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The Fair Tax

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

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The Fair Tax

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  1. 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. Tax System 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 for incorporation 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 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)

  10. Rate Determination Total Taxes Collected + RebateTotal Consumption Expenditures The necessary tax rate: 23%* Results in lower taxes for 95% of All Americans! *Shortly will have new analysis showing an even lower revenue neutral rate expected between 19-20% _______________________________ =

  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 Exclusive • 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

  12. Fair Tax Rebate—Year 2004

  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%

  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 $280 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

  22. Probable Fair Tax Effect on State Tax Policy • Repeal of 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? • Your questions: Don’t understand? Don’t agree? • Agreement to join Americans for Fair Taxation • Agreement to contact President Bush and your congressional delegation • Your e-mail or phone # so we can “ask”for your support when timely • A contribution of $5–100/year to support AFFT budget

  25. Americans for Fair Taxation • www.fairtax.org • 1-800-FAIRTAX • www.azfairtax.org • info@azfairtax.org

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