Taxing Sales Under the Fairtax: What Rate Works?
Posted: 10 Nov 2006
There are 2 versions of this paper
Taxing Sales Under the Fairtax: What Rate Works?
Abstract
H.R. 25 and S. 25 would replace the federal personal income, corporate income, payroll, capital gains, alternative minimum, self-employment, and transfer taxes with a single-rate federal retail sales tax known as the FairTax. The FairTax also would provide a prebate to each household based on its demographic composition. The prebate is set to ensure that households pay no net taxes on spending up to the poverty level.
William G. Gale (2005) and the President's Advisory Panel on Federal Tax Reform (2005) suggest that the effective (tax-inclusive) tax rate needed to implement H.R. 25 is far higher than the proposed 23 percent rate. This study, which builds on Gale's analysis, shows that a 23 percent rate is eminently feasible and suggests why Gale and the panel reached the opposite conclusion.
Suggested Citation: Suggested Citation