Family Consumption Allowance
When you speak of the impact of taxes you tend to talk about whether they are progressive or regressive. Progressive taxes tend to tax the rich more than the poor, regressive taxes tend to tax the poor more than the rich. Sales taxes are usually seen as regressive because the poor must spend a greater percentage of their income on necessities than the rich, and thus have a greater portion of their income subject to taxation. In the past state governments have tried to overcome the regressivity of sales taxes by exempting necessities (like food). This inevidibly has led to market distortions and political manuevering for businesses to get their goods in a 'necessity' category. The FairTax takes a different approach to eliminating the regressivity of a sales tax.
The FairTax introduces a Family Consumption Allowance (FCA). The FCA is a check sent each month to each household registering to receive it (registration is voluntary) to reimburse the amount of sales taxes paid if that household spent up to the poverty level as specified by the department of Health and Human Services. This is how the FairTax 'exempts' necessities. It presumes that every household must spend up to the poverty line in order to purchase necessities and then refunds that portion of tax. The FCA would be administered by the Social Security Administration, which is quite proficient at sending out monthly checks. Complete details on the FCA can be found in the bill HR25 Chapter 3.
Below is a table showing how the FCA would work for household of various sizes:
|Family size||HHS annual poverty level||FairTax annual consumption allowance (single person)||Annual rebate (single person)||Monthly rebate (single person)||FairTax annual consumption allowance (married couple)||Annual rebate (married couple)||Monthly rebate (married couple)|