The “Fair Tax” was first introduced in the late 1990s. As proposed, the Fair Tax Act would dramatically reduce federal revenues, requiring deep cuts in public services Meanwhile, high-income families who spend less of their income on consumption and who have sufficient earnings to save a substantial fraction of their income would pay a smaller share of their income in tax. Yet it would also eliminate the earned income and child tax credits that currently lift millions of families out of poverty.īy shifting the foundation of the federal tax system from income to consumption, the Fair Tax Act would cut taxes for the wealthy while increasing taxes paid by low- and middle-income retirees who live off of Social Security and savings, as well as families who would be forced to pay more taxes on everyday goods and services. The new tax would apply broadly to nearly everything Americans buy, including goods and services often exempt from state sales taxes, such as housing, health care, and groceries.*** The Fair Tax Act includes a “ family consumption allowance” that would provide families with a “prebate,” calculated as a percentage of the federal poverty level, designed to offset the taxes due on a baseline level of necessities. Yet described in more conventional terms-such as those used for existing state sales taxes-the $30 paid in tax is, in reality, a 30 percent tax on the cost of the goods or services purchased. 25 would impose $30 in tax on each $100 purchase.** Proponents call this a “23 percent tax” because the $30 tax payment is 23 percent of the tax-inclusive price of $130. The Fair Tax Act would impose a 30 percent national sales taxīeginning in 2025, H.R.
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