The Fair Tax Americans for Fair Taxation

2 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

3 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 FairTax 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

8 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

9 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 ItemBillions (1995) Personal Consumption Expenditures $4,924.9 Purchases of New Homes $ Improvements to Single-family Homes $ 73.9 Imputed Rent on Housing–$ 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 $ State and Local Government Gross Purchases $ Federal Government Consumption $ 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

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

11 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 % = $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

12 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)

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

14 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

15 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

16 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) % Business/corporate Income Tax5–10% Cascading of Taxes in Tiered Production5–10% Total Tax Load in Product Prices 18–28%

17 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

18 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

19 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

20 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

21 Flat Tax vs. Fair Tax Fair TaxFlat Tax Is still an income taxNoYes Eliminates $250 mil. Income tax industryYesNo Simplifies business accounting and reportingYesNo Stimulates exportsYesNo Encourages capital repatriation from tax havensYesNo Encourages investmentYesNo Eliminates product tax build up in product cycleYesNo Result in lower interest ratesYesNo Eliminates double taxation of business profitsYesNo Facilitates home ownershipYesNo Taxes inherited and gifted wealth more fairlyYesNo

22 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

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

24 What do we want from you? Join FairTax Nation Participate in –Tea Parties and special events –Community Meetings –State Organization Let elected officials at State and Federal know you want the FairTax Contribute $$ to support effort (even ¢)

25 Americans for Fair Taxation FAIRTAX