**[WHAT IS THE FAIRTAX?]{.underline}**

The FairTax is one of the most exciting proposals to ever reach the
American people. It offers long-needed tax relief to all American -- in
the form of lower prices, nearly nonexistent compliance costs, and the
ability to [choose]{.underline} how much to pay in taxes --while
eliminating the income tax and allowing Americans to keep 100 percent of
their paycheck. The FairTax will dramatically reduce prices, protect and
ensure funding of Social Security and Medicare, empower low-income
earners, and put choice and control back into the hands of every
American. All the crucial elements are in place: a public that is eager
and ready for a fairer tax system and a Congress willing to seriously
consider genuine tax reform. To be competitive in this new century and
to renew the American dream, we must change the way we fund our national
government.

**The FairTax Act:**

-   Repeals all corporate and individual income taxes, payroll taxes,
    self-employment taxes, capital gains taxes, estate taxes, and gift
    taxes.

-   Imposes a revenue-neutral national sales tax on all new goods and
    services at the point of final purchase for consumption.
    Business-to-business transactions and used products (which have
    already been taxed) are not subject to the sales tax.

-   Offers a universal rebate in an amount equal to the sales tax on
    essential goods and services so that no American pays taxes on the
    purchase of necessities.

**Results of the FairTax:**

-   The costs of goods and services will be reduced by 20 to 30 percent.

-   You can keep 100 percent of your paycheck, pension, and Social
    Security payments.

-   Gross Domestic Product will increase by almost 10.5 percent in the
    first year after enactment.

-   Compliance costs will decrease by 90 percent.

-   Real investment will initially increase by 76 percent relative to
    the investment made under present law. While this increase would
    gradually decline, it remains 15 percent higher than under the
    existing tax structure.

-   Exports will increase by 26 percent initially and remain more than
    13 percent above the level under the current tax system.

-   Real wages will increase.

-   Incentives to work will increase by as much as 20 percent in many
    households, leading to higher economic growth and efficiency.

-   Interest rates will fall 25 to 35 percent.

**[SHORT SUMMARY OF THE FAIRTAX ACT]{.underline}**

Representatives John Linder (R-GA) and Collin Peterson (D-MN) introduced
the FairTax as H.R. 2525 in the 106^th^ and 107^th^ Congress. They have
reintroduced this landmark legislation as H.R. 25 in the 108^th^
Congress.

Specifically, the FairTax Act would repeal:

-   Individual income taxes (including capital gains taxes)

-   Corporate income taxes

-   All payroll taxes, including the Social Security and Medicare
    payroll taxes

-   Self-employment taxes

-   Estate and gift taxes

In place of these federal taxes, the FairTax would levy a 23 percent tax
on the final sale of all goods and services. Exports and business inputs
(i.e. intermediate sales) would not be taxed. The sales tax must be
separately stated and charged.

The FairTax would provide every family with a rebate of the sales tax
equal to spending up to the federal poverty level. The rebate would be
paid in advance and updated according to the Department of Health and
Human Services poverty guidelines. Based on the 2003 guidelines, a
family of four would be able to spend \$24,240 annually tax free. They
would receive a monthly rebate of \$465 each and every month (\$5,575
annually). Therefore, no family would pay tax on essential goods and
services, and middle income families would be effectively exempt from
tax on a large portion of their annual spending.

Social Security and Medicare benefits would remain the same. The Social
Security and Medicare trust funds would receive the same amount of money
as they do today. The source of the trust fund revenue would simply be
sales tax revenue instead of payroll tax revenue.

Collection would piggyback on the sales tax collection already collected
by 45 states. All states would have the option of either collecting
federal sales tax on behalf of the federal government in exchange for a
fee or outsourcing to another state.

Strong taxpayer rights are incorporated into the FairTax. The burden of
persuasion in disputes is on the government. A strong, independent
conflict resolution office would be created. Taxpayers are entitled to
professional fees in disputes unless the government establishes that its
position is substantially justified.