The Tax Base under the Current System

One of the important things to understand when comparing the FairTax to the current system, is how narrow the tax base for the current system is. The 'Tax Base' is the money over which we apply taxes. When your tax base is a small percentage of your GDP, that means that very little of the money in your economy is being taxed at all.

The IRS provides us with a good summary of the tax base for personal income and corporate income taxes for 2003 (the most recent year for which the data is available).

The Social Security administration provides us with data about the social security and medicare tax base in 2002 (the most recent data currently available). Since 2002 Social Insurance revenues according to the CBO where $700.8 billion, which makes the $713 billion revenues for Social Insurance about 1.7% higher, and since the Social Insurance revenue is almost entirely Social Security and Medicare payroll tax, and since the Social Security and Medicare tax rates have not shifted, I will scale up their 2002 numbers by 1.7% for a 2003 estimate.

Tax Base 2003 (billions of dollars)

Source	Taxable Income
Personal	$4,200
Corporate	$261.4
FICA	$4271.4
Medicare	$5186.7

So to put it simply, the tax base for our current system is around $4.5 trillion dollars ($4.2 trillion personal income and FICA + $0.261 trillion corporate net income).

By way of comparison the US GDP in 2003 was $10,971.2 billion. So the tax base in our economy is relatively narrow. $4.5 trillion is only about 41% of our GDP. So about 41% of our GDP is currently subject to taxation by federal income, corporate income, and payroll taxes.