If you're paying 23% sales tax for a widget, and you earn $30,000 per year, the sales tax is taking a bigger bite out of your income than if you earn $100,000 per year. That's regressive.
Except for the fact that every legal resident receives a refund of excess tax paid (i.e. that paid on povertylevel expenditure defined by HHS statistical measures locked in by court precident and litigation).
Instead of opening the political and administrative rats nest of excepting specific items or persons from paying the NRST at the cashregister, the Fair Tax Act(H.R.25) provides what amounts to a personal exemption in the form of a demogrant that all legal residents will receive; a monthly amount called the Family Consumption Allowence(FCA) equivalent to the FairTax paid at the HHS defined poverty level of expenditure. The FCA is paid in advance, in equal installments each month by check or electronic tranfer to bank account from the Social Security Administration.
The size of the monthly FCA will be determined by the government's Poverty Level for a particular family size, multiplied by the tax rate, and paid to all households regardless of income or actual expenditure. The HHS poverty llevel is a well-accepted, long-used poverty-level calculation based on the cost of a healthy diet comprising 1/3 of total family budget value. The povertylevel statistic is fixed in 1969 dollars updated annually for CPI.
The chart below in Figure 1 tepresents the current FCA as it relates to the 2004 povertyline statistic, adjusted pay a fixed amount for each adult in a household to remove implicit marriage penalties.
| Figure 1: 2004 FCA calculation | |||||||
| Family size |
HHS annual poverty level |
FairTax annual consumption allowance (single person) |
Annual rebate (single person) |
Monthly rebate (single person) |
FairTax annual consumption allowance |
Annual rebate (married couple) |
Monthly rebate (married couple) |
|
1 2 3 4 5 6 7 8 |
$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 |
$9,310 $12,490 $15,670 $18,850 $22,030 $25,210 $28,390 $31,570 |
$2,141 $2,873 $3,604 $4,336 $5,067 $5,798 $6,530 $7,261 |
$178 $239 $300 $361 $422 $483 $544 $605 |
N/A $18,620 $21,800 $24,980 $28,160 $31,340 $34,520 $37,700 |
N/A $4,283 $5,014 $5,745 $6,477 $7,208 $7,940 $8,671 |
N/A $357 $418 $479 $540 $601 $662 $723 |
[ The monthly FCA for each adult is .23 * (HSS poverty level for a single person)/12 to assure no marriage penalty due to the manner in which the poverty level is dependant on family size. The monthly FCA for each child is .23 * (the incremental increase of HSS poverty level for a family with one child over no child) ] A. Geezer
Under the Fair Tax Act, a family of four, for example, could spend $24,980 per year free of tax because they will have received over the course of the year a demogrant totaling $5,745. $5,745 is the amount of sales tax paid on $24,980 in expenditures. That family spending double the "poverty level" or $49,960per year will effectively pay tax on only half of their spending and, therefore, have an effective tax rate of 11 ½ percent or half the FairTax rate.
The beauty of the FairTax is that you can control how much you pay in taxes. If you happen to save, invest or spend a portion on used [previously taxed] items, you can get your effective tax rate below 9%.
To illustrate examine the tax burden that a family of four will have at various annual expenditure levels as compared to that same family under the current tax law, (NRST Expenditure = income; 2004 individual income tax on wages plus FICA/MC taxes, standard deduction, personal exemptions,child credits, and EITC):
Not only does every family receive a FCA based on family size, not income, but they will also receive 100% of their gross paycheck.