Distribution of the FairTax burden

The proposal also calls for a monthly payment to households of citizens and legal resident aliens (based on family size) as an advance rebate of tax on purchases up to the poverty level.

[5] The FairTax legislation would apply a 23% federal retail sales tax on the total transaction value of new retail goods and services purchases; in other words, consumers pay to the government 23 cents of every dollar spent (sometimes called tax-inclusive — as income taxes are calculated).

[5] The rebate would be paid in twelve monthly installments equal to 23% of poverty level spending for each household size and is meant to eliminate the taxation of necessities and make the plan progressive.

[8] Laurence Kotlikoff, Boston University economist, stated that Bartlett's assessment was flawed psychology or political science, and not based on economics or perceptions under the current tax system.

[11] The report states, "Families with the top 10 percent of cash incomes would benefit substantially from the retail sales tax.

A typical married couple at the bottom 25th percentile of the income distribution earns $39,300 per year and would pay $5,625 in federal taxes in 2006.

[15] The Beacon Hill Institute and Laurence Kotlikoff, have criticized the President's Advisory Panel's study as having altered the terms of the FairTax and using unsound methodology.

[13][16] The Treasury Department has refused to make public for peer-review detailed figures and scoring methodology used in their analysis.

[18] Proponents argue that if the rate appears too high, it brings to light the true cost of the federal government and the hidden taxes Congress has imposed on the American taxpayer.

He claims that such a system would allow a lower tax rate on consumption, while maintaining current levels of taxation on high-net-worth individuals.

"[23] Further, research by Arduin, Laffer & Moore Econometrics shows that consumption would increase by 2.4% in the first year of the FairTax.

Classical economic analysis indicates that the marginal propensity to consume (MPC) decreases as income increases.

These facts explain the apparent contradiction in the data; households at the extreme high end of consumption often finance their purchases out of savings, not income.

Laurence Kotlikoff stated that the FairTax could make the tax system much more progressive and generationally equitable.