Replies

Why guess? The CBO provides data on effective tax rates. Below is a table showing burdens under the current system (not including excise taxes) from 2002 and the estimated effective FairTax rate assuming 100% consumption of income and Family Consumption Allowance.

As you can see, the majority of elderly have a very significant increase in their tax burden (the elderly poor, like all poor under the FairTax, make out like - actually as bandits). Even if you were to factor in a decrease in prices, most elderly do extremely poorly under the FairTax.

Elderly Childless Households - 2002

Gross
Income

Effective
Income +
Payroll +
Corporate
Income
Tax Rate

Total
Tax Inclusive
Spending
(including
$4,076 FCA)

Gross
FairTax
Paid

Net
FairTax
Paid
(Gross - FCA)

Effective
FairTax
Rate

Increase/
Decrease in
Tax Burden

Lowest Quintile
$ 11,300

1.0%

$15,376

$3,536

$(540)

-4.8%

-477.5%

Second Quintile
$ 26,400

2.5%

$30,476

$7,009

$2,933

11.1%

344.5%

Middle Quintile
$ 42,500

5.3%

$46,576

$10,712

$6,636

15.6%

194.6%

Fourth Quintile
$ 64,700

10.4%

$68,776

$15,818

$11,742

18.1%

74.5%

Highest Quintile
$173,600

22.8%

$177,676

$40,865

$36,789

21.2%

-7.1%

All
$ 55,200

14.6%

$59,276

$13,633

$9,557

17.3%

18.6%

Source for Gross Income and Effective Income, Payroll, and Corporate Income Tax Rates: Congressional Budget Office

If the numbers in the table above were correct, then the middle three quintiles would lose big under the FairTax.

However, those numbers are not correct. They are too simplistic in their assumptions. If you look at the CBO link you provided, you will find the CBO definition of Income:

"Measuring Income This analysis focuses on adjusted pretax comprehensive household income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals, as noted above), employee contributions to 401(k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicare and Medicaid benefits, and food stamps, among others). The calculations use the Census Bureau's fungible value measure to determine the cash equivalent of in-kind government transfers. "

So not all of the figure you provided as "Gross Income" is actually spendable income. For the elderly, you would need to subtract the fungible value of the Medicare and Medicaid benefits. The value of those cannot be "spent" subject to FairTax, so your Total Tax Inclusive Spending and FairTax Paid figures are all too high.

According to sources like this http://www.aaas.org/spp/rd/tbi2.pdf the Medicare Expenditures alone are over $200B. Divided by 40M elderly, that would mean $5,K each. Because your chart assumes all households contain two elderly, $10,000 of each of the income listed in your chart is not money-income. But the "Effective Tax Rate" for the current Income+Payroll+Corporate tax system is a percentage of this as though it were in fact spendable cash.

Removing just $10,000 from each "Total Spending" would change your Table a bit. Here is your table with just a $10,000 adjustment to FairTaxable spending:

Elderly Childless Households - 2002
	Gross Income	Effective Income + Payroll + Corporate Income Tax Rate	Total Tax Inclusive Spending (including $4,076 FCA)	Gross FairTax Paid	Net FairTax Paid (Gross - FCA)	Effective FairTax Rate	Increase/ Decrease in Tax Burden
Lowest Quintile	$ 11,300	1.0%	$5,376	$1,236	$(2,840)	-25.1%	-2410%
Second Quintile	$ 26,400	2.5%	$20,476	$4,709	$633	2.4%	-4%
Middle Quintile	$ 42,500	5.3%	$36,576	$8,412	$4,336	10.2%	92.5%
Fourth Quintile	$ 64,700	10.4%	$58,776	$13,518	$9,442	14.6%	40.4%
Highest Quintile	$173,600	22.8%	$167,676	$38,565	$34,489	19.9%	-12.7%
All	$ 55,200	14.6%	$49,276	$11,333	$7,257	13.1%	-10.6%

To really create an accurate chart, we would need the quintiles with another column for "Money Income". So that we weren't counting Medicare, housing assistance, Medicaid, etc. as though FairTax would be paid on those "in-kind" benefits.

Using just the adjustment for the Medicare benefits, we can see the only tax burden increase is on the middle and fourth quintiles. We would still need to make adjustments for actual spending that would not be FairTaxable -- used vehicles, educational expenses, travel outside the US -- to get a true picture.