # so we can “ask”
for your support when timely
A contribution of $5–100/year to support
AFFT budget
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 Americans for Fair Taxation

www.fairtax.org

1-800-FAIRTAX

www.azfairtax.org

info@azfairtax.org

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