Americans for Fair Taxation 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

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)

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

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

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

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

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

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 Fair Tax Base: $5,978.2

Rate Determination Results in lower taxes for 95% of All Americans! = Total Taxes Collected + Rebate Total Consumption Expenditures The necessary tax rate: 23% Results in lower taxes for 95% of All Americans! _______________________________ =

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

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 5–10% Cascading of Taxes in Tiered Production Total Tax Load in Product Prices 18–28%

Effect of FairTax on Prices Price of goods under current system $100

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

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

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

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

Effect of FairTax on Paychecks Get to keep whole paycheck Income Tax FairTax Gross Pay 50,000 Income Tax (17% minus $5,150 deduction) - 3,550 - 0 - Payroll (7.5%) - 3,750 Take Home Pay 42,700 Prebate (Single) 2,400 Effective Income/Purchasing Power 52,400 22.7%

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%

Fair Tax Rebate—Year 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)

FAIR TAX EFFECTIVE TAX RATE -11.5% 0.0% 11.5% 17.2% 20.1% 22.8%

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

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

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

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

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

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

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

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

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

The Fair Tax Is: Deceptively Simple Extraordinarily Efficient Fair to all Tax Payers

What do we want from you? Join Five for FairTax Participate in 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

Americans for Fair Taxation Texas FairTax: www.txfairtax.org FairTax Nation: fairtaxnation.ning.com AFFT: www.fairtax.org