I’ve often heard people say that the FAIRtax is unfair to the poor and the wealthy won’t pay their fair share. That is NOT true. I’ve also heard that it is unfair that the wealthy get the same prebate as everyone else. Again, NOT true. Let’s also remember that the “net” tax rate differs greatly from your “effective” tax rate (the rate you actually pay).
Let’s look at a billionaire under the FAIRtax and assume he is married with no children. If he spends $10,000,000 he is paying $2,300,000 in taxes and gets a prebate of $4,697 then his effective tax rate as a percentage of spending is 22.95 percent.
Now let’s look at a middle-income married couple with no children under the FAIRtax. If they spend $50,000 they pay $6,803 net of their prebate for an effective rate of 13.6 percent. The effective rate increases as spending increases, but never exceeds 23 percent.
In contrast, if the same couple earns $50,000 in wages today under the current income tax system, they pay $4,093 in income taxes and $3,825 in payroll taxes for a total of $7,918 or 15.8 percent. That’s a tax burden 14.1 percent higher than under the FAIRtax. In addition, their employer pays another $3,825 in payroll taxes. Most economists agree that the employer payroll tax is actually borne by the employees in the form of lower wages. Looking at it this way, this couple is paying $11,743 (23.5 percent) in taxes today which does not included the hidden taxes they pay every time they purchase an item.
Finally, let’s look at a low-income couple that spends at the poverty level under the FAIRtax. They pay no net FAIRtax at all as the prebate effectively eliminates their taxes on spending up to the poverty level. However, under today’s income tax, this couple not only pays 15 percent in payroll taxes but also pays the hidden taxes arising from corporate taxes, private sector compliance costs and payroll taxes passed on to consumers and embedded in the price of everything they buy.
The FAIRtax is fair to all levels of income. To learn more go to FAIRtax.org.
