The FAIRtax Makes Buying a Home Much Easier
The income/payroll tax directly reduces the ability of Americans to purchase a home.
In contrast, the FAIRtax makes it easier. The FAIRtax replaces all federal taxes on production with a single, transparent retail sales tax on new consumption. Here is a chart that compares the two methods of taxation.
| Tax Type | Status Under Current Law | Status Under FairTax (H.R. 25) |
| Individual Income Tax | Progressive rates up to 37% | Repealed |
| Corporate Income Tax | Flat rate of 21% | Repealed |
| Payroll Taxes (FICA) | 15.3% (split between employer/employee) | Repealed |
| Capital Gains Tax | Rates up to 20% + 3.8% NIIT | Repealed |
| Estate and Gift Taxes | Rates up to 40% | Repealed |
| National Sales Tax | None | 23% (Tax-Inclusive Rate) |
The FAIRtax is designed to be revenue-neutral, meaning the federal government will collect the same aggregate revenue as under the current code, but through a mechanism that taxes what is taken out of the economy (consumption) rather than what is contributed to it (work, savings, and investment).
The Effect of Accelerated Down Payment Accumulation
The primary constraint for the prospective homebuyer in the current economic environment is having to save a standard 20 percent down payment while facing high rents and stagnant real wages.
Under the present system, a worker’s ability to save is significantly hindered by the combined impact of the employee’s share of FICA (7.65 percent) and an average effective income tax rate (often 10-15 percent). The result is that approximately 20-25 percent of every dollar earned is lost before it can even be considered for savings. That means that a worker must earn 20-25 percent more than he needs in order to net what he needs for that down payment.
Under the FairTax, workers receive 100 percent of their gross paycheck. You can save a lot faster when you bring home every penny you earn instead of having 20-25 cents of every dollar you earn taken away before you even see it.
Under the income/payroll tax system, the returns on those savings—interest, dividends, and capital gains—are subject to annual taxation, which significantly hinders the power of compounding.
Because the FairTax only applies to new retail consumption, funds placed in a savings account or investment vehicle grow tax-free. The following table shows the increase in take-home pay.
| Household Income Level | Current Net Take-Home (Est.) | FairTax Net Take-Home | Percentage Increase |
| $30,000 | $24,500 | $30,000 | 22.4% |
| $50,000 | $39,000 | $50,000 | 28.2% |
| $75,000 | $57,000 | $75,000 | 31.6% |
| $100,000 | $74,000 | $100,000 | 35.1% |
For a household needing a $30,000 down payment, the ability to save from a $75,000 gross salary rather than a $57,000 net salary (after FICA and federal withholding) drastically reduces the time needed to accumulate the needed funds. The FairTax essentially allows first-time buyers to "pre-fund" their housing equity using dollars that have never been touched by the federal government.
The Removal of Embedded Taxes in the Construction Supply Chain
The income/payroll tax code drastically increases the price of new homes. Every component of a new home—from the raw timber and structural steel to the architectural services and the final vertical construction—is burdened by "embedded" taxes.
These hidden costs include:
- the corporate income taxes paid by material suppliers
- the employer's share of payroll taxes for construction crews
- and the massive compliance costs associated with navigating the Internal Revenue Code.
When a builder purchases lumber, the price of that lumber reflects the upstream tax liabilities of the timber producer and the mill operator. These businesses must recover their tax costs through higher prices, a phenomenon known as "tax pushing". Research suggests that these embedded costs can represent between 15 and 25 percent of the retail price of new goods.
The FAIRtax removes these costs by untaxing all business-to-business transactions and eliminating the corporate and payroll taxes that currently drive up the cost of production.
While the FAIRtax would be applied to the final sale of a new home, the base price to which the tax is applied would be significantly lower due to the removal of these embedded distortions.
For example, if a new home currently retailing for $400,000 contains $80,000 in embedded taxes and compliance costs, the removal of those costs brings the producer's price down to $320,000. Applying a 23 percent tax-inclusive (30 percent tax-exclusive) FAIRtax to this lower base results in a final consumer price that is competitive with, or even lower than, the original price—but with the added advantage that the buyer is paying with gross, untaxed dollars.
| Construction Cost Component | Status Quo Mechanism | FairTax Mechanism |
| Raw Material Acquisition | Corporate tax on supplier built-in | Tax-free transaction |
| Labor and Management | 7.65% Employer FICA + Admin costs | 0% Federal tax on labor cost |
| Compliance and Legal | $400B+ annual national cost | 90% reduction in complexity |
| Final Retail Price | Includes hidden "tax wedge" | Transparent 23% inclusive rate |
The transparency of this system ensures that the true cost of funding the federal government is visible at the point of sale, rather than hidden within the price of the home's framing and foundation. This transparency creates a downward pressure on government spending, which will further stabilize the long-term cost of living and property ownership.
The Used Home Market
A critical distinction within the FairTax framework is the treatment of "previously taxed property."
The FAIRtax only applies to the first retail sale of a new product or service. Consequently, the sale of an existing or "used" home—which constitutes 85 percent of transactions for homebuyers—is entirely exempt from the FairTax.
This creates a massive economic incentive for entry-level homeownership. Under the current system, a buyer of an existing home must pay for that property using after-tax earnings. This means that for every $1000 of the mortgage payment for principal the buyer must earn at least $1,125 to net $1000.
Under the FairTax, the buyer receives 100% of their earnings to purchase a property.
This "double benefit" (untaxed income plus untaxed property) dramatically lowers the threshold for homeownership.
Interest Rates and the Cost of Debt Service
The affordability of homeownership is directly linked to the cost of mortgage financing. The FairTax is projected to have a profound deflationary effect on market interest rates. Under the current income tax regime, lenders (banks, credit unions, and private investors) must charge an interest rate that provides a target risk-adjusted return after the payment of federal taxes on the interest income they receive.
By eliminating the tax on interest income, the FairTax removes the "tax wedge" that inflates lending rates. Economic studies from Rice University and Boston University suggest that long-term interest rates would likely drop by approximately 25 to 33 percent following the enactment of a consumption-based tax system.
If the prevailing market rate for a 30-year fixed mortgage is 7 percent, a 30 percent reduction would bring the nominal rate down to 4.9 percent.
Furthermore, the FairTax effectively treats mortgage interest as being paid with "pre-tax" dollars for every American. In the existing system, the Mortgage Interest Deduction (MID) is only available to the roughly 10 percent of taxpayers who itemize their deductions, and its value is limited to a reduction in income tax. It does not provide relief from payroll taxes, and most Americans pay more in payroll taxes than they do in income taxes.
Under the FairTax, because workers receive 100 percent of their gross pay and interest is untaxed to the lender, the entire mortgage payment is facilitated by the full value of the worker's labor. This provides the equivalent of a "supercharged" MID that is available to everyone, including low-income workers and non-itemizers.
| Mortgage Principal | Interest Rate (Current) | Interest Rate (FairTax -30%) | Monthly Savings |
| $250,000 | 7.0% ($1,663/mo) | 4.9% ($1,327/mo) | $336 |
| $350,000 | 7.0% ($2,329/mo) | 4.9% ($1,858/mo) | $471 |
| $500,000 | 7.0% ($3,327/mo) | 4.9% ($2,654/mo) | $673 |
CONCLUSION
In addition, under the FAIRtax, the roughly $11 trillion held in IRAs and 401(k) plans, currently subject to income tax when withdrawn, would become tax-free upon withdrawal.
This would provide a massive, immediate windfall to millions of Americans, many of whom could use those funds as a down payment for a home without the income tax payment associated with current early withdrawals.
THE FAIRTAX IS THE ANSWER.
The FAIRtax is a national retail sales tax on new retail goods and retail services which provides a family credit so that all purchases up to the poverty level for each family are not taxed. There is no withholding from your paycheck, and YOU NEVER HAVE TO FILE A TAX RETURN TELLING THE GOVERNMENT HOW MUCH YOU EARNED AND HOW MUCH YOU SPENT, AND YOU’LL NEVER BE HARASSED BY THE IRS EVER AGAIN.
Many of you have labored tirelessly for freedom from the federal income tax and the IRS. You deserve a great deal of credit for your efforts to educate the American people on the need to fund the American government in a way that is good for America and returns freedom to the American people.
It is imperative, though, that we don’t replace the current income tax and the IRS with an alternative system that can still be manipulated by the Ruling Elite. We must let Congress and the President know that the best way to replace the income tax and the IRS is with the FAIRtax.
Make no mistake about it. The FAIRtax is a grave threat to the Ruling Elites. It will strip them of their power and their ability to control us though the tax system. Their opposition to the FAIRtax will be fierce and unrelenting. And don’t think for an instant that they won’t use half-truths, deception and downright lies in their desperate attempt to hang on to their power.
However, with the support of this President, we can finally eliminate the income tax and the IRS!!!
Of course, the best course of action is to not only repeal the income tax and abolish the IRS but to repeal the 16th Amendment as well so no future administration can ever shackle the American people with an income tax again.
We must come together and ensure that real tax reform, the FAIRtax, is not subverted by the Elites in D.C.
This will take the diligent efforts of all of us. We need your financial assistance, and we need your grass roots assistance.
If you have contacts that will allow us to get more information to President Trump about the FAIRtax please let us know.
Please email us at info@fairtax.org and we will give you some options on how you can best help us.
At a minimum, please call your Congressional representative and ask if he or she supports the FAIRtax. If so, thank him/her for their support and suggest they become a cosponsor of HR-25 if they’re not one already. If not, ask why not. If your representative claims to be unfamiliar with the FAIRtax, offer to have someone come to their office and explain it to them.
Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.
THE SOLUTION—PASS THE FAIRTAX!
Why would D.C. pass the FAIRtax and give up this almost unlimited source of donations? The only way that they will is if the rest of us demand it!
Isn’t it time to end this ludicrous tax collection system and the IRS?
HELP BRING ABOUT REAL TAX REFORM AND STOP FUTURE IRS ABUSES
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Please go to this link to invest in AFFT and help us pass the FAIRtax. It’s an investment in your and your family’s future.