If Your State Kills the Income Tax, It Needs the FairTax Prebate
A wave is sweeping American statehouses. Mississippi and Oklahoma are actively phasing out their state income taxes entirely, and at least six states — Arizona, Georgia, Idaho, Iowa, Louisiana, and Mississippi — have already converted to flat taxes, widely seen as a transitional step toward full elimination.
The political appeal is real: keep more of what you earn, attract businesses, compete with Florida, Tennessee and Texas. But there is a serious problem hiding inside this populist promise — and a proven solution that most state legislators haven’t considered.
The Regressive Trap
When a state eliminates its income tax without replacing it thoughtfully, it almost always leans harder on sales taxes to fill the gap. Louisiana did exactly this in 2025, cutting its income tax to a flat 3% while simultaneously raising its state sales tax to 5%. The math works for the state budget. It does not work as well for working families.
The reason is straightforward. A family earning $40,000 spends nearly all of it on goods and services, so a large fraction of their income flows through the sales tax. A family earning $400,000 saves and invests much of it — effectively sheltering that money from a consumption tax.
The result is that lower-income households pay a far higher effective tax rate than wealthier ones, even when everyone pays the same rate at the register.
Alabama is another example. To reduce income taxes on wage earners, overtime is exempt up to a maximum annual amount of $1,000 per taxpayer for tax years 2026 through 2028. A temporary sales tax elimination on groceries is in effect from May 1 through June 30, 2026. The legislature will also expand filing and withholding thresholds for non-resident employees. These changes reportedly reflect Alabama's efforts to provide financial relief and modernize its tax system, benefiting both residents and the economy.
Every year, the Alabama legislature searches for these types of changes to offer relief from income taxes. At Alabama FAIRtax, this activity is called “tinkering here, tinkering there,” which means the legislature will always have reason to make the tax system more equitable for taxpayers.
Alabama FAIRtax has a proposal to replace the income and sales tax system with a single rate consumption tax modeled after the FAIRtax. Like the FAIRtax, retailers accumulate the tax only on new goods and services purchased for personal use. It also employes a prebate. Passage of this bill with no income tax and a prebate opens the doors to family solvency, and economic and job growth never seen in the state.
For instance, a couple with two children will be eligible for a monthly check of $235 to cover the taxes they will pay at the register when buying their basic necessities. Under the plan, spending up the poverty level for each household size is not taxable. For a couple with two children, the Department of Health and Human Services has determined that their poverty level is $43,280 per year. This results in a state prebate of $2,823 per year, or $235.25 per month.
By enacting the Alabama Economic Freedom Act, the legislators could use their time for more important bills and end this yearly tinkering with taxes.
The FairTax Prebate: A Built-In Fix That Makes the FAIRtax Progressive
The federal FairTax proposal — first introduced in Congress in 1999 — solved this problem elegantly with the prebate. Every registered household receives a monthly cash payment equal to the sales tax applied to spending up to the federal poverty level. The payment arrives at the beginning of the month, before any purchases are made. It is not monitored, not means-tested, and not reported as income.
The effect is powerful. A family of four living at the poverty level pays zero net sales tax on new retail goods and services. A family spending at twice the poverty level on new goods and services will have half of their tax bill covered by the prebate resulting in them paying an effective rate of roughly half the stated sales tax rate.
The more you spend above the poverty threshold, the closer your effective rate approaches the nominal rate — making the system genuinely progressive, even with a flat rate at the register.
What States Should Do
The model is straightforward to adopt at the state level. A state eliminating its income tax could enact a companion law that:
- Sets a state sales tax rate sufficient to replace lost income tax revenue
- Defines the prebate as the state sales tax rate multiplied by the poverty-level spending for each household size (using federal HHS poverty guidelines, updated annually)
- Distributes the prebate monthly via direct deposit or prepaid debit card to all registered households
This approach delivers a genuine tax cut to working families rather than a hidden tax increase. It broadens the tax base — tourists, undocumented workers, and the underground economy all pay when they buy — while ensuring that no legal resident household pays net sales tax on basic necessities like food, clothing, and medicine.
CONCLUSION
Eliminating a state income tax is a legitimate policy goal. But doing it without a prebate simply shifts the burden from earners to consumers — and lower-income households are overwhelmingly consumers. States that want to be genuinely pro-family, not just pro-business, should adopt a FairTax-style prebate alongside any move to a consumption-based revenue model. Otherwise, the populist promise of "keeping your whole paycheck" rings hollow for the families who need relief the most.
People are upset with our present income/payroll tax system because it benefits only a small percentage of the population—the very wealthy and Members of Congress who fund their re-election campaigns by selling favorable tax treatment to the highest bidder.
For the rest of us, it’s an expensive, intrusive, incomprehensible mess that none of us fully understands.
THE FAIRTAX IS THE ANSWER.
The FAIRtax Act (H.R. 25) is more than just a proposal for a retail sales tax; it is a fundamental restructuring of the federal fiscal structure. Unlike other excise taxes which normally are applied to specific products and in different percentage amounts, the FAIRtax applies a 23% rate to all new retail products and retail services.
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.