Under the FairTax, income - no matter from what source - is not taxed. Only consumption is taxed and used (already taxed) things are not taxed again. This puts the amount of tax you pay squarely under your control since you determine your own consumption.
To get one view of how pre-taxed savings could benefit, check this post.
Once again, your tax free income is still tax free. It's taxed only when you spend it for taxable things. And, don't forget, you also receive the prebate (unless you don't want it - it's optional).
Let's say you're married and that for 2006 you spent your entire $40,000 on taxable things. You'd have an effective FairTax rate of 11.73% since you'd have available a prebate of $4,508 to offset a good bit of your taxes. And with a little frugality you could do a good bit better while your tax-free investments continued to grow tax free.
And keep in mind, too, that if you spend the entire $40,000 under the present tax system, you'll pay tax in the form of hidden taxes that are embedded in everything you buy (whether new OR used).
Great, so my income tax goes from 0% to 0% and my sales tax jumps to 20%?
Let's say you're married and that for 2006 you spent your entire $40,000 on taxable things.
Reread my post, my $40,000 is Muni bond interest. Non-taxed.