The Fair Tax

1
The Fair Tax

• Americans for Fair Taxation

2
The Fair Tax Founders

• Where Did it Start?
• Leo Linbeck and two business associates(Chairma
  n 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)

4
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

7
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 BaseSource 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)
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Rate Determination

• Total Taxes Collected RebateTotal Consumption
  Expenditures
• The necessary tax rate 23
• Results in lower taxes for 95 of All
  Americans!

_______________________________

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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 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

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Fair Tax RebateYear 2000
13
FAIR TAX EFFECTIVE TAX RATE
-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
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The Fair Tax Accomplishes

• It lets every worker keep their entire
  paycheckNO income or payroll taxes
• It lets retirees keep their pensions and social
  security checksUntaxed
• It lets everyone keep capital gains and
  investment incomeUntaxed
• 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
  votersevery time the cash register rings

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Flat Tax vs. Fair Tax
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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

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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 Dont understand? Dont agree?
• Agreement to join Americans for Fair Taxation
• Agreement to send a post card to President Bush
  and your congressional delegation
• Your e-mail or Fax address so we can ask for
  your support when timely
• A contribution of 5100/year to support
  AZ/AFFT budget

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Americans for Fair Taxation

• www.fairtax.org
• 1-800-FAIRTAX
• www.azfairtax.org