Let’s look at a billionaire under the FairTax – if he spends $10,000,000 dollars he pays a tax of $2,300,000 and gets a rebate of $4,283 (assuming he is married and has no children). His effective tax rate is 22.96 percent.

Now, let’s look at a middle-income married couple, under the FairTax, with no children – if they spend $40,000, they pay $4,917 net of their rebate for an effective tax rate of 12.3 percent. The effective tax rate increases as spending increases, but never exceeds 23 percent!

Figure 3: Comparison of effective tax rates FairTax Income tax

In contrast, this same couple, if they earn $40,000 in wages today under the income tax, pays $3,060 in payroll taxes and $2,945 in income taxes for a total of $6,005 in taxes (15.0 percent). In addition, their employer pays another $3,060 in payroll taxes. Most economists agree that the employer payroll tax is actually borne by employees in the form of lower wages. Looked at this way, this couple is paying $9,065 (22.6 percent) in taxes today, which doesn’t even include the hidden taxes they pay every time they make a purchase. Therefore, a middle-income married couple with no children has an effective FairTax rate of 12.3 percent, compared to their effective income tax rate of 22.6 percent!

Finally, let’s look at a low-income couple under the FairTax – they pay no net FairTax at all. Today, under the income tax system, they not only pay 15 percent in payroll taxes, but they also pay hidden taxes - arising from corporate taxes, private sector compliance costs, and payroll taxes passed on to consumers and embedded in the price of everything they buy, from goods (averaging 22 percent) to services (averaging 25 percent).