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Excerpts from the FairTax response to the Mack/Breaux tax panel report and recommendations
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FairTax and the FairTax logo are service marks of Americans For Fair Taxation.
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A FairTax
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Rebuttal
Excerpts from the FairTax response to the
Mack/Breaux tax panel report and recommendations

Hundreds of thousands of FairTax supporters were deeply dismayed and angered to learn that this
panel ignored millions of dollars worth of solid, independent research on the FairTax legislation,
research completed by some of the nations top economists over the last decade. Despite access to
the FairTax legislation and related research, the panel itself virtually overnight created an
alternate and deeply flawed national retail sales tax plan, which they then scored and condemned.

This is exactly the kind of misdirection that the American people see as the hallmark of
Washington lobbyists who put their own careers ahead of the clear national interest to develop a
simple, fair, and transparent replacement tax system.

The panel failed the American people in the two most fundamental tasks: 1) They failed to
define true criteria by which reform should be evaluated; and 2) They failed to grade tax reform
plans against those criteria.

Instead of the fundamental reforms the panel was charged with developing, they
recommended changes that further complicate an already overly complex and impenetrable tax
system, that is also too expensive to operate and an unfair burden to taxpayers. This panel failed to
address:
The estimated $265 billion in current tax compliance costs
The routine lobbyist/legislative manipulations of the tax code that ill-serve the national
interests
The embedded corporate income and payroll tax costs that are hidden from the
consuming public
The truly dramatic advantages of switching to a transparent and simple national retail
consumption tax, as detailed by HR 25, the FairTax.

The public has demanded change away from a system that makes debt more favorable than
savings, taxes wages rather than wealth, favors spending over investment, and that has put
American companies and agriculture at a severe disadvantage against foreign competitors. These
legitimate pleas from the public were simply ignored by this panel and most of its witnesses.

In the following pages, the FairTax rebuts the major points of the tax panels analysis
of consumption taxation and the FairTax.
Excerpts from the FairTax response to the Mack/Breaux tax panel report

© 2007 Americans For Fair Taxation. All rights reserved.
Page 2 of 8

Here is a summary of the main criticisms of the FairTax by the Presidents tax panel, plus a
short response to each.

Panel statement #1
A consumption tax would be regressive without a plan to exempt low-income individuals and
households.

FairTax response
Absolutely true, which is why the FairTax, a progressive national retail sales tax, does have a
plan to completely untax spending up to the poverty level. Under the FairTax no resident,
legal, American citizen pays any federal taxes (obvious or hidden/overt or covert) on spending
for necessities. The catchphrase for this part of the FairTax legislation is the prebate, as it is a
rebate that arrives before a consumer spends any money, timing which is critical to paycheck-to-
paycheck families. It is also true that consumers, spending wisely, can spend tax free well above
the poverty level through astute purchase of used goods. The FairTax is not levied on used
goods. A family of four is able to purchase $27,380 worth of new goods and services tax free.

To further distort the picture, the tax panels tax burden measurement did not include the
fact that the FairTax also repeals all payroll taxes the most regressive taxes with three out of
four taxpayers paying more payroll taxes than income taxes.

Furthermore, detailed research by Laurence Kotlikoff, noted public finance economist at
Boston University,
1
shows that average remaining lifetime tax rates under the FairTax are lower
for all 42 representative income/age/marital status household types considered than they would
be if the current system remains in place. Average remaining lifetime tax rates measure what
percentage of remaining lifetime resources the taxpayer pays to the government, netting all
future federal tax payments against Social Security benefits received and the FairTax prebate.
These rates provide a much more realistic estimate of the true effective tax burden than
comparisons of taxes versus income for a single year as done in the panels report.

The FairTax entails either a significant or a substantial reduction in the remaining
lifetime tax rates of all of our stylized households (married vs. single, seven income categories,
and three age groups young adult, middle aged, and seniors). For example, the single age 45
household with $35,000 in annual income pays, on average, 20.7 percent of its remaining
lifetime resources to the government under our current tax system, but only 5.4 percent under the
FairTax. The same aged married couple in which both spouses earn $35,000 faces a 21.3 percent
current average tax rate, but only an 11.6 percent average tax rate under the FairTax.
2

Panel statement #2
Using a cash grant (the prebate) program would create the largest entitlement in the history of the
United States and that would not be a good precedent as it would make most American families

1
Kotlikoff, Laurence J. and David Rapson, Comparing Average and Marginal Tax Rates under the FairTax and the
Current System of Federal Taxation, October, 2006.
2
Op. cit., Table 5. Excerpts from the FairTax response to the Mack/Breaux tax panel report

© 2007 Americans For Fair Taxation. All rights reserved.
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dependent on monthly checks from the federal government for a substantial portion of their
incomes.

FairTax response
While we deplore the use of loaded words like entitlement, the current system spends about
$456 billion more than the FairTax on just such spending. The FairTax prebate is a rebate of
taxes paid (albeit, in advance) on spending up to the poverty level based on family size. The
prebate cost is estimated by The Beacon Hill Institute (a Massachusetts free-market think tank)
to be $489 billion (assuming 100 percent participation). Compare that to the $945 billion of
income tax deductions, tax preferences, loopholes, credits, etc. that we have under the current
system (a Joint Committee on Taxation estimate).
3
In stark contrast to the current system, and in
concert with the constitutional concept of uniformity of taxation across all citizens, the FairTax
treats all taxpayers equally compared to the way the current system rewards friends and punishes
enemies with its $945 billion.

Furthermore, the tax panel grossly overestimates the FairTax prebate because it grossly
underestimated the FairTax base, resulting in a rate that is much too high. (See response to
statement #3.)

Panel statement #3
The FairTax proponents calculations used faulty assumptions and a higher sales tax rate would
be needed to be revenue neutral.

FairTax response
The Treasury estimates for a national retail sales tax reported by the panel were not an estimate
of the FairTax legislation. The panel concocted a base of their own, one apparently designed to
produce the highest possible rate. Rather than follow the FairTax legislation, they apparently
used a typical state sales tax base that is far, far narrower (many exemptions) than the single-
rate/no exemptions FairTax. This is the equivalent of asking a contractor to estimate the painting
of the White House. But rather than doing so, they build the Winchester Mystery House, and
estimate painting that.

The Treasury also quite arbitrarily assumed a rate of tax evasion of twice the current
system (30 percent compared to todays 16 percent). This clearly fallacious assumption entirely
ignores the following facts:
Virtually any sales tax would reduce the number of points of collection (and
enforcement) dramatically; the FairTax reduces them by about 80 percent.
Virtually any sales tax would concentrate the lions share of